The reason most entrepreneurs and CEOs fail or fold is the same reason they went into business in the first place. In fact, the answer to why most entrepreneurs and small businesses fail or fold is that they start with what they love or what they are very good at BUT they never build a solid business foundation to grow the business.
They unknowingly set themselves up for failure.
It’s the reason why the overwhelming majority of entrepreneurs (more than 90%) fail to achieve their dreams. They wind up failing, even if they have a great idea, buy lots of good products, tools and training, and read all the books in their field of expertise.
All this applied effort is essential, but working very very hard is not enough. And it’s not good enough.
I take it personally when I see so many businesses fail and fold when I know it doesn’t have to be that way.
- I cannot sit by and watch so many businesses and hard-working smart entrepreneurs make critical mistakes in building the business of their dreams to achieve financial freedom. Especially in this wacky economy.
- I can’t keep quiet when the majority of entrepreneurs and CEOs have invested their time, energy, and irreplaceable net worth into the business to build an income plan, only to realize that it will never produce a wealth plan.
- I am sickened that more than 90% of all entrepreneurs and business owners do not have an exit strategy. They blithely accept the inherent risks of not planning for the future by justifying that they are consumed with the present.
That’s why I write this blog, why I wrote my book, HARVEST Your Wealth, host my radio show, Exit This Way. I want to reach as many business owners as possible with a clarion call – that it does not have to be that way. And if you use these tools and resources, they can make a dramatic difference in the outcome for your business and your future.
Warren Buffett famously invests in businesses that have what he calls a protective “moat” around them – one that inoculates them from competition and allows them to control their pricing.
Big companies lock out their competitors by out-slugging them in capital infrastructure investments, but smaller businesses have to be smarter about how they defend their turf. Here are four ways to deepen and widen the protective moat around your business:
Is there a certification program that you could take to differentiate your business? A Canadian company that disposes of radioactive waste decided to get licensed by the Canadian Nuclear Safety Commission. It was a lot of paperwork and training, but the certification process acts as a barrier against other people jumping into the market and competing.
Is there a certification you could get that would make it more difficult for others to compete with you?
Create an Army of Defenders
Ecstatic customers act as defenders against other competitors entering your market, a factor that has enabled companies like Trader Joe’s to defend their market share in the bourgeois bohemian (bobo) market, despite a crowded market of stores hawking groceries
Get Your Customers to Integrate
Is there a way you can get your customers to integrate your product or service into their operations?
The basic switching costs of Customer Relationship Management (CRM) software are virtually nil. Everyone from 37signals to Salesforce.com will give you a free trial to test their wares.
The real expenses associated with changing CRM software only come when a business starts to customize the software and integrate it into the way they work. Once a sales manager has trained his salespeople in creating a weekly sales funnel in a CRM platform, try to convince him to switch software.
Can you offer your customers training in how to use what you sell to make your company stickier?
Become a Verb
Think back to the last time you looked for a recipe. You probably “googled” it. Part of Google’s competitive shield is that the company name has become a verb. Now every time someone refers to searching for something online, it reinforces the competitive position of a single company.
Is there a way you could control the vocabulary people use to refer to your category or specialty?
Widening your protective moat triggers a virtuous cycle: differentiation leads to having control over your pricing, which allows for healthier margins, which in turn lead to greater profitability and the cash to further differentiate your offering.
If you’re wondering how differentiated your businesses is, take the 13-minute Sellability Score questionnaire and find out….
Irrefutable statistical evidence confirms that business owners are not prepared for the current market window to sell a business 2013 – 2018.
To take advantage of this sellers window, business owners need to get started formalizing a strong business foundation (e.g., strategic planning, contingency planning, succession planning, transition planning) at the same time as they balance accelerating growth and optimizing value in the business itself.
The research to date suggests that most business owners do not believe this strategic effort is important for them, their company, their team or their family’s future. Just to recap:
- In a 2008 research report entitled Business Transition/ Succession, research by ROCG Americas LLC confirmed that CEOs lack urgency because of the belief that “we can always do it tomorrow – a general feeling of invulnerability.” Survey participants’ No. 1 excuse for not having a written plan is still the same in 2013.
- In the Canadian Federation of Independent Business (CFIB) survey in 2005, “the No. 1 reason given for not having a written plan was that it was too early to plan. This reply was head and shoulders above every other reason given.” Yet, this feeling is contradicted by the facts which show that time is not necessarily on the side of the selling owner.
- Findings by the Mutual Survey of American Family Business in 2007 confirmed the statistical lethargy: “Almost a third have no plans to retire, ever; and another third report that retirement is more than 11 years away. Since the medium age of the current leaders is 51, this means that many people plan to die in office.”
- PricewaterhouseCoopers states in its 2007 report on Canadian businesses succession plans that owners over age 50 “seem unwilling to seriously look into options to transition ownership before they are forced, by age or illness, to give up the business.”
- A full 34% of the CEOs over age 60 in the ROCG 2008 study felt that it was still too early for them to plan their exit!
This “feet first” plan of going out with their boots on (providing no liquidity event, no succession planning, and no future for employees when they close the business) is prevalent. Not planning for the inevitable is equally absurd and irresponsible. And yet this is what 95% of all business owners do.
They are murdering their business. And it is totally preventable.
Change does not come easy or fast. To truly maximize the value of your business and walk away with the highest returns, you need to commit to a 2-5 year timeline that gives you the leverage you can’t get after a trigger event (health, family requirement, corporate or market changes, etc) precipitates your exit.
It’s never too early or too late to plan your exit. Our team at This Way Out Group LLC will take away the fear and frustration and facilitate the exit process and timeline with you.
“One of the first success lessons I learned as a teenager is that the majority is usually WRONG! In his “Lead the Field” Program, Earl Nightingale said ‘if you want be successful and don’t have a good model to follow, then take a look at what everyone else is doing and do the opposite’…because the majority is usually WRONG!” ~ Dan Kennedy
That’s the way I feel about goal-setting experts too. Their solution starts and ends with the goals themselves. They inspire and motivate. They offer insights on passion, vision, purpose and desire.
But that’s where they leave you – hanging. They don’t take you to the promised land of goal achievement for growth, prosperity and your ideal exit.
They may acknowledge and encourage the notion that implementation is the key. However, you are left to your own devices (strengths and weaknesses) to:
- figure out how on your own
- find the time to implement
- actually take action to see results
- inspire and lead your team to believe in the goal
- stay focused, accountable and on track
- pursue and achieve the goal of your transition to reinvention
That’s a tall order for any CEO business owner whose focus is on producing and selling a product or service.
I want you to have a sustainable, scalable, saleable business that produces more profits and more free time to achieve your dreams by working yourself out of day-to-day responsibilities. I want you to stop murdering your business like more than 95% of all CEOs and business owners.
We can help. If you know anyone who has questions relating to exiting their business, please forward my contact information to them. I’d be happy to assist in whatever way I can.
Why would two companies in the same industry, with the same financial
performance, command vastly different valuations? The answer often comes down to how much each business is likely to grow in the future.
The problem is that a lot of successful businesses reach a point where their growth starts to slow as the company matures. In fact, the price of doing a great job carving out a unique niche is that the specialty that made you successful can start to hold you back.
If you make the world’s greatest $5,000 wine fridge, you may have a successful, profitable business until you run out of people willing to spend $5,000 to keep their wine cool.
Demonstrating how your business is likely to grow in the future is one of the keys to driving a premium price for your company when it comes time to sell. To brainstorm how to grow beyond the niche that got you started, consider the Ansoff Matrix. It was first published in the Harvard Business Review in 1957 but remains a helpful framework for business owners today.
Sometimes called the Product/Market Expansion Grid, the Ansoff Matrix shows four ways that businesses can grow, and it can help you think through the risks associated with each option.
Imagine a square divided into four quadrants representing your four growth choices, which include selling
- existing products to existing customers,
- new products to existing customers,
- existing products to new markets, and
- new products to new markets.
The choices above are presented from least to most risky. In a smaller business, with few dollars to gamble, focusing your attention on the first two options will give you the lowest risk options for growth.
Existing products to existing customers
It’s natural to feel like you’re being greedy when you go back to the same customers for more of their dollars, but the opposite can often be true. Your best customers are usually the ones who know and like you the most and are often pleased to find out that you – someone they trust – are offering something they need.
Greg is a hardware store owner who came to understand the Ansoff Matrix. Greg earns a 150% mark up on cutting keys but his cutter was hidden in a corner of the store where nobody could see it. As a result, he didn’t cut many keys. One day, Greg decided to move the key cutter and position it directly behind the cash register so everyone paying for his or her hardware could see the machine. Customers started seeing the cutter and realized – often to their pleasant surprise – that Greg cut keys.
Not surprisingly, Greg started selling a lot more keys to his loyal customers. The key cutter didn’t woo many new customers, but it did increase his overall revenue per customer.
If you want to sell more of your existing products to your existing customers, draw up a simple chart of your products and services. Don’t be afraid to dust off those old products that you haven’t paid much attention to lately. List your best customers’ names down one side of the paper and your products across the top. Then cross-reference your customer list with your product list to identify opportunities to sell your best customers more of your existing products.
New Products to Existing Customers
Another approach to growth is to sell new products to existing customers. For example, there is a BMW dealership owner in the Midwest whose typical customer is a family patriarch in his forties. When he felt like he had saturated the market for well-heeled forty-something men in his trading area, he thought about what other
products he could sell his existing customers. But instead of defining his customer as the forty-something man, he decided to think of his customer as the financially successful family and his market as their driveway.
Instead of trying to sell more BMWs into a market of diminishing returns, he bought a Chrysler dealership so he could sell minivans to the spouses of his BMW buyers. He then realized that a lot of his customers had kids in their teens so he bought a Kia dealership to sell the family a third, inexpensive car.
Once you become successful, it can be tempting to sit back and enjoy your success. But in order to drive up the value of your business, you need to be able to demonstrate how you can grow, and the least risky strategy will be to figure out what else you could sell to your existing customers.
Virtual Partner – Exit Strategist
When you are ready to ask for exit planning help – how to get out, where do you turn for help? You need to know if they are dedicated exit strategists or is their primary business in a related field or expertise? Here are five questions to ask potential advisors to determine if they will focus on your best interests.
1. What is your specialty? What is your core business?
You want an exit strategist whose focus is exclusively on your optimal exit, who is not distracted by other disciplines.
2. How will you charge me for exit planning services pre and post transaction?
You want to know you are being charged for exit planning expertise and exit planning time, not attorney time to do exit planning. You need an exit strategist on board, engaged in your situation years before you need your attorneys, accountants, and wealth and insurance advisors.
3. How engaged will you be in my operational implementation and transition up to the transaction?
Leading up to the transaction, licensed advisors will be focused on the expertise they bring to the table. Their availability will be limited to help you with operational decisions and issues leading up to the transaction. After the transaction, you will need your exit strategist engaged to ensure your total integration into your reinvention lifestyle, but after the transaction, licensed expert advisors will move on to the next transaction. How much will they/can they be there for you?
You want an exit strategist who will be fully engaged in operational implementation, growth and optimization strategies, and your own transformation from operational president/owner to the strategic CEO of a stronger more profitable enterprise, not just the 6-month end game.
4. Will you help me assess exit options and timing/tax/liquidity impact of each?
You need an exit strategist to help facilitate discussions with all your exit advisors to integrate their recommendations and tradeoffs for each exit option you are considering. Any of your transaction experts who stay focused in their own silo of expertise cannot provide the wider perspective you need to make the best decisions.
5. What will you do to assist me in determining my reinvention plan and my goals and lifestyle beyond the business exit?
All the licensed transaction experts you engage for their expertise can ask you all the right questions, but they expect you to prepare and deliver the answers on your own. You need an exit strategist who will assist you in developing your reinvention plan and lifestyle beyond the exit, test it, refine it and lay out a blueprint to implement it from Day 1 of your reinvention.
Whether you engage the Exit This Way Out Group as your virtual partner or not, you need to use the materials, checklists, tables and guidelines provided here on the site and in our home-study course to make your business a wealth producing machine that will provide the financial independence you dream of to fund your reinvention.
Titles are important to understand the specialties, experience, and expertise advisors bring to your exit team. For exit planning, the attorneys, accountants, valuation experts, growth experts, wealth advisors on your team must be specialists in helping you cash out to achieve your goals, your dreams.
You can hire coaches to ask good questions and keep you accountable for the work to be done to plan and execute on your exit strategy.
You can hire consultants who can do many things for you: market research, competitive research, improve your sales results or reduce expenses to increase your profit margins.
It is essential to surround yourself with a team of experts who can collaborate (not compete with each other) to fulfill your goals and objectives on your terms, on your timeline.
That’s where I come in as a strategist. Sure, I bring coaching and consulting to the table, but my function extends much farther into your exit team, your organization and your reinvention.
I’m a specialist in engineering how you get the wealth out of your business. I’m an expert on preparing you, your company and your team for your exit to achieve your dreams. I’ve been hired by corporate leaders, fast-track entrepreneurs, royalty, family businesses, and multi-millionaires, among others.
You need your CFO, M&A attorney, tax attorney, insurance broker, wealth advisor, business broker/M&A/Investment Banker. You need all of them to get the deal that best serves all your goals for the team, your company and your future reinvention. They are transaction driven and work for closure. That’s their primary focus.
In contrast, my role as an exit strategist is to prepare you the owner, your business and your team for the transaction and transition in the years leading up to that milestone event, and developing your reinvention plan so it unfolds just as smoothly after the transaction event itself.
Titles aren’t everything. The licensed experts on your exit team don’t get paid to help you maximize the value of your business before the transaction. They don’t get into the business fundamentals, the growth strategies, cleaning up the financials, contingency planning, protecting IP, employee contracts to tie the team to the company beyond your departure, succession planning, protecting and preserving your wealth goals, minimizing both your tax concerns and the company’s tax impact.
They are your trusted advisors. They will advise you to do all of the above. And for a fee, they’ll work with you on these things outside their experience and expertise. But it’s not their bailiwick. The data proves that this approach is failing you, the CEO. Only a dismal 10% of all sellers (business owner/CEOs like you) EVER close the deal, and complete the transaction in this model.
It takes 2-5 years to prepare you, your team and your business to transition to what’s next, profitably. That’s why This Way Out Group exists. This is the support, integration, and facilitation that an exit strategist from This Way Out Group provides.
If you have any questions relating to exiting your business, please email me. I’d be happy to assist in whatever way I can.
If you were to draw a picture that visually represents your role in your business, what would it look like? Are you at the top of a traditional Christmas-tree-like organizational chart, or are you stuck in the middle of your business, like a hub in a bicycle wheel?
As anyone who has tried to fly United when O’Hare has been hit by a snowstorm knows, a hub-and-spoke model is only as strong as the hub. The moment the hub is overwhelmed, the entire system fails. Acquirers generally avoid hub-and-spoke managed businesses because they understand the dangers of buying a company too dependent on the owner. Here’s a list of nine warning signs you’re a hub-and-spoke owner and some suggestions for pulling yourself out of the middle of your business:
1. You sign all of the checks
Most business owners sign the checks, but what happens if you’re away for a couple of days and an important supplier needs to be paid? Consider giving an employee signing authority for checks up to an amount you’re comfortable with, and then change the mailing address on your bank statements so they are mailed to your home (not the office). That way, you can review all signed checks and make sure the privilege isn’t being abused.
2. Your mobile phone bill is over $200 a month
If your employees are out of their depth a lot, it will show up in your mobile phone bill because staff will be calling you to coach them through problems. Ask yourself if you’re hiring too many junior employees. Sometimes people with a couple of years of industry experience will be a lot more self-sufficient and only slightly more expensive than the greenhorns. Also consider getting a virtual assistant (VA), who can act as a first line of defense in protecting your time. You can find a VA by filling out the request for proposal at http://www.ivaa.org/ or http://www.supremeoutsourcing.com
3. Your revenue is flat when compared to last year’s
Flat revenue from one year to the next can be a sign you are a hub in a hub-and-spoke model. Like forcing water through a hose, you have only so much capacity. No matter how efficient you are, every business dependent on its owner reaches capacity at some point. Consider narrowing your product and service line by eliminating technically complex offers that require your personal involvement, and instead focus on selling fewer things to more people.
4. Your vacations suck
If you spend your vacations dispatching orders from your mobile, it’s time to cut the tether. Start by taking one day off and seeing how your company does without you. Build systems for failure points. Work up to a point where you can take a few weeks off without affecting your business.
5. You spend more time negotiating than a union boss
If you find yourself constantly having to get involved in approving discount requests from your customers, you are a hub. Consider giving front-line, customer-facing employees a band within which they have your approval to negotiate. You may also want to tie salespeople’s bonuses to gross margin for sales they generate so you’re rewarding their contribution to profit, not just chasing skinny margin deals.
6. You close up every night
If you’re the only one who knows the close-up routine in your business (count the cash, lock the doors, set the alarm), then you are very much a hub. Write an employee manual of basic procedures (close-up routine, e-mail footer to use, voice mail protocol) for your business and give it to new employees on their first day on the job.
7. You know all of your customers by first name
It’s good to have the pulse of your market, but knowing every single customer by first name can be a sign that you’re relying too heavily on your personal relationships being the glue that holds your business together. Consider replacing yourself as a rain maker by hiring a sales team, and as inefficient as it seems, have a trusted employee shadow you when you meet customers so over time your customers get used to dealing with someone else.
8. You get the tickets
Suppliers’ wooing you by sending you free tickets to sports events can be a sign that they see you as the key decision maker in your business for their offering. If you are the key contact for any of your suppliers, you will find yourself in the hub of your business when it comes time to negotiate terms. Consider appointing one of your trusted employees as the key contact for a major supplier and give that employee spending authority up to a limit you’re comfortable with.
9. You get cc’d on more than five e-mails a day
Employees, customers and suppliers constantly cc’ing you on e-mails can be a sign that they are looking for your tacit approval or that you have not made clear when you want to be involved in their work. Start by asking your employees to stop using the cc line in an e-mail; ask them to add you to the “to” line if you really must be made aware of something – and only if they need a specific action from you.
How many of these warning signs apply to you/your business? For the business to grow, it can’t revolve around you. Pick one of these warning signs and move to fix it today.
Here’s another review for HARVEST Your Wealth
“Kerri Salls’ new book, Harvest Your Wealth, is a clarion call for owners of small and medium sized privately held businesses. It might have been titled; “Don’t Leave Your Money on the Table When You Sell Your Business!” The author clearly knows her stuff. The book is chock full of lists: things to do, things to avoid, things to think about. Reading the book, I felt like I could have used a “List of the Lists” to help me navigate through the content, because there are so many useful lists of tips and techniques for the exit planner-I counted more than 75 different lists in the 235-page volume. The book has lots of very useful material, and I can imagine business owners dog-earring pages and writing lots of notes in the margins. I found the organizational design to be a bit vague, but that’s a trifling complaint when balanced against the wealth of valuable information that is made available to the reader.
If you are thinking about exiting your business, this is a book that you’ll want to add to your business library.”
Check it out.
Implement the tools and strategies from Harvest Your Wealth and you will live and sleep with peace.
Because you will control the destiny of your business AND your life. The wisdom and knowledge that Kerri Salls shares in this book is worth its weight in gold, literally. It is a must read for any serious entrepreneur.
David M. Corbin, Best Selling Author, Illuminate: Harnessing The Positive Power of Negative Thinking and Preventing Brand Slaughter, Faculty member CEO Space International.
Managing Director – The Performance Technology Group
President – Aesthetic Audio Systems, Inc.
Get Your Copy Now.