organizational growth

Why you need to be selling your company every day


Originally published on August 2, 2016 as a Guest Column in The Globe and Mail:

About a year ago, I was listening to a prominent accountant speak to a room full of business owners. His message was both clear and simple: “Each day you should run your business like you are in the process of trying to sell it.”

This simple message created many frowns and furrowed brows. Clearly, people in the audience wanted to respond, “But I’m not selling my business, and I don’t plan to any time soon.”

Not the point.

It doesn’t matter whether you’re thinking of selling your business. Some lucky owners get to simply pass it on to the next generation. But the real point is this: You need to think and act like you are selling your business, every day.

Why? Selling a business is an extended process, often a gruelling one. Compare it to selling a house. The first step is to “stage” the property. This means taking a hard look at your surroundings with fresh eyes, to help you recognize which furnishings and decorations add to your home’s ambience, and which are just clutter.

It’s a tough thing to do. For most people, everything in their home represents a memory or a milestone on the journey of raising a family. Prospective purchasers care nothing for memory or sentiment, seeing every unnecessary element as a flaw that diminishes the value of your home.

When you are selling a business, the process is little different. Prospective buyers go through your numbers, your assets and your records with the diligence of a home inspector. They will scrutinize your sales, margins, inventory, returns, client list, receivables and payables. They will dig through your sales history and your new product or service pipeline, looking for any irregularity, liability, trend or threat that could detract from the value they are paying for your company.

While some may see this as a tedious, time-wasting process, I see due diligence as a very positive exercise. It’s a way to identify issues before they become problems. In fact, this process shouldn’t just be limited to when you buy or sell a business. I believe that entrepreneurs should initiate a mock due-diligence process every year, preferably just before their company’s annual retreat or strategy sessions.

Think about it. Your goal as the owner or manager of a company is to increase its intrinsic value (how much the business would be worth if it were going to be sold). By rigorously and formally questioning all of your business’s habits, assumptions and processes, you’ll develop a culture that embraces change and continuous improvement – and increases the value of your business on an ongoing basis.

In my opinion, your company’s value is the single best measure of how well you are running and building your business. Value incorporates all key time horizons that buyers and evaluators employ when assessing a business – how you are running your business today, what you are doing to keep it relevant and meaningful to your customers in the short term, and how you establish and execute on your grand, long-term vision.

“When it comes time to sell their business, many business owners are surprised to receive a lower valuation than what they had expected,” notes Murad Bhimani, a Toronto-based partner with accounting firm MNP LLP. “That’s why we recommend to our clients that they should operate and build their business as though they could sell it any minute. This keeps you focused on what is critical every day, such as sound operations, diversity of customer base, building a strong management team, and proactive product development.”

If your kitchen’s ceiling is leaking, you wouldn’t wait for a home inspection to find the cause and fix it. Don’t wait to see whether your company is leaking opportunities and profits. Whether or not you’re planning to sell, take a good long look at all of your key performance indicators on a regular basis. Your bottom line (and your wallet) will thank you for it.

And some day your children may, too.

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What happened to the good old days of assets and profits driving valuation?

Originally published on October 2, 2015 as a Guest Column in The Globe and Mail:

It’s taken me a few months to get over my shock at the fact that a recent equity offering valued Airbnb at $25.5-billion (U.S.). That’s more than most hotel industry giants, such as Marriott International, Starwood Hotels & Resorts or Wyndham Hotels and Resorts, and, depending on the day, about the same as Hilton Worldwide.

I’ve been trying to find the words to describe this valuation, but the only one that comes to mind is “ridiculous.” Yes, I’m an innovation guy and a huge believer in the power of digital and the sharing economy. But, the finance guy in me cannot figure out a true rationale for ascribing such value to a seven-year-old company with few assets and growing annual losses.

What happened to the good old days of assets and profits driving valuation?

At its core, Airbnb is simply a technology-based booking system that matches renters and providers of short-term accommodations. This is a model that can be easily replicated.

I believe that one of the great hoteliers listed above should have already pioneered this niche. They all have different brands in their chains, serving different markets. One of them should have created the “lifestyle” or “experience” banner that does what Airbnb does – matching travellers with locally owned “rooms” that bring travellers closer to local people and culture.

All of these large hoteliers have the ability to book rooms online. They also have existing systems to review and monitor rooms, service, and customer satisfaction. Should one of them step into this space, I believe that Airbnb will quickly become a financial afterthought.

So how does this relate back to hard-working entrepreneurs like you and me, who are just trying to create some value for others and build a business that will fund our retirement?

In today’s unpredictable, trend-driven world, you have to ignore the hype and put caution first.

Entrepreneurs all dream of the big payday that comes when they sell their business to a motivated bidder. For some, that day will come. For most of us, however, the big cheque will remain just a dream. Most businesses haven’t been engineered to thrive, years from now, without their current owners. The doors simply close and the lights go out one last time.

Worse, many entrepreneurs simply aren’t financially ready for retirement. Their savings are light, because they’ve reinvested in their business in the hope of one day reaping a huge bonanza. So what happens next? The burden of retirement becomes shared by your whole family.

Sorry for the downbeat picture, but it’s one that I’ve seen repeated all too often. And it’s a storyline that’s exacerbated by what I see as the new investment algorithm: Hype > Revenue + Margin + Profit. All your work can be undone in a few months by focused disrupters or simple hype.

The good news is that there are at least two distinct ways to guard against retirement aftershock.

The first is to work hard to ensure that your company remains relevant. This may take more direct action than you’re used to. As Steve Denning reported in a Forbes article, “The average life expectancy of a Fortune 500 company has declined from around 75 years half a century ago to less than 15 years today, and heading towards five years if nothing is done.”

Whatever success you’ve enjoyed in the past, there is no more resting on your laurels. Stir up your team, re-engage with your customers, make things happen, create more value. And keep on pushing and prodding till the day you hand over the keys.

The second strategy is to think of your business as just another employer, and plan your finances accordingly. I have never believed in tying up all of my hard-earned capital in my business. Take some out, put it away and save for retirement (as the commercials tell us). What’s the worst thing that can happen? Significant savings and a big payday? I’ll get over it! Bottom-line: Global finance has a new valuation tool – hype. But it’s old-style asset-building that can help fuel your retirement.

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Why you can’t be all things to all customers


Originally published on October 14, 2014 as a Guest Column in The Globe and Mail:

When you first start your business, the ideal customer is simple – she’s anyone who walks through the proverbial door with money in their pocket. How do you decide what services to offer her? Usually, you’ll take on anything that sounds even remotely close to what you think that you can do.

This is what I might call the “yes, absolutely we can do that” phase. Of course, once the client is out the door, “yes absolutely” is quickly followed by, “who do we know that actually knows how to do what the customer is asking for?”

Saying yes to customer requests is a very exciting phase of building a business (or a new business division). And, frankly, that excitement should never completely go away.

Customer requests do two things: they identify market needs, and they push entrepreneurs to think about their next product or service offer.

As your company matures, you tend to realize that you can’t be all things to all people.

But that’s okay. As you figure out what it is you do best, there may even be some existing customers that you have to let go – and that’s okay, too. The key to sustained business success is to identify a substantial, pre-qualified group of customers who are willing to purchase your products or services at a profitable price-point.

Identifying your core clients – so that you speak their language, support their interests, and listen to their feedback – is the most important job in business. Here are three steps I like to suggest:

1. Generate a comprehensive list of both your current and the potential target customers that you have in mind.

2. Once you have that universal customer list, identify the target groups that you think have the highest potential. Study the wide range of attributes that you believe are important for a prospect to become a customer of your company. You need a cross-section of criteria that include demographics (characteristics such as business sector, title, age, gender), psychographics (psychological factors such attitudes, values, likes and dislikes) and geographic attributes (proximity to your business or its distribution network). To be clear, you must go deeper than simply describing where your customers live or how old they are. You need to work across all the ranking areas to create a useful customer profile. For example, simply specifying adults aged 18 to 49 who live in Washington D.C. is too broad. Create profiles of your various target groups based on what they like and don’t like, and on what they think, watch, eat, wear, visit, experience, and so on. Essentially, you need to think of your customers not as points on a graph, but as people.

3. Create a ranking system to measure the quality of the leads (potential customers) that you are trying to sell to. At my company, we use a tool we created called the Lead Quality Index™ (LQI). Essentially, it’s a grid. We list potential customers down the left-hand side and our ranking criteria across the top. We use categories such as corporate sector (e.g. retail, consumer goods, services), title (co-ordinator versus CEO), location (Toronto, rest of Ontario, rest of Canada, or beyond) and mindset (forward-thinking, pioneering versus market follower). The LQI is no guarantee of success, but it helps us think through and stay focused on our highest potential opportunities.

We only have so much time in a day. Staying focused on who we are selling to and what we can offer them is all-important in establishing long-term, mutually beneficial relationships.

The voice of the customer needs to be heard throughout your business. Remember, you don’t buy what you make — you create your products and services to sell to other people, so it’s their vote that counts.

I was once on a conference call to plan the relaunch of a national store brand for a leading retail chain. Because many of the client’s products required explanation to shoppers, a member of the chain’s merchandising team asked if they should set up the stores’ ‘help’ section to suit the needs of the company, or the shopping behaviour of the customer. One of the owners piped in to say, “set up the section to the liking of the customer, and I’ll adapt.” He had it right.

As Wal-Mart founder Sam Walton famously said: “There is only one boss; the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

Bottom-line: Know your customer. Think like a customer. Delight the customer. In return, they will delight your bottom line. And they’ll point you in the right direction for the future.

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