The Facts of Business Life (8 page)

Continuing to be competitive at Level 4 is important because there is a surprise awaiting unsuspecting owners who think that once their businesses becomes successful they can take it easy and relax. The surprise is that they can't. The simple truth is that success today does not guarantee success tomorrow, because your competitors will always want what you have and will fight to get it, and if you stand pat or relax, you will make it easier for them to do it. Unfortunately, it's not only owners who tend to think they can relax once their companies have attained success: the people who work for those companies often start to think so, too. And the apathy that sets in, in both owners and employees, can have serious consequences for a business. Just look at sports. Championship athletes will tell you the first championship was extremely hard to achieve, but staying on top and winning another is even more difficult. It's the same with business, and as an owner you have to overcome your own apathy before you can deal with it in your employees.

In reality, if you own a successful business and don't continue operating it with the same vigor you did to make it successful, it's entirely possible—even likely—that your company will slide back down the slippery slope from Level 4 to Level 3, and you will again find yourself fighting for survival. Think, for example, about General Motors, the most successful company of the twentieth century, collapsing and filing for bankruptcy in 2009. Or think about Fannie Mae, a company described as “great” in Jim Collins's bestseller,
Good to Great
(HarperBusiness, 2001), which not only failed in 2008 but took a leading role in creating the housing bubble. The point, of course, is that it's one thing to create a successful business but quite another to keep it successful. Obviously, if two business giants like these can fail, so can any privately owned company.

In their book,
The Leadership Challenge
(Jossey-Bass, 2002), James M. Kouzes and Barry Z. Posner say that leaders “imagine what is possible,” and quote one owner as saying, “I'm my organization's futures department.” This pretty much nails the definition of leadership at Level 4. More than at any other time in the life cycle of a business, at this level an owner has to look toward the future and focus the company on operating on an above-average level. This is accomplished essentially by overcoming apathy, continuing to gain market share and increasing profits through expansion, buying up competitors, finding a competitive advantage, or a combination of these.

I said earlier, in the discussion of Level 3, that management is the daily blocking and tackling that must take place in order for a business to achieve the owner's success goal, and that is equally true at Level 4. It is also true that in every decision management makes, financial performance and customers must continue to be your main focal points. The best way to make sure that happens is to keep the following six questions in mind:

Being able to answer these questions and act on those answers requires you to have two overriding traits: you must be proactive and competitive. If you are not proactive at this level, you will be constantly fixing problems rather than anticipating them and limiting their effects. And if you don't maintain your competitive spirit, your company's forward momentum will stall. Of course, even if you consistently exhibit both of these traits, it's essential that your key employees do as well. You can't do it all yourself. Though you may succeed for a while, over time it's the leaders within your company who will have to carry the flag. You can help bring this about by demonstrating these traits yourself, as well as by motivating the leaders to embrace the competitive will and demand it of themselves and their staff.

To be fair, a business can't be running at full throttle all the time, so putting your company into a holding pattern from time to time is not only advisable, it's necessary. You and all your employees have to take some time to collect yourselves and have some fun before getting ready to take on the next challenge. And in most cases the fourth level is the first one at which you can do that. Being in this kind of holding pattern not only enables you and your key employees to refresh yourselves, it also provides you with time to deal with any internal concerns you may have.

At the same time, it's important that you maintain what you've fought for and gained up to this point. That's why your planning at this level should reflect some aggressive objectives and goals, particularly in the areas of training, leadership building, and employee evaluation, as well as a complete evaluation of your processes and what you want them to accomplish—all of which add to making your business a tough competitor as well as a market and profit leader. In fact, if you want your business to continue to be successful, at some point you have to set what your managers and employees may consider to be unreasonable goals and objectives. This is true because if you allow them to stay in their comfort zone rather than challenge them, you will never find out how good your people and/or your company can be. In any case, the fundamentals of planning remain the same. Your plan has to be defined by reality, and clear objectives and goals have to be established throughout the business, just as they have at every other level.

Also, as at other levels, people are important at Level 4, but what is most important at this level is their ability to work together. Teamwork in itself can be a competitive advantage for your company because it can be so powerful, and even more so because it's so rare. But turning your staff into a team has to begin with you. That means you have to understand how powerful teamwork can be, and then have the courage to build and develop your staff into a team. It's not easy, but it can be done, particularly if you enlist the help of other leaders in your company. If you do, you will find that teamwork can be an invaluable tool in your efforts to attain the “impossible” and maintain your company's success.

Peter Drucker has said that “There is only one valid definition of business purpose: to create a customer,” and creating customers is a marketing responsibility. However, as your business grows and attracts new customers, you eventually run into the law of diminishing returns. That is, at some point it becomes harder and harder to attract—and keep—those new customers. In order to overcome this, you have to be creative, which means, among other things, considering all the possible means of marketing and advertising, particularly those you haven't considered before. For example, if some of your competitors are weak in social networking, there may be opportunities in it for you to attract new customers. It's also important to bear in mind that when you do hit on something that works, you should pour resources into it and try to get as much out of it as you can before your competitors jump in.

One of the keys to keeping both old and new customers satisfied, as I mentioned earlier, is always thinking about how the customer will be affected whenever you make a management decision. What you need to do, once you've made a sale, is focus on the customer and find ways to develop a relationship with him or her. The fact is that no matter how technologically advanced you may become, how big your company gets, or how it evolves and changes, at the end of the day what it's really all about is the relationship you have with your customers, the trust they have in you, and their sense that they are important to you and everyone in your company. To the extent that you can develop this feeling in your customers, you will have provided yourself with a very substantial and very important market advantage. And that's because a company's most effective marketing and advertising is always through word of mouth—the good things your customers tell others about your company.

The fifth and final level, Moving on When It's Time to Go, comes when an owner begins to think about his or her exiting the business and whether to sell the company, pass it along to a successor, or simply close it down. Although thinking about leaving raises emotional issues for most owners, the reality is that they should treat the decision just like every other important decision they've made during their careers. That is, it should be well thought out and based on facts. The one difference is that the owner has to take into account not just what's best for the business but also what's best for him or her, because, for the first time since the company began, what's best for the business and what's best for the owner are not necessarily the same thing.

To my mind, selling a successful business, or turning it over to a family member, should be the highlight of your career because it epitomizes the entrepreneurial dream—go into business, become a success at it, and leave under your own terms. Unfortunately, though, that's not always the case. Some successful owners find it hard to walk away because they like the lifestyle and/or the attention and respect they get because of their positions. Also, the uncertainty of the future, particularly the question of what you will do with the rest of your life, can be unnerving to someone who has controlled his or her environment for many years.

Curiously, compared to other business topics, very little is written about the reality of an owner's exiting his or her business, and few owners are willing to openly discuss the subject. Business owners aren't usually shy about discussing their business operations with their peers—as long as they aren't direct competitors—but in all my years of ownership I cannot remember a single instance in which an owner talked openly about what he or she was thinking in terms of exiting the business. This is very unfortunate for two reasons: (1) if you don't pick the time to exit, someone or something else will; and (2) the best time to sell, or enact a succession plan, is when you don't have to. And there is no escaping these two realities. That means any owner who doesn't take his or her exit seriously is leaving to chance one of the most critical business decisions he or she will ever make, and that doesn't make sense.

At this level, leadership requires you to fulfill two tasks. The first, which benefits everyone, is to continue being the leader you have been all along. This is important because making sure your business continues to perform at a high level will be critical to your payout if you choose to sell, and critical to your successor if you decide to pass the company along to one or more of your children. The second task, which is essentially only for your benefit, is to decide exactly what you want to do as far as exiting is concerned, and how you want to do it. To achieve this task you will have to determine:

• A reasonable market value for your business.
  
• The various tax and legal implications.
  
• How much money you will need to live a full life, and how much money you want to pass on—if any.
  
• The best time for your exit, based on the company's market value, the optimum selling or succession point, and your personal time frame.
  
• Whether it's best to sell, pass the company along to a successor, or close down and sell the company's assets.
  
• The best buyers, if you are selling the business, that is, those who have the ability to pay and would benefit most from owning your business.
  
• The best successor or successors, if you are passing the company along, based on their aptitude and desire to be an owner, ability to motivate and work with others, understanding of your business, and understanding of business in general, among others.
  
• What former owners have successfully exited their businesses, and ask them for guidance.
  

In other words, as with the decisions you have to make at all the earlier levels, you should make this decision based not on emotions but on reality. That is, you have to review your situation, determine the facts, evaluate those facts, and then choose the option that makes the most sense for you and your future.

Aside from continuing to run your business on a day-to-day basis, albeit with help from your key managers, your primary management task at Level 5 is to learn and manage the exit process. The first step in this process, as suggested earlier, is to determine what you want to do with the company. The next step, depending on which route you choose to take, is to either prepare yourself for the buy/sell negotiation or design a process under which you will educate your chosen successor. Regardless of what you decide, however, among the steps you will need to take are the following:

• Determine exactly what is for sale, which in most cases includes real estate, assets, and goodwill or blue sky.
  
• Determine the value of the company, taking into account its past profit history, how much free cash it generates, the industry standard for goodwill, the appraised value of the property, and the value of your assets—either book value, market value, or a combination of the two.
  
• Make sure your financial statements are accurate and provide justification for your valuations.
  
• Consult with a business lawyer regarding a standard buy/sell agreement, as well as about any specific items you would want included and any you would not accept from a buyer.