We have seen CEOs and business owners struggle to meet the challenges to building sustainable value in their companies. These challenges are shown as a progression from low-value at the survival stage to a high-value exit plan at the top of the stairs.
Challenge #1: Fighting for Survival
Between 2008 and 2011, approximately 11,740 significant middle-market companies filed for Chapter 11 bankruptcy. Whole industries related to residential and commercial construction were decimated. Businesses that depended heavily on state or federal discretionary spending saw revenue streams disappear. Retail book chains closed due to loss of sales from Internet retailers like Amazon. Empty buildings were everywhere, and many of the companies that comprise these statistics did not see what was coming.
Then, and now, middle-market company leadership and management often fall into a trap of working in the business but not on the business. These companies continually fail to ask the question, “What if?” and do not properly plan for the contingencies they might face.
Survival challenges can include:
- External challenges: economic changes, marketplace dynamics, competitors’ actions, government policies, customer departures or pricing challenges
- Internal challenges: poor strategic direction, weak teams, high employee turnover, inadequate systems, poor decisions and a lack of financial resources
- People challenges: hiring, firing, retaining the management team, and improving workforce efficiency
- Systems challenges: keeping up with technology changes and designing a knowledge-based infrastructure that can give management actionable information
- Financial challenges: shrinking margins, deteriorating balance sheets or an inability to generate working capital.
Internal decision-making processes are often weak. The complexity of the business environment has outpaced the owner’s ability and his company’s processes to manage effectively and efficiently. And the evaporation of working capital will sound the death knell of a business. Running out of cash means you are “out of options.”
Any of these challenges, when coupled with a weak economy and aggressive competitors, can kill a company.
Challenge #2: Escaping the Value Creation Trap
According to The Wall Street Journal, the companies in the S&P 500 lost over $7 trillion in value from the end of 2007 to 2010. Middle-market companies were hit just as hard. An owner may now find himself or herself trapped in the company. Often the owner cannot see how the company’s value can increase while still doing business in the same outmoded model. Yet, the company does not have enough value for the owner to sell and retire.
How can the owner devise a new strategy that will build enough value over the next three to five years? What new internal processes and disciplines must be added? What team can make this happen? How can the owner get out of this trap and gain his or her freedom?
Owners and management often fail to design strategies that will create value that is attractive to lenders, investors, or buyers. In other words, they “fail to plan” to create sustainable value.
If you’re a business owner or CEO, are you faced with any of the challenges outlined in this blog? If so, vcfo’s financial, HR, technology and recruiting expertise can help address any and all of these challenges. vcfo and The Board Group are hosting a webinar on Wednesday, September 14 focused on the path to significantly increasing your company value over a three year period. For more information or to register, click here.
As a top financial consulting and HR consulting firm, vcfo provides contract CFO and CFO Consulting services, HR outsourcing and interim HR services. Additionally, we provide technology strategies consulting and cost-effective recruiting solutions. Whether you seek part-time, interim, project-based or full-time support, vcfo’s customizable engagement model will fit your specific business needs.
This blog is based on the book, “Game-Changing Advisory Boards: Leveraging Outside Wisdom to Deliver Sustainable Value” and is from the Game-Changing Advisory Boards blog.
Bill Hawfield is the founder of The Board Group and co-author of “Game-Changing Advisory Boards…Leverage Outside Wisdom to Deliver Sustainable Value.” He has extensive experience in growing, running and selling companies and has served on more than 40 advisory boards. You can learn more about the The Board Group at www.theboardgroup.com.