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 #3: Making Consistently Good Decisions
All companies’ structures and performances are the result of past management decisions. To paraphrase Peter Drucker when he started his work, he thought that management was responsible for 85 percent of the problems in companies. After years of research, he found that the number is approximately 95 percent.
The typical middle-market business owner is alone. No one in his or her organization is a true peer. He cannot tell others of his real fears, and there is no forum to truly vet his thinking. Without challenge or input, his decisions are often not optimal.
As private companies grow, many owners tend to shy away from seeking external counsel. They believe they have the answers. Owners make decisions and design strategies in a vacuum, fearful of revealing the supposed secrets of their business. They fight for short-term survival instead of long-term success, and decisions are embedded in the corner office instead of being vetted internally or externally. Owners make decisions either too quickly or too slowly. Often, there is no active strategic plan or planning process. If this plan is absent, then decisions are made without a clear view of their impact on future value.
Challenge #4: Improving Alignment and Execution
A fourth challenge is company alignment, both internally and externally. Many owners are not aligned on strategy, investment options, compensation and other critical areas. Family-owned businesses may not have “one voice” from the owners to management. The result is a management team that is out of sync on company goals, purpose, business philosophy and even ethics. This misalignment leads to inefficiency, false starts, misspent capital, products that add little value and management turnover. The outcome is weaker financial performance and lower value.
Challenge #5: Developing a Viable Exit Strategy
An old adage says, “It is easier to get into business than it is to get out of business.” Middle-market companies usually fail to focus on how to create sustainable value. They do not know how to align the company’s capabilities and position it to appeal to targeted investors and acquirers. Planning a viable exit strategy forces companies to ask, “What is attractive about the business, who would be attracted to it, and what needs to change so that it is more valuable?”
These companies often disregard the notion of scalability, brand equity, bankable management teams, and recurring revenues. These are just a few of the important factors in designing an attractive exit strategy. Owners might not choose to exit a business, but they should know the factors that build sustainable value. The challenge is to have a plan for building sustainable value that can be measured, managed, and executed.
If the exit strategy leads to the sale of the business, owners must decide the acceptable price and terms. They must be prepared emotionally to sell if their terms are met.
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 hosted a webinar focused on the path to significantly increasing your company value over a three year period. To watch the on-demand version, click here.
To read part one of this two-part series, 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.