Structure
Increasing Business Value – Part 2 of 3

Larry Mandelberg

In Part I of this series, we discussed focus and why a focused organization has greater value to a prospective buyer. By reducing distractions and mistakes, you can create the Swiss watch effect… your business becomes self-managed. Focus is all about tuning your business to run as smoothly and consistently as a Swiss watch. In this article, we discuss the impact and value of structure.

There are two reasons for creating structure in your business: increasing the present value of future earnings and making certain you are moving toward your ideal exit strategy. And predictability is the key to both.

Present Value of Predictable Future Earnings
Structure allows you to create predictable results. Predictable results give greater credibility to your estimates of future earnings, making the realization of those earnings more likely and increasing their value.

There are many ways that businesses are valued ranging from physical, measurable assets (hard measures) to soft, subjective worth (soft measures). Agreeing on the value of a piece of land, buildings, equipment, inventory, etc. can be achieved through relatively straightforward mechanisms. Property comps and comparing the cost of new equipment to the used market alternatives are done every day. There are firms that specialize in these types of efforts. Coming up with the value of receivables, your staff, blue sky or good will is an entirely different matter.

Just because you say it is so does not make it so. After all, as the seller, your job is to sell your business for as much as you possibly can. It is the job of the buyer to pay the least amount possible, and therein is the rub. Everything you can do to strengthen your argument for value and worth makes it just that much more difficult for the buyer to argue against your valuations. The question is how do you develop the strength necessary to support your positions? The answer is… by creating predictability.

One of the more common approaches is to look at history. If your business has been successful and profitable, it makes sense (all things being stable) that your business will continue on the path of growth and profitability. Unfortunately, this is an easy argument to unravel for the skilled buyer. The economy is ever changing; staff is ever changing; and, clients, vendors, products and services are forever changing. So why should I believe that when you are gone as the leader of your firm, any of those things will continue as they have in the past? The only way to show the buyer is to demonstrate that you have a structure in place that creates the results you want, including predictable, profitable growth. Also show that your role was merely to create structure while your organization executed on the plan. Therefore, if a buyer says the results cannot be sustained, they are saying that they are the one who will fail in the future.

On the surface, this sounds pretty good. The rub is in creating the structure and predictability to support your position. This is where planning comes in… planning for today, tomorrow and the future. For an organization that is focused and clearly knows the value it provides to its customers and whom those customers are, the process begins with strategic, business and marketing planning and is completed with efficient execution.

Strategic Planning
How do you keep your business approach fresh and engaging? How do you avoid losing your edge and stay ahead of the pack? How do you continue to hold the lead in your industry? The future is coming and if you aren’t prepared, you may end up being just another competitor. How do you create a different future?

How do you prepare for tomorrow ... today?

THE SOLUTION – Everywhere you look, there are signs - TV, newspapers, billboards - telling you what is ahead. We call them leading indicators. The government has them and the Fed uses them to decide when to raise or lower interest rates. The question is where you go for the information you need in your business.

Every organization has four insight rich sources they can tap: vendors, customers, staff, and associations.

Vendors are a great place to start because they depend on your success for theirs. They work with your competitors and they are easy to reach. Call or email a few to schedule phone appointments to talk about the future. When you reach them, ask the following questions:
(1) What are the biggest risks your industry faces? (2) Where is your industry going over the next five years? (3) How can we work with you more effectively for both our benefit?

Imagine how you would feel if a customer or prospect of yours called with these questions. Remember, you are their customer.

Customers are the lifeblood of your organization. This approach gives you the opportunity to talk to them without asking for money or sales. Call your customers and prospects, and ask for a face-to-face meeting at their places of business to discuss the future of your industry and theirs.

Remember that you are a vendor in their eyes; and make sure they know this is not a sales call. Your only interest is in making your business better positioned to serve their needs in the future.

When you meet, ask them: (1) What are we doing well? What are we doing poorly? (2) What would you like to see us add? What would you like to see us drop? (3) Where do you see your company five years from now? (4) What can we do to make it easier for you to do business with your customers? (5) What can we do to make it easier for you to do business with us?
Imagine once again how you would feel if a vendor called you with these questions.

Employees have an intimate relationship with your customers. They are the most immediate and direct link to the successes and failures we have with our clients. Often they know about issues and problems before anyone else. Have you ever heard someone say "I knew that was going to happen, but I couldn’t get anyone to listen to me!"

Identify some key individuals from your staff and take them out for lunch or coffee, one on one, and ask each one the following questions: (1) What would you like to see us start, stop, or continue? (2) What do you think we do well and poorly? (3) Do you see yourself working for this organization five years from now? (4) What would it take to make that a reality for you?
(5) What is the one thing you would like to help change or do differently to reach that goal?

Make a point of taking notes, both for your future reference, and to reinforce the point that your employee has your full and focused attention.

Associations represent almost every industry. Talk to your association about any events they are planning, conferences they are scheduling and the type of education and speakers they are planning to bring to the group. They know what your industry is asking for, and usually are aware of new ideas being considered to strengthen it. Talk to the association leadership and find out what they expect the future to bring.

There are many sources of information out there. Asking the right questions will provide insight into what the future holds and help you strengthen your relationships with them. Make this a habit, spend a few minutes every day on it, and over time you will begin to understand what tomorrow will bring and will be able to prepare for it ... today!

Business Planning

Everyone knows what a business plan is, but most of us fail to use them. We have all written a business plan. Usually it was done many years ago and not been updated. Or, we fail to base our decisions and compare our efforts to the plans we have created. More often than not, we fail to share our plans with our staff, those managers and leaders we depend on to make the plans actually happen.

Rather than outlining the components of a business plan, I offer a few basic rules to help make them more valuable a tool.

• Keep it fresh. Your business plan should be updated at least once every year.
• Review your plan at the same time in your business cycle.
  
• Connect your plan to the specific objectives outlined by your strategies.
  
• Include your management team in the planning process.
  
• Hold your people accountable for executing the plan.
  
• Identify two or three objectives- critical measures that indicate progress.
  
• Hold your staff accountable for the results you want.
  
• Reward them when they succeed.
  

Finally, don’t rely on a single plan. When you are about to embark on a new effort whether it is a new market or a new product, write a mini-business plan. Make sure you are clear on the objectives, how success will be measured and the desired outcome. Another way to think about this is to ask yourself what success will look like when you have executed the plan.

Marketing Planning
Marketing plans are an animal of a different color, but similar behavior. It is critical that you identify the value your efforts will bring in terms of new customers, revenues and profits. Again, I offer several items that should be addressed in your marketing plan.

• Keep it fresh – don’t use the last plan for the next marketing effort.
• Create a plan for each product or service you offer.
• Make sure you know the costs and returns expected if successful.
• Include your support team in the planning process, the people who are actually going to be asked to do the work and deliver the products and services to your clients.
• Hold your people accountable for executing the plan.
• Track the time it will take to launch, not just the sales cycle.
• Make sure you are selling to the right people, those that actually need what you are offering.
• Measure, monitor and adjust as the plan is rolled out.
• Hold your staff accountable for the results you want.
• Plan for success – make sure you have the infrastructure to support the results you are trying to create.
• Reward them when they succeed.
  

Larry Mandelberg is the founder and managing principal of Beyond Point B, which provides executive coaching, business analysis and training services to help businesses be more successful tomorrow than they are today.