You’re taking care of the business but is it taking care of you?
Is there a difference between owning and managing a business? You bet there is! I learned about managing during a fifteen year telecommunications industry career that culminated as a Director of Sales and Marketing. When I left to start my own management consulting company it wasn’t surprising that I focused exclusively on major corporations—I knew their strengths, weaknesses, and cultural nuances. I furthered my management expertise as a consultant, specializing in leadership coaching, interpersonal skills training, and organization development. But the challenges I faced as the owner/manager of a smaller business were quite different from those facing my corporate clients. My blind spot was not fully appreciating that I had responsibilities to myself as an owner. My denial of owner needs was caused by retaining a manager orientation–in other words, I acted like I owned a job…not the comapny. I worked long hours for my business—the business however was not organized to work for me.
When working for somebody else, my goal had always been to make the company successful. I was not content unless expectations were exceeded. The employer provided valuable benefits that protected my family and me. I obviously took 401K contributions, stock options, and full medical coverage for granted because when I become an owner, I did not adequately attend to my own security. The business came first—for example, I did not budget for a defined pre-tax profit, there were few unfettered holidays, and I had no end-game in mind—other than short term success and making ends meet. Company needs were all consuming to the point of negatively impacting my family. As a husband and father, I wasn’t at home even when I was there physically. The business prospered, but unintentionally I placed my family, health, and our financial security in harm’s way. I succeeded because of luck, not good judgment. I had no planned end-game, just the good fortune of an acquisition-oriented conglomerate shopping for a company like mine. Had I been prepared for the possibility of acquisition, the transaction would have been more effective.
The key underpinning of my consulting practice changed radically once owner needs came onto my radar screen. For example, while coaching Black & Decker’s senior team, I introduced a concept called Managing the Partner Chain to overcome their practice of calling employees “internal customers”. I argued that there could only be one customer—the person spending his or her money to acquire goods and services. My model suggested that every department within a business should focus on delighting customers while meeting the needs of all partners in the service chain—the funding partners (investors and bankers), internal partners (employees) and external partners (suppliers, accountants, and strategic allies such as subcontractors.) The partner chain analogy legitimized the funding partner’s need for profit and influenced executives, managers, and employees to be more understanding about profit demands from head office and their investors. It also reminded everybody that a company was only as sound as the chain’s weakest link.
My latest consulting foray is with the owners of small to medium sized privately-owned or tightly held companies—some of whom are multi-generational. I add value because of my leadership and coaching expertise, but more so because of a 15 year history as a business owner. It takes a former owner to really understand the challenges facing business owners. As a Director of Sales and Marketing, I made million dollar decisions but they were funded from corporate coffers. It was quite different once everything I owned was on the line. The impact of risk taking on business owners must be lived to be fully appreciated. My tenure as an owner/manager would have been less stressful, more profitable, and more enjoyable, with access to experienced advisors. The following is what the hard knocks of ownership taught me.
Tips for Owner/managers
• Have an end game in mind—it may change, so qualify your thoughts as current best thinking. Always be working towards ensuring that your exit strategy remains doable. Know what your business is worth and what actions will increase or decrease its value. REMEMBER…if you are the only glue holding your business together, your business (and your family) is at risk should something happen to you. Also, the enterprise will be worth much less to prospective buyers or “next generation” family members.
• To add value, manage strategic processes rather than by departments. This minimizes silo turf wars and reduces waste/rework (using a continuous improvement system). Focusing on process aligns everybody behind the customers total experience. There are four generic strategic processes: 1. Getting and retaining customers, 2. Serving the customer, 3. Supporting the partner chain, 4. Forward thinking. For more visit www.batonmanagementsystem.com
• Surround yourself with a team of solid professionals. Demand performance and confidentiality. You’ll need a good accountant, attorney, an IT resource, and some owner experienced advisors. A group of non-competing CEOs such what Vistage International provides is an excellent advisory resource. Measure the performance of your advisors and shop alternatives to ensure that you are receiving maximum value.
• On top of a salary for running the business, budget to compensate yourself for the capital you have tied up. Make it a line item on your P&L (above the bank interest line). They get paid monthly…why not you? Your capital investment is listed on the company’s balance sheet. Consider using a rate equal to prime plus a risk factor. Use this ROI to build an independent source of wealth–avoid carrying all your eggs in one basket
• Hold yourself accountable for the production of results and pay yourself in line with what the local employment market would demand for a similar contribution. If you sell the business, new owners will have to hire a replacement for you and still produce a profit.
• Place key-person disability and life insurance on hard to replace employees—including yourself…with the company as beneficiary.
• If the next generation is to take over, implement sound management and leadership disciplines. Expose the next generation to all facets of your business, build on their natural talent, and train them to become responsible managers. Declare the terms of ownership transfer and ensure that your retirement needs will be met without over-burdening the business.
Comment art@artmcneil.com or visit www.batonmanagementsystem.com