Why do so many businesses continuously struggle to make ends meet, while others appear to thrive year after year? Why do some business owners seem to have an unlimited amount of time to take family vacations and play active roles in their communities, while others work an excessive amount of hours and are seemingly chained to their business?
One of the main differentiators between the good and the exceptional is the amount of focus and attention that the business owner gives to the big picture. It is easier, more comfortable, and often more fun to spend a majority of your time working in your business (managing and doing), as opposed to spending time working on your business (leading, creating value, holding others accountable and communicating the vision). However, the truly successful entrepreneur understands that big-picture thinking is what drives business growth and overall success.
Four Critical Factors
We all know there are many keys to success. I have worked with hundreds of business owners during my 30+ year career, and have seen many successes and a few failures along the way. It is these experiences that led me to recognize four critical factors that can help take you from being a good entrepreneur to becoming an exceptional leader and business owner.
1. Know the value of your business and the drivers that affect value.
2. Focus on key performance indicators that can drive significant change throughout your organization.
3. Understand how your business and personal life support each other.
4. Create a clear vision of the future with specific, measurable objectives.
Know Your Value
Sure, everyone wants to know the value of their business if they’re looking to sell or transfer shares, or are involved in litigation. However, a business valuation is a useful tool to make important decisions about the future such as estate planning, succession planning, determining life insurance needs and even looking for ways to increase value. Additionally, knowing the value of your business or, more importantly, understanding the drivers that create and sustain value, should be a key factor in your decision-making and how you manage the business. Always strive to create value for your business, and make decisions based on whether or not value is being created or damaged.
An annual review of your business value allows you the ability to track your performance in terms of estimated change in value, not just on revenue. The process of preparing a business valuation takes into account where you’ve been, where you are today, and where you appear to be heading. The main reason we are in business is to create wealth. A business valuation takes into account the entire operation and provides you the opportunity to see how your decisions affect business value.
Obviously, if you’re looking to exit your business, value becomes even more critical. It has been said that you should begin planning your exit when you start your business. By understanding value drivers, and raising the value of your business, you make it more marketable. As an added bonus, many of the things that make the business more marketable also help prepare you for unforeseen events. By creating a sound business structure, employing efficient processes and growing internal talent, you are in the best position to handle whatever the future has to bring.
Know Your Numbers
I am not suggesting that you become an accounting expert. That may not play to your personal strengths and probably is not the reason you became an entrepreneur and business owner. Although it would serve you well to have a working knowledge of financial statements, it is more important that you have a thorough understanding of the key performance indicators (KPI) that drive the decision-making and day-to-day success of the business. This way, you can focus on your business while the accounting experts take care of the details.
We continually measure things in our businesses. For many, the process of measuring data becomes an exercise in futility—we are not effectively using the results to reach strategic goals.When used correctly, the right measurements can become a vital part of the company’s strategy. The key to driving change and improving culture within the organization is to define the strategic initiatives, develop KPI to measure the progress, and create action items that lead toward achieving the desired objectives.
KPIs can provide an immediate snapshot of the overall performance of your business. Depending upon the stated objectives and the urgency of the situation, certain KPIs may be reported daily or weekly, while others may require monthly or quarterly reviews.
An added benefit of creating KPIs is that the mere act of measurement and communicating the results promotes an atmosphere of learning within the organization. The more your team understands about the key success factors of the business, the more likely they are to develop creative and efficient ways to meet the objectives.
Know Your Wealth
In most instances, your business represents your largest personal asset. However, it does not represent your entire portfolio, nor does it encompass all of your personal goals and objectives. Knowing your total net worth is important. The main reason: It is very easy to put this on the back burner as you spend time growing the business. The process of preparing a personal balance sheet forces you to take a close look at your personal financial situation and be aware of where you are on the road to where you want to be. Your personal wealth is about something of greater importance than just the business. It is about your family, your security, and your legacy. You should take a financial snapshot of where you stand at least once per year.
For many business owners, it’s easy to get so caught up in the awesome responsibility and daily minutiae of running a successful business that they forget, or put off, the bigger picture. From a practical standpoint, you should take the time and effort to get your estate and trust documents in order, assure that you have adequate insurance in case of a catastrophe, and build for retirement apart from the business. As it relates to the business, your goal should be to maximize value by building an organization that can thrive without you. This will allow you the freedom to spend as much or as little time in the business as you desire, while creating the opportunity to pursue other interests.
The measurement and accumulation of personal wealth is important in that it provides more opportunity to pursue your dreams and provides security for your family. Success can be defined in a variety of ways, financial or otherwise, and it is important to remember that net worth does not equal self-worth. Ultimately, we all have personal goals and dreams outside of our business. It is important to keep these in the forefront and not allow them to get deferred while you work only on the business.
Know Your Future
Know your future, or at least have a vividly clear picture of what it would look like if your plans succeed. With a clear vision, decision-making becomes substantially easier, as you can focus on the important and not be sidetracked as much by the urgent or the interesting. It allows you to stay focused on the prize. Dreaming is a big part of running a business. As those dreams become a vision, the vision becomes a strategic plan. So . . . what’s your plan? What are your three to five major company initiatives that will have the greatest positive impact on the business and its value? You, and the key members of your management team, should be able to quickly identify them.
Operationally, that could mean improving cycle times, eliminating waste, or improving on-time delivery. Financially, it may mean preparing budgets, reducing outstanding debt, or reducing accounts receivable days. For marketing, maybe it’s brand awareness, digital presence, or introducing a new product or service. Or, maybe it’s R&D, customer satisfaction, inventory turns . . . you name it. Whatever will have the greatest impact on the business, it is important that you can clearly visualize the end result and assign responsibilities and accountabilities to assure that you get there.
In most cases, it’s not that the business owner doesn’t understand the importance of focusing on the big picture, it’s just that other important initiatives come up—pushing the process to the back burner. And before you know it, another year has passed, and nothing has changed.
You own your business. No one cares about the business as much as you do. No one can do this job for you. Don’t think that you have to do it alone. Securing the services of a trusted advisor could become very beneficial in the process. They will bring an outside set of eyes and experiences to the company, keep you on track, and help ensure that big-picture strategy remains a priority.
However you get there, I am confident that a sharper focus on the big picture will provide greater company value, a more engaged workforce, and more security for you and your family.