Tuesday, October 16, 2012

Branding and Infrastructure

       A question that often comes from business owners as we discuss other matters is: What is my business worth? With any luck most business owners derive a regular paycheck. However, many entrepreneurs want their efforts and their dreams to be realized in some measure of monetary value. After all, we do read the business journals of fortunate business owners who ultimately sell their  businesses for profit and go on to drink Coronas on some distant beach with the ocean waves lapping at their feet. Truth be told, there is no simple answer to what a business is worth, that I could cover in this snippet. And there are also many ways in which to value a business.

       Many, perhaps the majority of small businesses are leveraged from operating revenue. This is to say that the value of the company is based on its ability to continue operations and earn a profit from revenues. Which also suggests that if you stop generating revenues, or if you remove the revenues from the business, it is potentially worth little more, if not less than, the actual book value of a company. Of course there are many exceptions beyond what I can write here. However, for illustrative purposes we will stick to that theory.

      So what if you want to sell that business in the next few years. How can you sweeten the deal, make it more attractive to a potential buyer? So much so that they would be willing to pay a premium to buy your business. Two thoughts come to mind. (a) Branding and (b) Infrastructure. Not surprising that every medium and large business in this country, if not the world, spend collectively billions of dollars a year improving these two areas.

     Branding, generally increases sales. This potentially creates a higher value by itself as many operating leveraged companies sell for multiples of revenues. Secondly, because branding essentially is a label that inherently stands for "value". Like, if you want to buy my business, I will require a premium price.  In simple terms branding is, stand for something, be recognized, or an offer of value.

      Infrastructure allows you to operate at higher efficiency. Again, potentially  higher profits and a higher value. It could also mean that you are geared for higher business volume which you have not achieved but your potential buyer knows he can. Infrastructure, gives you a competitive advantage to other competitors because it is an investment that can at times be a barrier to similar businesses who have not made the required investments. Hence, they are less able to compete in a given market, less able to increase revenues and be able to support those revenues by means of performance. Less able to deal with management and growth issues than competitors. This means your potential for additional revenues and profit is a matter of marketing. Infrastructure comes from, management information and accounting systems. Customer relations and order taking systems. Investments in machinery, equipment and perhaps vehicles. It can be hiring the right professionals. It can also come from integration of functional areas of your business model. Perhaps the development of distribution channels. In this area there are indeed countless possibilities. Simply put infrastructure refers to the business machinery required to operate.

So what have you and your accountant talked about lately?

The Art of Analytics and Listening for Leadership

          One look at any book store shelf and you can find endless books on leadership. Thinking back on my profession, I have read and studied numerous cases and books that discuss leadership, decision making and on how to be a good manager. I have to say that collectively, the reading list has helped. But truth be told, in the practical world how one goes about making business decisions is very different than how one would do a case study of business problems. Why? There are many reasons but, perhaps the most apparent explanation is that in a case study or in reading a book you have 20/20 vision.  You can do Monday morning quarterbacking. You also have time to think and analyze, and you are already primed for the fact that there is a problem in the first place. Secondly, we all have to deal with office politics. You have to pick your battles, you have to be politically correct. In some cases there literally is no way to win. No practical means to solve the problem. Your choices may be limited to simply surviving.

            Perhaps the most important thing one can take away from reading business cases and in reading leadership books is to develop your sense of analytics. It is one of the weakest areas many business managers have. I should add even great managers have trouble in this area. Developing an analytical skill set is key to being a great manager, a great leader. Understanding cause and effects, relationships in business processes, financial and logistical variables. In the end it is about how well you can connect the dots that lead you to better decisions. It's also about the ability to put yourself in someone else's shoes.

            This brings me to perhaps the most important thing I use in any leadership role: "Listening". Years ago I learned a key lesson. It really does not matter what you know or how smart you think you are in business or what you think. Sometimes, it's not even important that you know how to gauge the big problems from the small ones. If you want to solve the most problems in the shortest amount of time; "listen". In particular listen to your employees, as well as your customers. A testament to this is how often I have worked with dysfunctional companies where there was little to no system at all and yet the employees got the job done. Simply because the owner or bosses listened to the employees and the employees listened to their bosses and most importantly the employees listened to one another. Despite poor accounting, poor management systems, poor internal control, poor documentation and even poor profits the company had a large client base and there were few complaints from customers. Listening and addressing the issues together with doing "whatever it takes" compensated for everything else that was wrong in the company. Perhaps Jeff Haden in this article published in Inc. magazine on Sept 4th, 2012 demonstrates one way of listening for leadership. "Do-you-pass-this-key-leadership-test"

         To end this piece I would like to repeat something a very good boss once told me; "Don't listen to the words he is saying, listen to what he is trying to tell you". Just goes to show how much psychology there is in business, this is the very same exact line I have heard marriage counselors use in trying to get spouses to understand one another. I guess this is a case of art imitating life!

Can't wait to hear your side of the story.