So, you want to start a company, or you recently opened the doors of your new business. You know intuitively that this is an all-consuming activity, so you never take your eye off the ball. What’s not intuitive is planning for where the ball will bounce when you want to sell your business. M&A expert Steve Preda explains that “proactive” owners who plan for this eventuality deliberately develop “buyable” businesses and can reap big rewards. “Reactive” owners who fail to plan for a future sale may find that their firms are “unbuyable” or end up selling at a discount. Preda tells owners how to structure their firms for maximum buyability – when the time comes.
- Profitably cashing out at the right time should be a main benefit of owning a business, but few owners reap that reward.
- Create a buyable company through creative entrepreneurship, franchise ownership or a structured operation that follows a tested “management blueprint.”
- Seven basic management concepts form the foundation for success in most business blueprints.
- The 10 leading management blueprints are time-tested plans that identify and solve common problems.
- Proactive founders can enjoy a big payday, but reactive business owners may miss the boat.
Profitably cashing out at the right time should be a main benefit of owning a business, but few owners reap that reward.
Owning a good company means you can sell it. To be “buyable” – a firm needs predictable revenue, regular cash flows and replicable business processes. But many business owners become so wrapped up in day-to-day operations and the quest for profit that they never plan for their firm’s eventual sale.
Statistics indicate that most business owners have a minuscule, ten-in-one possibility of selling their company for the value they want. But those who “groom” their businesses for future sale can achieve prices 30% to 50% higher than if they hadn’t prepared to sell, eventually.
“A buyable business is a well-built and well-operated organization that is growing and profitable. It gives you options when you’re ready to make a change in life.”
Though many companies are “unbuyable,” proper management can make them marketable, although that takes time. To reduce that period, business owners can use seven basic management concepts and 10 management “blueprints” to create a stable, salable company and harvest its full value.
Create a buyable company through creative entrepreneurship, franchise ownership or a structured operation that follows a tested “management blueprint.”
Entrepreneurs generally start companies in one of three ways: launching a start-up with trial-and-error processes, buying into an established franchise model or relying on management blueprints – proven plans based on sharing the collected knowledge and experience of business experts.
Many creative entrepreneurs want to build independent ventures, although these require time to succeed, with an estimated learning curve of 15 years or more. And new businesses are risky; some 90% of start-ups don’t make it to their tenth year.
“The best way to predict the future is to create it. – Peter F. Drucker”
A franchise comes with a turnkey operation, a working system and a formula to follow for success. Drawbacks include the initial cost of investing, the share of your profit that goes back to the parent company and the lack of wiggle room for innovation. The third alternative is to follow a proven management blueprint featuring time-tested plans. These systems map out a way forward while allowing entrepreneurs more independence.
Seven basic management concepts form the foundation for success in most business blueprints.
To create a buyable company, a business leader needs a set of operating principles and a coherent structure built on seven basic management pillars:
- Culture – The best workforce is made up of cohesive groups of motivated employees who collaborate to achieve common goals. Employees in these businesses buy into and share a meaningful purpose that manifests in the organization’s distinctive culture.
- Structure – Without structure, most companies can’t make smart decisions or hold themselves accountable to their shareholders, stakeholders, suppliers or customers. When firms first open, their organizational charts tend to be centralized, with work functions carried out by dedicated departments. As companies increase in size, most work functions become decentralized as individual departments become more autonomous.
- Vision– Psychologist Abraham Maslow taught that people operate according to a hierarchy of needs and that once they take care of their basic needs – such as sustenance and safety – they seek to meet their higher-order needs, such as developing a sense of belonging, earning respect, gaining knowledge, reaching self-fulfillment, and finding order and beauty. The same structure can apply to a company. Once a firm establishes its basics – products and services, customers and revenues – it can unify and motivate its people by establishing a meaningful vision and shared purpose.
- Strategy – To craft the best strategic plans, executives must define their company’s mission, identify its customers and learn to understand what those customers want. Companies must plan to secure promising opportunities for growth and focus their efforts on greater returns.
- Execution – When engineer Andy Grovetook over as Intel’s CEO, the firm’s market capitalization was $4 billion. During Grove’s tenure, it grew to $197 billion. To execute at this level, he advocated an organizational system built around objectives and key results (OKRs). Each quarter, a firm should set a few strategic objectives with specific results. Grove, a master at separating his emotions from his business decisions, was skilled at “reframing” his strategy, when necessary, and moving ahead with a fresh approach. Grove avoided complacency by encouraging his employees to question his decisions through the practice of “constructive confrontation.”
- Process – A process design is a tool for optimizing a business systematically. This approach enables experienced employees to pass their wisdom along. In The Principles of Scientific Management, Frederick Winslow Taylor laid out several principles of process design. He counseled entrepreneurs to avoid “rule-of-thumb methods” and, instead, to rely on “scientifically designed processes.” He advocated using scientific methods to select and train employees and to provide each person with comprehensive instructions.In Taylor’s view, managers should plan and workers should execute.
- Alignment – Business author Jim Collins once wrote, “Building a visionary company requires 1% vision and 99% alignment.” A company, its executives, managers and employees, and its values and vision must align. Without this alignment, people inside the organization will operate in chaos, with everyone moving in different directions.
The 10 leading management blueprints are time-tested plans that identify and solve common problems.
Entrepreneurs who are building their own enterprises can improve their chance of success by relying on established management blueprints – which generally derive from successful business books – for their fundamentals.
“To maximize your selling price, look for a strategic buyer that could reap cost or revenue synergies, or both, by combining its business with yours.”
These 10 blueprints offer tested strategies:
- The E-Myth– Author Michael Gerber advises business founders to work “on” their companies as much as they work “in” them. He explains that founders must become focused entrepreneurs who devote themselves to perfecting their organization. This easy-to-understand text provides a basic but excellent management blueprint.
- The Great Game of Business – Author Jack Stack maintains that to engage employees, managers should “gamify” parts of their operation. For example, all employees should learn to read financial statements, so they can develop a better understanding of what individual contributions they must make to ensure that the business succeeds.
- The Rockefeller Habits – Author Verne Harnish, founder of the Young Entrepreneurs Organization (EO), took inspiration from John D. Rockefeller. Harnish teaches entrepreneurs three Rockefeller habits: 1) Establish quarterly and annual priorities, as well as quarterly business “themes”; 2) Secure data that indicates whether the business is running efficiently; and 3) Institute regular “daily, weekly, quarterly and annual meetings” to assure alignment among all employees and departments.
- “The Entrepreneurial Operating System” (EOS) – Prolific business author Gino Wickman distills the teachings of his business gurus – Jim Collins, Dan Sullivan, Andy Grove and Patrick Lencioni – into the “EOS Model.” It offers a tracking system that those who run or own a business can use to improve execution in six elemental areas: “Vision, people, data, issues, process and traction.”
- “Rapid enterprise development” – In The Breakthrough Company, author and former high-tech CEO Keith McFarland introduces readers to his rapid enterprise development team. This investigative group interviewed “more than 1,400 managers and executives from 52 client companies” to learn why most firms remain small and only a few reach substantial size. McFarland advises focusing your company’s story on its business operations, not its founders. He urges high-tech companies to be brave: the more “bold bets” they make, McFarland insists, the better. And, he urges business leaders to see the utility of “insultants,” useful opponents who challenge their choices to keep them on their toes and alert to any necessary changes.
- The Advantage – Management consultant Patrick Lencioni warns CEOs against focusing on making their firms “smarter” when they should concentrate on making their firms “healthier.” Healthy firms most effectively leverage “strategy, finance, marketing and technology.” According to Lencioni, your organization’s health depends on building a strong, united leadership group of smart, talented and experienced people; over-communicating to achieve clarity; and reinforcing that clarity by avoiding bureaucracy and institutionalizing culture.
- “Scaling up“ – Verne Harnish offers a reliable program companies can use to pursue rapid expansion. His inventive approach focuses on finding the right personnel, thinking strategically, executing professionally and maintaining a good cash position. Harnish offers an ”execution toolkit” average-size firms can use to target revenue growth.
- “4DX” – This is a handy abbreviation for the title of the book The 4 Disciplines of Execution: Achieving Your Wildly Important Goals, by Chris McChesney, Sean Covey and Jim Hulling. The 4DX system calls for focusing on a primary business objective, your “Wildly Important Goal” (WIG). This goal addresses your company’s strategy and execution. The authors contend that most business leaders are more comfortable planning strategy than overseeing execution.This should surprise no one: Strategy involves analysis, something intelligent people enjoy, but execution is more complicated and often calls for “lasting behavioral change.” The authors remind businesspeople that smart strategy is worthless without superior execution.
- “Objectives and key results” – Andy Grove introduced this management tool when he was CEO of Intel. It has become a Silicon Valley go-to. Objectives are a company’s goals, as outlined by using a planned protocol. Key results are what the firm wants to accomplish. These results must be “specific, time-bound, aggressive yet realistic, measurable and verifiable.” Managing your goals with an OKR system ties your firm’s objectives to its wider mission and encourages employees to strive for ambitious results. Your OKRs should be transparent, so your employees understand them and feel accountable for them.
- The 3HAG Way – Shannon Byrne Susko’s book title incorporates an abbreviation of “3-Year Highly Achievable Goals,” an inventive system she developed. She includes several strategic tools: The “Attribution Framework” matrix compares your company to its major competitors. The “Activity Fit Map” targets the traits your firm must develop to stand out from its rivals. The “Market Map” helps your company outline its “go-to-market” strategic plan, and the “Key Process Flow Map” delineates a path to accelerating cash flow. Susko’s “Swimlanes” tool helps you outline an ambitious three-year business plan that includes milestones along the way.
Proactive founders can enjoy a big payday, but reactive business owners may miss the boat.
Planning, developing and breathing life into a dominant, profitable and ultimately buyable business is a special joy for its founders.
Savvy founders start this journey with their ultimate goal of selling the business in mind. They understand that such a sale usually takes 12 to 18 months. Selling a company does not happen overnight. Founders must know their “magic number” – the profit they need to make on the sale.
Proactive founders who master the business basics – maintaining records, developing “sticky” customers, building their assets and updating their “contractual relationships,”– make their own good luck. For many such owners, this includes targeting institutional buyers such as private equity funds, as well as retaining experienced M&A lawyers and advisers.
The result can be a big payday.
“Find an M&A advisor who knows your industry, has good references, is a strategic thinker, believes in the potential of your business and is someone you can get along with.”
Conversely, reactive founders who do little or no planning for the outcome of a final sale may earn little or nothing.
About the Author
Steve Preda is a management consultant, M&A adviser and business sales coach.
“Buyable: Your Guide to Building a Self-Managing, Fast-Growing, and High-Profit Business” by Steve Preda is a compelling and insightful book that offers a comprehensive guide for entrepreneurs and business owners looking to transform their businesses into highly profitable and self-sustaining entities. With a focus on practical strategies and actionable advice, Preda provides readers with a roadmap to navigate the challenges and complexities of building a successful business in today’s competitive landscape.
Preda’s “Buyable” is divided into several sections, each addressing a crucial aspect of business growth and profitability. The author draws from his extensive experience as a successful entrepreneur and business consultant, offering readers valuable insights and real-world examples to illustrate his concepts.
In the initial chapters, Preda emphasizes the importance of cultivating a buyable mindset. He emphasizes the need for entrepreneurs to think beyond immediate gains and focus on building a business that is attractive to potential investors or buyers. He highlights the significance of creating systems and processes that allow the business to operate efficiently and independently, reducing reliance on the owner’s constant involvement.
Preda delves into the key elements necessary for building a self-managing business. He explores effective hiring and talent acquisition strategies, emphasizing the importance of assembling a team of skilled professionals who can drive the company’s growth. Additionally, he provides guidance on developing robust systems and procedures that empower employees to make decisions and take ownership, fostering a culture of accountability and autonomy.
The book also covers various growth strategies, including market expansion, product diversification, and strategic partnerships. Preda emphasizes the need for entrepreneurs to identify and capitalize on emerging opportunities while maintaining a focus on their core competencies. He provides practical advice on conducting market research, assessing potential risks, and executing successful growth strategies.
Preda dedicates a significant portion of the book to financial management. He offers insights into effective budgeting, cash flow management, and financial forecasting, stressing the importance of maintaining a healthy financial position for sustainable growth. The author provides readers with practical tools and techniques to analyze financial data, make informed decisions, and achieve higher profitability.
Furthermore, Preda addresses the critical topic of exit strategies. He explores various options for business owners looking to sell their companies, highlighting the significance of preparing the business for a successful exit. Preda outlines key factors that potential buyers consider, such as scalability, brand value, and market position, and provides guidance on positioning the business for a lucrative sale.
“Buyable” is an exceptional resource for entrepreneurs and business owners seeking to build a self-managing, fast-growing, and high-profit business. Preda’s writing style is clear and concise, making complex concepts easily understandable. The book is filled with practical advice, actionable strategies, and real-world examples, allowing readers to apply the concepts directly to their own businesses.
One of the standout features of the book is Preda’s emphasis on building a business that can operate independently of its owner. This focus on scalability and self-management is particularly valuable for entrepreneurs looking to create sustainable enterprises that can thrive even in their absence. Preda’s insights into hiring, delegation, and systematizing processes provide a solid foundation for achieving this goal.
The book’s comprehensive coverage of various growth strategies is another strength. Preda effectively guides readers through the process of identifying growth opportunities, evaluating risks, and executing successful expansion plans. By providing practical tools and frameworks, he empowers entrepreneurs to make informed decisions and take calculated risks to drive their businesses forward.
Preda’s expertise in financial management shines through in the book. His insights on budgeting, cash flow management, and financial forecasting are invaluable for entrepreneurs looking to achieve sustainable profitability. By demystifying financial concepts and providing clear examples, Preda equips readers with the knowledge and tools necessary to make sound financial decisions.
In terms of improvement, it would have been beneficial to include more case studies and in-depth examples to further illustrate the concepts discussed. While the book does provide real-world examples, additional case studies would have enhanced the practicality and applicability of the advice offered.
“Buyable: Your Guide to Building a Self-Managing, Fast-Growing, and High-Profit Business” by Steve Preda is an outstanding resource for entrepreneurs and business owners. Preda’s expertise, combined with his practical approach and actionable advice, make this book a must-read for anyone looking to build a successful and profitable business. Whether you are just starting out or seeking to take your business to the next level, “Buyable” provides the guidance and insights needed to navigate the complexities of entrepreneurship and achieve long-term success.