WHAT MAKES BUSINESS OWNERS SUCCESSFUL

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1 WHAT MAKES BUSINESS OWNERS SUCCESSFUL

2 WHAT MAKES BUSINESS OWNERS SUCCESSFUL The secret sauce to business Ever wondered why one business is successful, while another seemingly similar business doesn t quite seem to crack it? Why one business seems to have the secret sauce to make everything they touch turn to gold, and another doesn t? In our experience, it comes down to knowing what s made a business successful to date, and knowing what they need to do to reach the next level of business. Knowing this drives them through the Stages of business. We know that all businesses go through identical Stages as they build. They re the same across industries, personality types and economic conditions. What sets one business apart from another is how quickly they move through them, and whether they get stuck along the way. Here s what we see: Before we get into it, we need to cover some background. The groundwork for your business journey Marshall Goldsmith is one of America s leading corporate speakers. He teaches people to advance their careers by changing the things holding them back. Put another way, you can get half-way up the corporate ladder through brute force, but you can t reach the top that same way. If you got half way through brute force, you might need to say thank you to scale the second half. What got you here won t get you there. The same is true for business. To be honest, it s not hard to achieve a mild level of success in business - put up a sign, call a couple of people, and you re away. You don t need to be genius to

3 get going. If I could setup an accounting firm as a 28-year-old working from the boot of my car, then you definitely don t need to be a genius to pick up a few clients and earn a dollar or two. Ultimately, that s no different to creating a job for yourself. It s much harder to go from that job and move through the stages of business. Business isn t paint by numbers it s hard to create something where nothing existed previously. Moving through the Stages, and creating something, is the art of business. That s what makes your business valuable. That s what gives you something to sell at the end of the day. That s what gives you more time with your family, more control over your direction, and best of all more money from doing it. All businesses go through a series of identical Stages. These Stages apply in the same order, regardless of a business s industry, size, profitability or age. It s been true for both of our businesses, and I can see it in all my family s different businesses, as well. A business might go through a Stage at a different pace, but ultimately the order never changes. What gets a business to the top of one Stage won t get them to the top of the next Stage. What made you successful today won t make you successful tomorrow. Two steps forward, one step back Before we get into that, there s a mathematical function called the Sigmoid Curve. The layman s version of it, which I personally prefer, is that things get harder before they get easier. Then once things get easier, people get lazy and accept the status quo. People prefer the status quo because they remember the pain they went through to get where they ve got and don t want to risk further pain. Then they stagnate. If you re stagnating, then you re going backwards there s always someone who s growing while you re not. These stagnating businesses, who are preferring the status quo, have often enjoyed considerable success. Yet after a period of time inertia sets in. This inertia means that these stagnant business (generally) remain profitable. All the while, they don t grow, build or improve on past results. This isn t to suggest for one minute that these business owners aren t successful. They re an intelligent group of people who have achieved significant business success. They ll also continue to be successful just not as much as they would had they not stagnated or developed inertia. We ve been working with a consulting business over the last few years. They were badly impacted by the Global Financial Crisis and struggled to breakeven from 2008 through They experienced no growth, staff resignations and clients their closing-down. All the same, they survived no mean feat. However, the uncomfortable truth is that they ve missed a significant opportunity to grow. They were stuck with a mindset of hunkering down and getting by this caused them to miss opportunities that were passing them by. Working together, we ve helped them to move to a mindset of actively looking for the next market change. This has seen their net profit increase by 200% from 2014 through 2017 (their profit has tripled). The first step for them was to review where their business had come from, and to celebrate their past successes. This review highlighted the core competencies which they needed to remain

4 strong in (what had made them successful to date), and what was required of their business to be successful tomorrow. This business was successful, like many other New Zealand businesses, for two main reasons. First, they put in the hard yards and worked many, many hours. This enabled them to compete with the big boys their hard-work meant they could deliver more at a lower price. Second, they focused on customer service, something their bigger competitors lost sight of. Ultimately, these are the things which any business should be able to get right being mildly successful in business isn t too difficult. Despite their success to date, the two things which had made themselves successful (hard work and customer service), were ironically the things holding them back from reaching the next level of business. The long hours masked a considerably lower profit margin than the competition. This meant that if they tried to grow, the lower profit margin would make them unprofitable. Additionally, there was a reluctant to grow because, in the words of the business owner, staff don t look after customers as well as I do. The business owners and their inability to pass work down to their staff was ultimately holding the business back from reaching the next level. For them, identifying the problem was the first step. Without identifying their core strengths, and holding onto them, it would be tempting to cut corners to increase margin. This would improve their performance, but would force them back down the Business Growth Curve they would be pushed back to a Stage they had previously moved out of. We ve seen time and time again business slipping back into a Stage they had previously conquered. The challenge for the consulting business was to build up staff capacity to do the work the owners previously clung to so that standards wouldn t slip. This is an expensive upskilling process, but one that can t be avoided. It also meant the owners had to get out of the way, stop meddling in everything, and let the staff do their jobs delegation, trust and visibility on the KPIs that were core to the business. The alternative is for the business to maintain the status quo, stagnating. While the business owners were desperately keen to avoid stagnating, to move forward they had to take a step back. This comes back to the Sigmoid Curve mentioned earlier (in simple terms: take a step back before you take a step forward). We see this through all the stages of business. The Business Stages The Stages we see our business owners go through, and which we ve gone through ourselves are: Stage 1: Experimentation Good Idea: Developing the business concept, getting ready to leave the job Start Up: Opening the doors and sharing the dream with the world

5 Stage 2: Growth Breakeven: The business makes enough money to cover costs Lifestyle: The business makes enough profit to allow the owner to pay themselves to meet their lifestyle and save money each month Stage 3: Maturity Leverage: The business can sustain the lifestyle of the owner without them being hands-on on a daily basis Reach: The business now requires expansion to remain competitive and create long term security for the increased numbers of staff Stage 4: Exit or Decline Leapfrog: The business seeks growth and security by joining forces with other like-minded businesses, and as market share builds it gets harder for the competition to steal business Exit or Decline: The capital is unlocked in the business via a sale alternatively the business dwindles as the owners head towards retirement To recap, here s what it looks like: The Experimentation Stage Businesses in the Experimentation stage are growing their business enthusiasm, excitement and shear will power. You re finding your feet, trying new things and correcting what doesn t work (quickly). It s taking that good idea and turning it into a business, dealing with the knocks along the way.

6 The Growth Stage They then work out what does and doesn t work, and are starting to get clarity in their business strategy. They ve entered the Growth stage. The business owner learns how to be a business leader (not just a boss), and is able to start delegating. The team can replicate what the leader does, and have real quantification around what makes them money. The business owner also gets their pre-self-employment income and lifestyle back. The Maturity Stage In time, some Growth businesses enter the Maturity stage. The step from the Growth to Maturity stage puts a handbrake on many businesses the business owner has their income and lifestyle back, and they re often reluctant to risk that to move to the next stage. It s a risk they need to take to keep their core business ticking without the owner constantly fighting fires. It s now about them moving into new products and extending their reach into new areas. This needs documentation, governance and established business processes. The Exit and Decline Stages The final stage is where businesses owners either Exit their business successfully, or the business Declines and eventually turns off the lights. Exit or Decline is where the years ploughed into the business come together either a business is sold for full value, or the business owner effectively receives liquidation value for their business. They leave tax free cash behind. To unlock that cash, they need to take the final step of making alliances and acquisitions to capture real market presence and scale. Moving Through the Stages Depending on how long ago it was you started out, you can probably remember the day you went into business on your own, or bought into a business. For me, it was a day of outright excitement mixed with extreme trepidation. I felt on top of the world though. A month or so later and reality set in. Sales were slim, cash was tight and I was starting to wonder what I had got myself into. I failed, worked out what I did wrong and ploughed on. This is more-or-less what every start up business goes through in the Experimentation Stage. From there I slowly gained traction, picked up sales and worked out what being in business was all about. I got clarity in where it was I was going, not necessarily an exact why, but a broad direction. I worked out that I needed to delegate outcomes (not just the task), and help the team to do what I do. While I don t execute this all the time (old habits die hard), at a minimum I m aware of when I m not executing. We re now midway between Growth and Maturity, sitting towards the top of that Danger Zone. We ve got the documentation and process, just not the constant governance we need to enter the next phase. We ve got new product lines (both accounting and legal, albeit under different brands), and are opening in new cities. Over the coming three or four years, plenty of accountants (and lawyers) will be well past the point of needing to retire. Our plan is to jump in at that point and start making acquisitions in the meantime we re building a property portfolio to lend against so we re able to get bank funding to make purchases when the time comes.

7 Ultimately the business journey is anything but a straight line. If you plan for the straight line you couldn t be more wrong. The reality is different, as science tells us with the sigmoid curve. It s running with a great idea, realising how hard it is and slipping back. It s getting comfortable once you ve got your previous income back and slipping back through stagnation. It s your business reaching its peak, yet not being sold for maximum value because you ve let it slide past its peak. These are simply overlapping sigmoid curves. These curves are winding road of business, not the straight path you might have expected. What has made you successful and what s holding you back In our experience, the factors getting businesses to a stage are the same for every business. The same is true for the things holding business back from reaching the next level. The stages are consistent, as are what got you here and what holds you back. To find out what makes businesses successful in each State, and find out what holds them back from reaching the next Stage, answer these three quick questions. To find out what makes businesses successful in each State, and find out what holds them back from reaching the next Stage, answer these quick questions or go to