The following video from the Kauffman Foundation exposes some myths about entrepreneurship but they excluded one of the most significant myths: 7 out of 10 businesses fail in the first five years. This tired old misperception stems from confusion about the difference in the definitions of "non-survival" and "failure". Non-survival isn't the same as failure. Many businesses that don't survive are far from being failures. Contact Codiligent business brokers if you'd like to learn the truth about business failure rates (which are significantly lower than commonly perceived).
Do you remember Buckminster Fuller, the architect, systems theorist, inventor, and futurist who passed away in the early 1980s? He felt that most social problems would not be remedied by politicians or philanthropists but rather by technological advances. He was into sustainability and minimalism before it was popular. He coined the term "ephemeralization" to describe his primary thesis of the ability of technological advancement to do more and more with fewer and fewer resources until eventually you can do nearly everything at a very low cost and using the least amount of resources possible. This sounds a bit like the Reduce, Reuse, and Recycle mantra of many of today's sustainability promoters.
His belief was that ephemeralization would result in ever-increasing standards of living for an ever-growing population despite finite resources. One of the ways that he believed this would occur is through disruptive innovation - where new ways of thinking, and new technologies would create novel and better solutions to life's problems.
Here’s a quote I came across today from Bucky:
“In order to change an existing paradigm you do not struggle to try and change the problematic model. You create a new model and make the old one obsolete.”
I'm a fan of Bucky's thought process. It's amazing to look at the last 50 years of innovation and consider how much more efficiently we can do so many things today.
While there are several things that Codiligent has already done to change the traditional problematic business brokerage model, Bucky's ideas challenge me to consider what else can I do to create an entirely new and better model for buying and selling businesses? If you have ideas I'd love to hear them.
Likewise, I challenge you to think about what can you do in your industry that is revolutionary, not evolutionary? What paradigm can be shredded, discarded, and replaced by a new more efficient and effective model for your industry?
Economist Milton Friedman provides a compelling rationale for the benefits of free enterprise directing resources versus political control over the means of production in this fun exchange with a very youthful Phil Donahue.
Is your business designed to be sold? Let's look at two nearly identical businesses. Each is selling the same product or service into the same market. Each business is grossing $5 million in sales and netting $500,000 in profit. Each pays the same salary and benefits to its owner.
The owner of Company A works 70 hours per week, works most weekends, and has never taken a vacation longer than a week. The owner of Company B works 20 hours per week at his company, is a leader of his professional trade organization, and volunteers in multiple community organizations. He is regularly off visiting his grown children and grandchildren in other cities around the country, spends a month every winter in the tropics, six weeks every summer at a cabin in the mountains, and plays golf or skis at least one day a week when he is in town.
Which business would you pay more to own? Which is most like your business and your life?
Chances are that Company A is so dependent on the owner's presence in the business to close sales, solve problems and make every-day decisions that most buyers will have great difficulty replicating the performance of the business once the owner has sailed off into the sunset.
Company B, on the other hand, likely has systems that control most day-to-day activities, long-term employees who are incented to support the vision that the owner developed for the business, and are empowered to make decisions for the business and take actions that are aligned with that vision. The owner simply provides guidance and monitors development of the business and his employees according to the plan, and works with his key staff to evolve that plan as business conditions change.
And business sale price and sale potential is not the only issue here. What would happen to each company if the owner suddenly died or became incapacitated? Not only may Company A be more difficult to sell at a good price, the entire company is at risk of quickly failing. Without the expertise of the owner, that business is probably unsellable.
If your business and the time you spend in it is more like that of Company A than that of Company B, then the time to develop and begin implementing a plan for change is now. One of the best ways to make that happen is to work with an experienced coach who can guide you through the planning and implementation process and connect you to an advisory group consisting of other owners and CEO's who meet in a peer coaching framework. As peers, other CEOs can offer you a "been there.... done that" perspective. There is a level of trust and belonging with these CEO peer groups such as TAB (The Alternative Board) that is difficult to gain in other ways.
Following is a short video that illustrates the value of a peer group.
Phil Fischer is a principal at Stratyx Business Value Consulting and The Alternative Board of Greater Portland. He offers a range of business assessment, leadership development and operational development programs designed for family-owned businesses & other small business owners. He can be reached at 503-806-2218 and email@example.com
Ever wonder how small business owners collectively view political issues? You might be interested in reading the National Small Business Association's report "The Politics of Small Business". If you know many small business owners then many of the results may not surprise you. For example, small business owners are independent, critical thinkers with only less than 18% voting a straight party ticket.
Some of the other results include:
How would you like to see city, state, and local government help small businesses?
Account receivables aged greater than 30 days present a red flag for business buyers. Cash flow is the life blood of a business and having a longer receivable collection period can starve a business of cash.
Beyond the concern about cash flow, a slow collection of receivables can be an indication of problems such as:
I'd like to thank Rebecca Conner at Merriman, a wealth management firm based in Seattle for sending me a link to a white paper published by Credit Suisse titled, "Life After an Exit: How Entrepreneurs Transition to the Next Stage". If you are considering selling your business at some point in time, it's a worthwhile read. The focus is summarized in a quote from the article, "The challenge for an entrepreneur upon the sale of a company is twofold: how does one find new purpose, community, and structure for time; and how does one master wealth management and its new challenges and responsibilities?"
The white paper helps address not just the complex, and often surprisingly emotional issues related to selling, but also some of the practical and financial issues post sale. The article has several case studies that go beyond the mechanics of exit planning and delve more into how other entrepreneurs found purpose after selling, what emotional issues they went through post-exit, how they developed meaning in life through relationships and other activities, and the issues surrounding developing and evolving a personalized strategy for comfortably managing wealth. This is one of the most relevant and holistic white papers I've read about exit planning.
The following Axial Market article describes things a business owner should do after they sell their business. I agree with the points in the article but many of the things the author suggests doing, such as "get an estimate of the taxes owing and when", should be considered well BEFORE a business sale is completed, not after. The writer has more than 30-years of M&A experience, so I don't think he meant that you should wait until after a business sale to do any of this planning. Rather, he is speaking about the unfortunate reality that many business owners haven't done pre-sale planning. If you are considering a business sale, these are great things to think about or do during the exit planning process. Don't wait.
Here's a link to the article: The 9 Things You Must Do After You Sell Your Business
Over the years I've heard many "experts" give rather flippant answers to the question posed by entrepreneurs of what type of legal entity they should choose when organizing their business. Yet, depending on what you are trying to achieve there can be dramatically different restrictions, opportunities, and pros and cons of each type of legal entity. Just one example: if you want the ability to offer more than one class of stock, you won't be able to do so is you organize as a S corporation, but you can as a C corporation.
One of the best articles I've read about the choice of legal entity comes from Joe Wallin, an attorney at the Seattle office of Davis Wright Tremaine LLP. Here's a link to the article: Choice of Entity
Many people are aware of rock star Bono's commitment to humanitarian global causes, but some people don't realize that Bono believes that capitalism is a better answer to the world's problems than aid. Check out the following video where Bono says "Commerce is real - aid is just a stop gap. Entrepreneurial capitalism takes more people out of poverty than aid, of course we know that."
Buy and Sell Well
Codiligent Business Brokers' blog on entrepreneurship, capitalism, and successfully buying and selling businesses.
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