The First Step to an Exit Strategy
When do you want to sell your business? If you're like most business owners, the date keeps shifting. Like driving on a flat stretch of highway, you keep going, and yet the horizon never seems to get any closer.
Josh Patrick, founding Principal of Stage 2 Planning Partners, a Vermont-based private business owner wealth management firm, calls this phenomenon 'Perma Five.'
"If you ask a business owner when they are going to leave their business," says Patrick, "they'll say five years from now. If you ask them three years later, it will still be five years from now. Business owners know they can't afford to leave their company because it doesn't have enough value to fund their retirement. They're not sure what they need to do to increase its value, but they think they will be able to fix it in five years."
"Without a clear plan to increase its value," adds Patrick, "a business owner risks being taken out boots first still five years away from being ready to sell."
To get out of the Perma Five cycle, Patrick recommends business owners divide their time between tasks that are either operational or strategic and focus on eliminating operational tasks one by one.
A business with an owner who is operationally irrelevant yet still strategically involved has a lot more value than a company in which all the little decisions are run through the corner office.
To become operationally irrelevant, Patrick recommends business owners create a summary of the key elements that drive their business. Just like scanning a car's dashboard to check your speed, you start looking at the metrics on the dashboard and managing the numbers, instead of wading into every crisis to try to fix it.
So what should be on your dashboard? I know manufacturers that track their work-in-progress (WIP) to the day and Internet companies that monitor their conversion rate in real time to the decimal point. Your dashboard should include a few basic numbers that reveal how you're doing now and ideally how your next few weeks are shaping up. In my companies, I kept my dashboards limited to the basics:
• Cash position
• Revenue on the books for the month
• Customer retention rate
• Rolling net promoter score (a measure of customer satisfaction)
I asked my controller to give me my dashboard once a week, along with any checks that needed signing. She always wanted me to sign checks, and I always wanted my dashboard, so we had a weekly rhythm that worked for us. My dashboard helped me start managing the numbers instead of jumping into every operational problem. It also gave me an objective way to discuss problems in the business with my managers without assigning blame or having issues digress into a personal attack.
If you can make yourself operationally irrelevant, you'll be able to sell your business if you want to, or, if you don't, you'll have more fun running it knowing you can focus on the strategic issues without getting marred in the operational details.
John Warrillow is the author of Built To Sell: Creating a Business That Can Thrive Without You, which will be released by Portfolio/Penguin on April 28, 2011.
JOHN WARRILLOW | Columnist | Sellability
John Warrillow is the author of Built to Sell: Creating A Business That Can Thrive Without You and the founder of The Sellability Score, a cloud-based software company that helps business owners improve the value of their company.