John Warrillow, author of Built to Sell, answers questions from readers about building a sellable business.
Decide on one path and never look back.
I've had my company up and running for five years. We've gotten past the start-up days where it felt like survival most of the time. We have a steady group of customers, and we've gotten through the recession with flat revenue, and now we're starting to grow again. I feel like we're at a fork in the road: We're no longer worried about making payroll, but at the same time, I don't see the potential for creating a huge business in the future. I'm not feeling the same passion and motivation for the business that I used to feel when we were just starting up—I'd like to get re-energized, but I'm not sure what to focus on. Any suggestions?
Congratulations on surviving the first few years—and the recession. I think it is natural to feel a slight sense of letdown when the adrenaline of running to survive is no longer pumping. It's also good that you're assessing your goals for your company rather than just blindly chasing growth for growth's sake. Based on the point you're at now, I see three basic models for going forward:
1. Scale up and sell. You could choose to scale up your business and make growth a priority in order to sell it in the intermediate term. To do this, you'll have to find one product or service line that you can teach employees to deliver (or that you can program technology to handle) and hire a sales force to sell it. You'll likely need to pour your cash and profits into growing, which means you'll have to be content with drawing a basic salary and avoid declaring dividends for a while. Depending on how fast and big you want to grow, you may have to take on outside investors (angel, venture capital, private equity). If you're successful, you'll likely have a business you can sell down the road, which you'll need to do to satisfy the shareholders you invite to invest.
2. Focus on building a great company, not a big one. My friend Bo Burlingham wrote the book Small Giants: Companies That Choose to Be Great Instead of Big. Burlingham describes a growing number of CEOs whose focus is to build an amazing company, not necessarily a big one. He points to companies like Anchor Brewing, which shunned an initial public offering needed to raise capital to increase brewing capacity in favor of staying small and focusing on brewing great beer.
There is something very special about building a truly outstanding company piece by piece. Almost like an artist creating a masterpiece, the entrepreneur focused on being great instead of big can take his or her time, sanding off rough edges over months or years without the pressures to grow and cut corners. Assuming you retain 100 percent ownership of your business, you can use your company as a piggy bank, declaring a fat annual dividend. If you build a great yet slow-growth company, your end game might be to sell your business to your management team over time or to find an outside buyer looking for a premium offering to their lineup. Expect to get a lower multiple for your business when your growth rate is modest.
3. Be a guru. The third option is to shun building a traditional company and to build yourself up as a hired gun. While there is little leverage in the guru model, the better you get, the more you can charge for your time. Provided you don't take on a lot of extra expenses, you can create a very nice lifestyle for yourself as a guru. Keep in mind it is virtually impossible to sell a guru business, nor is there the same satisfaction you get from building a great company, but you can create a nice income for yourself without many of the hassles that preoccupy a lot of business owners.
What you want to avoid is mixing these objectives. For example, if your goal is to grow a business, you can't strip out all of the cash each year in the form of dividends as you could if you were slowly growing a great business over time. Likewise, if you want to build a great company instead of a big one, you can't succumb to jealousy when you see your entrepreneurial peers enjoying big-time exits. If you're a guru, don't fall into the trap of hiring a bunch of staff or renting more office space than you need—there's no point: you're not building a company to sell, so the financial objective should be to maximize your annual take-home pay from one year to the next.
So I think the answer to your question is to decide on one of the paths above and never look back. All three models can create a wonderful lifestyle. The only danger comes when you think you want one thing but act as though you're chasing something else.