The Importance of Understanding Money

Let’s face it: some people just aren’t good with money. Whether it be reading financial statements, balancing a checkbook or managing cash flow, money can be a real struggle. This lack of understanding can also carry over to your business.

Money is the fuel for your business. Just like your car needs fuel otherwise it won’t run, your business works the same. Money is the driving force and energy behind all of your business processes. Whether it be your marketing activities, innovation strategies or even just how you pay wages to your employees, money is pumping life into these important functions. Without these functions, your business would not be able to survive.

If you take an even deeper look into your business, you will realize there is not one part of your business that is not or has not been impacted by money in some way, shape or form. Here are a few other reasons to start getting an understanding of your money.

Less Worry, More Freedom | When you don’t understand your money, you’re faced with a cycle filled with anxiety and panic. You might be constantly worrying about how much money you have to pay the bills, pay your employees, make routine payments or just keep up with the maintenance. And when you find out money is too low, you’re faced with the panic of not knowing where the money will come from.

This could all be avoided by having a better understanding of your financials. When you know what your monetary situation looks like at a point in time, you are able to eliminate some of those hidden surprises. By doing this, you are able to take the time and energy you spent worrying about your money and put it back into other aspects of your business where it can be better used.

No Discrimination | You might be reading this blog and thinking, “this makes sense for numbers people, but this doesn’t really apply to me.” Wrong. The understanding of money does not discriminate based on what type of business you are in or what position you hold. In any industry or role, it’s important to understand what the numbers mean and their impact on you (and you on them). Be it a dog walking business or a tech startup, understanding your money can help you create a top notch business that you know both inside and out.

Educated Decision Making | When you’re making business decisions without understanding your financials, you’re taking a shot in the dark and hoping it works out for the best. Understanding your money gives you more power when it comes to making decisions that will impact your business. There will be less guessing and more knowing, which will ultimately lead your business away from the negative side effects of making blind decisions and hoping you will be able to financially support them.

Money is an integral part of your business, and understanding it can help your business – and you – make smart choices, have less stress and gain more financial freedom. To get started understanding what’s going on with your money, consider visiting with professionals, taking a class or even reaching out to other business people. If money is getting you down, just remember help is available!

No Man’s Land: Beyond Growth

If you’ve been following our No Man’s Land blog series up to this point, you’ve learned what causes you to enter No Man’s Land, the troubles you will face there and how to propel your company forward and out of this phase. By this time, you’ve thought through the four Ms (market, management, model & money) and believe you can lead your company through No Man’s Land while maintaining enough momentum to carry on, even when times get tough.

However, there is one question that needs to be answered: should your company grow? Along with that question come other things to consider:

  • Are the benefits of working through No Man’s Land always worth the large costs?
  • What does the future look like after No Man’s Land?

Some entrepreneurs are determined to grow, no matter what obstacles and costs they may stumble across. Others may want to stay at the size they have established, while innovating and working on improving their current assets. There are also those who are ready to look at their endgame and sell the business.

So, should your company get big? Well, there really is no correct answer. The journey through No Man’s Land and the climb out of it reflects not only the financial wellbeing of the business and its ability to apply the four Ms, but it also looks into the determination and ambition of the entrepreneur. Leading a company after it passes through No Man’s Land requires taking a step back, and looking at the company from an investor’s perspective. Is the business making money and providing return on investment, or is the business not going to survive the journey it went through? To be successful, the entrepreneur must decide whether running the business in a way that keeps investors happy is also consistent with their own values and dreams.

The decision of whether or not to grow your company can be terribly difficult when you don’t know what exactly will happen in the future. It is hard to decide if growth is really what is best for the business. Each path, growing or not growing, carries risks and benefits that are often hard to weigh.

Finding answers to these types of questions will help you determine a course of action that will be satisfying in the long run.

There are many reasons why entrepreneurs make these decisions, and they don’t all focus on financials, market share or the product, to name a few. In the end, the decision of whether to grow big or not becomes a personal case. You need to sit back and focus on the task of making this tough decision and ask yourself a couple questions:

  • Why did you get into business in the first place?
  • Is the business still delivering what it was set out to provide?
  • What do you hope to gain from the business?

 

 

 

 

 

No Man’s Land: Market Misalignment

Do you ever feel like you’re losing touch with your customers? Maybe you feel like you’re not meeting their needs anymore, or you’re not sure what you should offer them to keep them satisfied. Early on, a company will grow on the strength of a simple exchange between the customer and the entrepreneur. However, once the company grows, the demands of the entrepreneur intensify and he or she is physically unable to adapt the company to meet the ever changing needs of the customer. This can result in the company losing its competitive edge, and ultimately, losing sales.

This stage of growing out of touch with customer needs is known as “market misalignment,” and it is the most fundamental peril companies face in “No Man’s Land.”

Market alignment is obtained when a business consistently delivers the value its customers desire. Sounds simple, right? Not exactly. It’s one thing to be aligned, but to stay aligned is a whole new world. According to Doug Tatum in his book No Man’s Land, “The key to market alignment is through innovation.”

But how does innovation happen? It comes when customers ask for a new product or service that requires a substantial change to your business model. Businesses become living laboratories, given over to a process to discover what is the right product, service and target customer. If a company is not innovative and meeting customer needs, they may face market misalignment.

Another reason your company may be facing market misalignment revolves around the fact that the company has made promises it cannot keep, or neglected to make promises that should have been made. The key is for the company to make the right decisions, ones that lead to growth and profits. Deciding which promises to make is part of strategic planning, and these promises can shape the company’s future of market alignment.

Still not sure if your company is aligned? Here are some signs you might not be:

  • Sales growth has stalled
  • Losing competitive edge
  • Tensions have arisen between promises made and delivery
  • Quality problems are arising
  • Increase in customer complaints
  • No direct contact with customers
  • Unable to distinguish customers who will bring growth and those who won’t

Any of these sound familiar? If they do, you’re probably wondering how you can beat market alignment. There is only one sure fire way:

Companies need to surpass the entrepreneur’s physically limitations by institutionally capturing the value proposition that has been developed through the entrepreneur’s unique insights”-Doug Tatum

To put this in simple form, the company must recreate synthesis between marketing and operations, and make use of employees and processes rather than one person’s effort. To get the business to be good at what the entrepreneur did well with customers involves three steps:

  1. Entrepreneurs should identify what exactly they are good at.
  2. Systemize delivery of the value proposition by creating a system where everybody behaves rationally and plays a specific position. Although not always simple, developing processes to capitalize on the entrepreneur’s talents becomes a huge part of the company’s competitive advantage. Concentrating on the value proposition is the most important thing a company can do as it grows.
  3. Develop ways to measure the results of the process.

An entrepreneur can find the skills to lead his or her company through No Man’s Land if a value proposition is institutionalized within the business, as well as identified. Creating a process to ensure that the entrepreneur’s core vision and talents are upheld also helps a business get out of the maze of No Man’s Land by creating competitive advantage that allows for the company to be successful and profitable.

Our next blog on No Man’s Land will focus around management and the dangers to your business of outgrowing it.Missed the first two? Check them out here and here.

 

 

 

No Man’s Land: An Introduction

If starting a company is difficult, leading a company once the business has caught fire is infinitely more so. Thousands of companies each year approach the dangerous transition known as “No Man’s Land.”

No Man’s Land : “a transition that a company goes through when it is too big to be small and too small to be big. It’s something every company has to go through in order to grow to scale. It’s a highly fatal transition and many companies don’t make it.” – Doug Tatum

Rapid growth may be your dream, however we’re here to break the news to you that it doesn’t come easily and is usually rife with dilemmas. During your time in No Man’s Land, growth often sparks periods of self-discovery, allows you to build discipline and ready yourself for the inevitable transitions that businesses will face throughout their life cycle.

Unfortunately, it also comes with an agonizing battle between the natural tendencies of a lonely entrepreneur and certain immutable laws of growth. The result is confusion, frustration, stagnation, loss of employee morale and even financial failure.

Some common trigger points to signal your emergence into No Man’s Land include:

  • Revenue stops growing
  • The people you started with don’t seem to be the people you can grow with
  • You need more capital and investment

Yes, we know it sounds pretty bleak. The good news is that it doesn’t have to be. Rather, it’s important to not only know about the ride ahead, but be prepared for its twists and turns.

Plus, we’re here to help you along the way. Over the next few weeks, we’ll be talking about how to navigate “No Man’s Land” and come out on the other side. Here’s a sneak peek:

  • Align your growing company with its market
  • Execute the necessary changes in your management
  • Confirm that your financial model is scalable
  • Attract money and make smart decisions about financing your business

Stay tuned for “Too Big to Be Small, Too Small to Be Big!”

P.S. All of these blogs will be based around the concepts in “No Man’s Land” by Doug Tatum

 

Sell Your Business Once? Or Twice?

It’s never too early to begin with the end in mind. After all, there’s so many things to consider when planning for your exit, especially if you’re going to sell.

For instance, did you know there are different types of buyers? Yes, there’s more to it than who will offer you the most money. Let’s have a discussion about strategic versus financial buyers.

A strategic buyer is often a competitor, supplier or customer of your firm. When you sell to a strategic buyer, you almost always sell 100% at once and then go on your merry way.

A financial buyer, on the other hand, is a group such as a private equity firm, venture capital firm, hedge fund, family office, etc. Selling to a financial buyer such as a private equity group (PEG) may result in selling your business twice. Why? PEGs invest in companies they feel they can grow and increase their marketability for a future sale. Typically, PEGs will look to buy 75 to 80% of your company’s equity. Current ownership will retain the balance. When the PEG sells the company five to seven years later, you will be paid out your remaining equity and in some cases this 15-20% will be the same or more than the original sale of 75-80% of the company. This is referred to as the second bite of the apple.

So how do you know what’s right for you and your company? Here are a few pros and cons to consider for each:

strategicfinancial

S-Curve of Business: Stage 5

Don’t get confused. Read about Stage 1, Stage 2, Stage 3 and Stage 4.

Welcome to stage 5 of the s-curve of business, also known as breakthrough. If your business has reached this point it means your dream has taken off. As a result, you’re likely wearing many hats. You could be getting new customers, keeping on top of operations, delivering on promises made, making sales calls, keeping your current customers happy, and so on. In other words, you’re finding it very hard to say no, especially when each of these things is helping your company grow and thrive.

We get it. It’s an exciting (and probably incredibly exhausting time). It’s also a time when things can start to go very wrong. Why? You simply aren’t physically capable of doing everything yourself anymore.

This is the issue at the heart of the breakthrough stage – scalability. In other words, can you grow your organization so it operates on a larger scale? Or do you go back to where you were before?

This is a critical choice for entrepreneurs. While it’s great to see your dream grow and thrive, scalability is not always fun. You’re going to have to make some excruciating decisions, particularly about people. Are the right people in the right seats? Do their personalities and work styles jive with the culture and mission of the company you created?

Further, you have to be able to fund operating on a larger scale. Raising capital is tremendously difficult. In essence you are reinventing your company and transferring your value proposition (a statement that summarizes why a consumer would buy a product or use a service from you). Before the value proposition of your company was YOU. Now, it’s something larger and it needs to permeate through the entire organization.

These are tough decisions to make, but they matter if you want a healthy, sustainable business. It’s also important to remember how you got here and the importance of each step along the cycle. After all, all growth companies go through numerous S-curves during their existence, especially as they refine their products and services for their customers. Don’t believe us? Just look at the progression of companies like Apple or Microsoft.

So as you walk down the S-curved road, make sure to learn from each stop along the way. Generally speaking, the five stages are linear. If you skip over one, you may end up paying the price somewhere down the road.

No, we’re not being dramatic. Here are a few examples of things that may happen:

  • If you don’t formulate and go right into concentration, you’ll end up with a lot of activity with no direction or purpose.
  • If you don’t do the legwork of concentration, you’ll miss out on valuable learning experiences and insights that only come from hard work and perseverance.
  • If you skip out on the momentum stage, you’ll potentially miss the conversation related to how your company can run on a larger scale. Think clarification of the decision making progress.
  • Without taking the time to think through your future in the stability stage, you’ll miss the crucial conversation of where your business should go next.
  • Getting to breakthrough allows you to reinvent your company and build a larger, more scalable model.

So enjoy the journey, but also understand the importance of each of these stages. And we hate to sound like a broken record, but a trusted business advisor will be able to help you navigate each step. If you want to learn more, let us know. We’re always here to help.

Breakthrough

 

S-Curve of Business: Stage 3

And now we’ve moved onto the third stage: Momentum. But before your read on, make sure you know about Stage 1 and Stage 2.

So what exactly is momentum? Typically, this is the stage when a company is moving toward critical mass, meaning, people think your idea is not only valid, but pretty cool. With this stage comes lots of great things, like …

  • People want to work for you.
  • You’re growing and expanding at a rapid pace.
  • The word is out about your company or product and people are beginning to jump on your bandwagon.
  • You’re making phone calls and more of them are being returned.
  • You’re advertising and people are responding.
  • You’re closing sales.

Can you feel the momentum building? While it’s exciting, it’s also important to remember that you can’t stay idle. You will constantly need to refine your idea and enhance it to continue the momentum.

While the momentum stage is marked by rapid growth, it can also be a volatile time for business. Basically, three things can happen:

  1. The business retreats from rapid growth and remains small.
  2. The business might lose its way and end up failing because of the pressures, changes, and decisions demanded by rapid growth.
  3. The business chooses to make the transformations necessary to become a larger company. Nearly every large company goes through this at one time in their endeavor.

If you want to cultivate momentum in an organization, you need to incorporate:

  • Optimism
  • Clarification on the decision making process. Read, people outside the “inner circle” need to be able to make some decisions
  • A Kick in the Pants
    • Shake-up the inner circle – who else can you add on your leadership team? What new ideas can you bring?
    • Do something radical – just remember your mission and vision
    • Mess up and then clean up the business

But this isn’t the end of the s-curve. We still have more stages to go. Up next: stability.

Momentum