How do you build a business when capable talent is scarce or unaffordable?

Skills are short globally. One of the big issues delaying the Trillion Dollar infrastructure projects in the US is the scarcity of certain skills, such as surveying.

This shortage of skills is not a problem if you don’t want to grow. 

But unfortunately if you’re not growing, you’re dying because your competitors are doing everything in their power to grow. And new competitors are coming in all the time.

As an example, 282 000 people in the USA in the last quarter who lost their jobs through Covid didn’t file for unemployment insurance because they found opportunities to service customers using the skills and gaps they had seen in their previous employment! Many of these are your new competition.

If you want to grow, or understand that you have to grow, then build a business that lessens its reliance on skills that are scarce and expensive. These skills are usually also unreliable because if they are so scarce, they can move on to whoever is willing to pay them the most.

Listen to this podcast from The Money Show where Pavlo Phitidis discusses how to build a business that doesn’t rely on scarce skills and talent.

Structure determines behaviour. This means you must build a business differently to get the result you want. Find out exactly what problem you solve for a clearly defined target market, with a consistent, good experience, then build the systems that deliver that outcome reliably.

A system is a series of activities, in a sequence that can be measured and trained.

You can now hire people, not because they bring some of their own superstar ability to the role, but because they can be trained to operate the system.

This approach, of hiring system operators, rather than mavericks and gurus, has a number of benefits:

  1. Recruitment is simplified as you can assess through simple questions whether someone has the experience or capability to perform the tasks that make up the system.
  2. Your employees are motivated and have purpose as they know what to do, when to do it, to achieve a specific outcome. Their performance can be clearly measured and managed.
  3. Your business becomes less reliant on you, as the systems that underpin it, are documented, trainable and don’t depend on a few superstars to get things done.
innovation

3 strategies to innovate fast, repeatedly, and profitably

If change is the new constant, responding to it will not win the game. Driving change so that competitors must react and play by your rules is a better approach. Put differently, innovate, or die.

Listen to this podcast from The Money Show where Pavlo Phitidis unpacks three strategies to drive innovation in your business.

Innovation shapes itself differently but ultimately offers one of two outcomes. It all begins with the “something”. You are doing something better with what you have or doing something better with something new.

What to innovate?

Here are three simple strategies that you can use to yield the most effective innovation that can and will be implemented, fast in your business every 6 months.

Suck

From marketing to operations, sales to procurement, your employees are active daily. They are performing activities to get their jobs done. Engaging with them to understand what actions they perform and how they perform them opens a conversation on how things can be improved. Often, the tedious, mundane tasks are the first ones your employees will volunteer for improvement. And often, these tasks lend themselves to either digitization or redundancy. Across your business, these conversations yield insights into the many minor process improvements that add up to create a more efficient outcome and motivated team. Imagine one such innovation each month. Then imagine the impact over 2 or 3 years. Besides preventing cholesterol building up in your business systems, you build a culture of accountable innovation that gets implemented as it’s built.

Pull

A growing company in a competitive environment is relevant to its customer’s needs and wants.

  • Needs solve a problem through your product or service.
  • Wants create the experience your customers desire.

They are miles apart! The benefit of positioning your business like this means that your company is built from the customer back to the product or service, not the other way around. Immediately this opens the door for conversations with your customers that go beyond a blow-by-blow product advantage over competitors. It talks more to the problem that your customer has that you solve and the experience they want to support you. When things change, for example, legislation, competitors, technology and other, the status quo of your customers change. The problem might get bigger or appear faster and the experience they would want in return would change too. As the business owner, identify your 5 toughest customers and build a relationship with them personally. Be sure that besides being demanding, they are themselves growing. Tough, awkward conversations become insightful inspirational conversations if they are intentional and enhanced by a genuine investment in relationship. It’s these conversations that identify the earliest signals of change and insights into how the experience your company generates needs to change to keep ahead of them.

Push

Across your supply chain, sort your suppliers into three categories of importance.

  • Vital
  • Important
  • Helpful

Then, within the vital and important categories, arrange to speak and meet with senior managers or owners to set an annual coffee conversation. That conversation must center on you learning more about the product or service your supplier provides you with, what changes are driving innovation in their businesses and how that will change and shape their relationship with your business. What you are looking for is how their innovation can drive yours through your supply chain.

In all three strategies, the relationship-driven engagement will yield the most uncomplicated innovations that you can make with the greatest degree of follow through and execution. If time waits for no-one, and if change is the only constant, innovation needs to lead, not respond to that of your competitors. Develop this system and implement it as religiously as you’d do your month-end billing.

Aristotle said it “We are what we repeatedly do. Excellence, then, is not an act, but a habit”.

Why and how to get outsourcing working

Recently Pavlo was asked: “Business is picking up nicely from last year. I find myself outsourcing more of my business functions to keep up with my delivery. When should I employ more people and insource if the current outsourcing model seems to be working well? Is this strategy sustainable?”

Listen to this podcast from The Money Show where he responds in a discussion how to design a solid outsourcing model that can enhance your business’s growth.

Why did you outsource in the first instance?

The lockdown shock should have forced most businesses to focus on capital preservation and shedding costs as a result. After that, the following action ought to have been resetting the business to meet the new reality. A harder-to-find customer, more apprehensive and skeptical, nervous of spending. Once you get that right, it’s all about rebuilding your business in such a manner that it responds almost instantly to the shifts and changes in your customer behavior. This is all about keeping the focus simple and your business agile. What you used to do in-house that was outsourced to lighten the cost load and risk in the business saw many of us outsource services.

How did you outsource to get it working so well?

We spoke about the onion method on previous occasions. With 3 layers of inner, middle, and outer layers, use it as a framework to outsource. What is core and strategic to your existence, you own and never outsource. What is strategic but not core, you outsource to a matching partner whose service you are buying is core and strategic to them. This requires a medium-term commitment and takes the form of a strategic partnership rather than just a service provider.

Can you correlate your growth to outsourcing?

If your model is working well, why? A good partner is only as good as the service they provide. That service is only as good as you have defined and delineated it and how you empowered your partner to succeed at delivering it.

The entire automotive industry works on this basis through tier 1,3, and 4 suppliers. Using a combination of JIT and Kanban systems, the provider of tires knows precisely when and how to deliver the individual set of tires for a car on the line. Supplying and delivering tires Is outsourced in terms of inventory, storage, delivery, etc. This drops the cost of car manufacturers and keeps that car affordable.

In our business owner’s world, the simpler operating model, due to a tighter and narrower focus on core and strategic activities, a well-defined outsource requirement, and partner selection means that he can keep his eye and attention on fewer moving parts. Simplicity is scalable, and scalability is growth.

Does it affect valuation?

What makes your business special, how it works, what makes it happen, are you growing, and what’s your role? 5 levers drive valuation. A well-designed outsourcing model that great strategic partners service helps each of these levers to support your valuation.

Let’s correlate the outsourcing example to each of them.

  1. Special – a business that is expert in understanding and engaging customers distinguishes itself from it competitors who rely on product and price advantages
  2. Function – fewer moving parts make a simpler business improving its efficiency and productivity
  3. Team – a simpler business allows for a more coordinated and integrated team. Of 10 000 surveyed companies that wanted to grow, 95.4% of their employees were unaware of the growth strategy. Too big means too slow.
  4. Growth – a simpler business means more time leading growth than running operations
  5. Dependence – a simpler business is easier to transfer reliably

In all cases, outsourcing leads to a better final valuation and, as we all know, this is the end game!

Why you must make sure to have your cake and eat it!

Starting, building, growing, and sustaining a business is hard.

Because we have little funding in this process, we do it with a view to secure revenue as fast as possible. But this develops habits that, if we don’t change them, builds a business that generates income for us, but that can’t be sold.

94,6% of businesses started, fail to sell and close.

A life lived successfully building an income generating business, is a life lived poorly when you cannot monetise your years of risk and investment because you cannot sell your business for a capital gain.

Rather, we should have our cake (an income generating business) and eat it (a capital growth business). Both are possible and realising this too late is a costly mistake.

Listen to Pavlo Phitidis discuss how to get this right on this podcast from The Money Show

https://omny.fm/shows/small-business-focus/small-business-focus-building-a-business-that-gene

Think of it objectively:

If you have R1000 and you want to invest in the stock exchange, with a view to hold on to it for 5 years.

You can ear dividends – let’s say R200 per year. At the end of 5 years you’ve enjoyed R1 000.

In your business the income dividends come from a salary, other perks of owning the business and dividends.

In 5 years you now want to realise its capital growth

Let’s say your share is now worth R2000 – you sell it and gain R1000 on your initial investment.

You had your cake and ate it as the R1000 you made in dividends covered the R1000 invested AND you made R1000.

The third element to this is that the share has to be interesting to someone, to buy.

In our businesses, this so often doesn’t happen because the business owner is central to the continuation of the business. Without you there, there is no business.

You need to think with both an operator and investor’s hat as you run and build your business. The sooner you start thinking like this, and behaving differently, in accordance with this, the better your chance of making it into the 5.4% who can sell their business, and secure their retirement, and legacy.

Productivity

How productive is your business and why you should lose sleep over it?

Increasing your productivity should be a key focus as a business owner. It means you leave nothing on the table, maximizing your value all the time.

Pavlo discussed the difference between productivity and efficiency, and how to calculate your business’s productivity in this podcast from The Money Show:

Increasing your productivity should be a key focus as a business owner. It means you leave nothing on the table, maximizing your value all the time.

I recently met a manufacturer in the cosmetics and homecare industry. They make creams, ointments, soaps, and the like.

Looking to exit, a valuation of $20m had been offered and they wanted a view.

Their stunning, clean factory glistened with shiny machinery and equipment and a professional team gleamed with pride. The business owner felt that they could do better than the offer. We got to work.

After a day, we discovered that the business was running at 46% of its productive capability. After another day, we learned that the business enjoyed an 87% efficiency indicator.

What does this all mean?

Efficiency is about doing the same with less, while productivity is about doing more with the same. They are miles apart. Closing the productivity gap would add another $15m to the current offer based on the same valuation multiple. What’s best, is that I could be done in just 2 short years. 

How to calculate it?

Productivity measures the gross value added per worker

Productivity = turnover – consumption costs [(raw materials used in the production process + energy and materials + water + rates and taxes + consumables and packaging) + (services including sub-contractors + plant and equipment hire + tech, marketing, HR, accounting services + rent)]

__________________________________________________________________________________
Divided by workers [owners and employees all active in the business]

How to get it right?

  1. Mindset
  2. Awareness and attitude – a growth mindset is vital
  3. Respect time – invest it or spend it
  4. Leadership – less time doing and more time leading, mentoring, delegating

  1. Diagnosis
  2. Core, strategic vs everything and anything
  3. Outsource expertise
  4. Increase efficiency, and innovate activities

  1. Execution
  2. Team driven to institute
  3. Measured to manage

  1. Change
  2. Culture and ethos of who we are and how we do what we do
  3. Hire for it, fire for it, reward for it

Scale-Grow-Dominate

Why?

In a competitive world, growth is vital for survival. If your company is not growing, it’s dying. You also need to maximize your economic prime’s impact as a business owner and become the best you can be to maximize that return-on-time during your prime.

Successful growth sees revenues and profits increase on a consistent, reliable basis. That would be fine in a less competitive world. To maintain and grow your market share you need to grow well above industry growth rates. To get this done, need to be investing 70% of your time on NLG.

What goes wrong?

  • Clarity of purpose – growth today needs to be driven by intention tomorrow. Being clear about why you do what you do and what you want from your business over time leads to simpler, crisper decisions and leadership
  • More time leading, less time doing – If your time is consumed in daily, weekly, monthly operational activities such as crisis management, failures in delegation, rework, unscheduled communications, administration, and the like, your ambitions to generate sustainable NLG are likely to falter.
  • Freedom within a framework – because you carry all the risk, your ability to delegate responsibility and control over elements of the business to your team impacts your time demands and their confidence
  • Finding, winning, and holding customers – crafting and implementing marketing and sales strategies that get traction and stick result in brand confusion and low profitability
  • Growth drives chaos – when you grow, chaos across operations and administration pull you back into the guts of your business and erode profit
  • Right people doing the right thing – without the right skills, commitment, and effort from your team, you remain square and center in daily operations. Getting your team to do the heavy lifting is essential
  • Growth – when your NLG disassembles the operational activities in your business, creates confusion and uncertainty in your team. It will not deliver increased profit at a higher rate than increased revenue. Increasing revenues with rising costs increases the quantum of profit, not its value, complexity, and risk.

The Solution

We will work with you

  • See the wood from the trees – run diagnostics to understand the foundation upon which growth is driven, the space into which growth can be accelerated, the levers that point to where growth lies, and the aptitudes of you and your partners, which can best be utilized to win the growth you want
  • Clarify purpose into 10, crisply defined, measurable growth goals and load them onto your company dashboard. Monthly we will evaluate progress towards the goals to ensure that they are achieved in our time together.

Working with you and your team, we will:

  • Position your business to deepen market share in amongst all the noise, change, and competition in your market
  • Organize all your commercial functions into a single, simple, smart system of deliveryto generate consistent organic growth
  • Engage with your team to create the commercial systems, embracing their insights to engender ownership, value, and accountability so that they run and lead the system of delivery to release 70% of your time
  • Apply that available time to identify next-level growth opportunities that leverage your system of delivery and team to ensure that revenue growth is supported by moderated cost growth to deepen profit
  • Collecting data across all the systems to support decision-making further builds a body of evidence in support of any capital raise efforts, essential to fuel that growth.

The Outcome

Structure determines behavior, which generates an outcome determined by the design of that structure. Simplifying the design of your business scales it. Successfully done, your path to accelerated growth will deepen value and let you spend your time where it counts most, next-level growth

How we make it happen

Contact us

Succession

Why it matters?

Succession of a business is fraught with emotional and practical challenges, whether in family businesses or across the professional services sector. Success is rare, with 73% of succession attempts failing at a significant cost to the founders, successors, employees, customers, and suppliers.

For family businesses, failure costs both generations the family’s wealth-generating and emotional wellbeing. In private companies, it erodes or stalls the retirement wellbeing of the exiting generation and robs the next generation of their future wealth creation path. All lose.

What goes wrong?

  • Mindsets – The exiting generation has an eye on retirement and their final wealth generation through a sale of shares. Successors look to carve a wealth creation path in the years ahead through reinvestment. The conflict, conscious or not, seeds the frustration experienced by both the timing and method of succession. The different mindsets prevent effective planning or erode trust and the relationship increasing the complexity, judgment, and probability of succession success.
  • Relationships – poor timing, planning, and method in succession create confusion and noise in the business ecosystem. Customer and supplier uncertainty creates doubt and fear, often stalling or changing tac on the succession process and its timing, costing the parties and the company.
  • Value – Neither party has likely valued a company before, and conflicting agendas further impede successful succession. The exiting generation needs to maximize their value as their last wealth-generating act before retirement. The succeeding generation needs certainty that they can afford the acquisition.
  • Timing – the fear of exiting a business by the founding generation is often realized late in the process. Questions on their value and psychology begin to arise, and fear often shows as a reticence to proceed, which the succeeding generation may misconstrue. Once resolved, the timing issues center on the transfer and payment of the shares. The succeeding generation typically requires payment terms, having had no prior opportunity to accumulate capital to acquire the shares. This creates uncertainty and apprehension in the exiting generation who relinquish control, without full payment, that could see their successors erode the value of their yet-to-be-paid-out retirement.
  • Transparency and plan – decisions on successors, the process adopted for the transfer of responsibilities, and the final value and terms of succession can harm the relationships across the company. Good, loyal, capable employees are overlooked because of poorly motivated decisions or poorly planned communications, causing animosity and anxiety through the succession attempt.

Solution

If you’re exiting, your successors will pay you out over time, and you need to be confident that they can operate, run and grow the business without your input. Should they raise capital to acquire their shares, they’d need to meet the requirements of a funding source.

We work with you to develop a structured succession plan that is practical and measurable to

  • Transfer operational and commercial responsibility, over time to successors

Working with you and your leadership team or family members to:

  • Align leadership – run diagnostics to ground-truth and align the understanding of the companies foundation, future growth strategy, team dynamics, and current numbers
  • Set the future goals together – 10, crisply defined, measurable growth goals, and load them onto your company dashboard. Monthly we will evaluate progress towards the goals to ensure their achievement and the structured transfer of responsibilities between the generations
  • Create a schedule of activities over time to transfer the responsibility of the business functions in a structured, methodical manner that draws on the experience, insight, and learnings of the exiting generations alongside the activation and implementation of the activities, incorporating the wisdom to build out the future business
  • Transfer leadership and relations across customers, suppliers, and employees between generations to manage relationship expectations and maintain stability
  • Set up and establish a monthly, performance-based engagement between the generations to the sign-off transfer of blocks of responsibility and set the post-handover relationship between the generations with the exiting generation assuming a shareholding-investor-advisor role and succeeding generation taking an owner-operator-leader role
  • Collecting data across all the systems to support decision-making to moderate decisions, align the parties, ensure objective engagements
  • Build a valuation framework that aligns both generations on the fair value of the business for eventual acquisition and sale of shares to reward the exiting generation and motivate the succeeding generation

The Outcome

An inclusive, structured, time-based engagement to reliably handover in a risk-managed process, the responsibilities of the business operations and strategy, align the expectations between the exiting and succeeding generation on the company’s future direction plus establishes the framework for the transfer of responsibilities while ensuring facilitated communications, the use of data to moderate and guide decisions and the development of respect between the generations. Allows for the alignment on valuation, terms of payment, conditions of handover to preserve the wealth payout for the exiting and wealth creation path for the succeeding.

How we make it happen

Contact us

Grow & Exit

Why it matters?

Wealth generation for a company owner requires three acts of leadership, each with its focus and direction.

Make money – build a business that generates organic growth to release your time to focus on next-level growth

Grow money – identify and implement next-level growth initiatives that accelerate revenue growth and deepen profitability

Protect money – lock in the 5 levers of value to secure a successful, premium exit that monetizes years of dedication, care, risk, and investment.

While we spend 10-15-20-30-40 years building a business to generate income that we reinvest to win greater returns and a premium sale and exit, 94.6% of companies started fail to sell. They close at a high cost to the business owner, their family, and employees. Of the 5.4% that do sell, 68% make significant concessions on value and the terms of sale, eroding the value of legacy.

What goes wrong?

Job not an asset

Every business develops through stages. In the early days, income generation is vital. It relies on activities that trap you in an income generation mindset and habit, preventing your company from generating income without you. In effect, this makes your company a job, and a job is not salable. To be sold, you must build your company into a tradable asset meeting 3 criteria; income growth, capital growth, and independence of the business owner.

Not built for sale

Planning – Businesses are not bought; they need to be built to be sold. There are only 2 destinations for any business: a sale or closure. Not planning your eventual exit prevents you from understanding how an acquirer buys a company and what you need to do to build one that meets those requirements. By not developing the 5 levers of valuation and exit in your business today for that future event reduces your salability and puts you on the back foot of a price taker should a buyer make an offer.

Time runs out

Being caught up in daily, weekly, monthly operational activities traps you in an operator mindset. This prevents your progression to an investor mindset allowing you to build for a sale instead of building for simply income generation.

Time  – too much time caught up in your business’s daily, weekly, monthly activities prevents your ability to switch hats from operator to investor. It also impedes your ability to understand the investor/acquirer mindset and then act to build a product they’d want to acquire. Time scarcity often appears in comments like “I will deal with it when I’m ready to sell.”; “I’m too busy to focus on this right now. We’re putting out fires, which takes all my time.”; “I don’t need to plan. I get letters all the time from potential buyers so that selling will be easy.” and”I’m not ready, so planning isn’t necessary.”  

Only 2 destinations

Valuation – the circumstances leading up to a sale event are less strategic and more circumstantial, including moribund or low growth, a significant work effort or investment requirement to maintain and sustain the business, burnout, health, boredom, and relationship pressures, amongst others. This motivates a valuation approach driven by a business owners emotion and necessity, not math. And valuation is very much about math. Five levers or variables influence the valuation of a business and the terms of exit. Waiting for the event that drives a poorly planned exit to occur prevents your business from being ever-ready for a premium exit.

The Solution

By building an Asset of Value today, you can have your cake and eat it tomorrow. An AOV meets the criteria of a tradable asset, locks in the 5 levers of value, and places you in a position to sell in the future

We will work with you

  • Diagnose your Asset of Value status and see what gaps need to be closed to achieve the exit state that would best achieve a premium price and clean exit
  • To set the growth and exit goals that would see your business deliver the 5 levers of valuation and exit

Working with you and your team, we will:

  • Position your business for growth to inspire future acquirers
  • Develop a simple, transferable growth system to make it happen without you
  • Upskill and empower your team to drive the growth system
  • Secure organic and next-level growth outcomes to build confidence on how an acquirer can achieve a return on their investment
  • Meet all the Asset of Value criteria to increase your ability to sell successfully
  • Build the body of evidence to demonstrate the 5 levers of value and exit to maximize your valuation and simplify your terms of exit and payment

The Outcome

A business built into an asset of value allows you to have your cake and eat it. Should you wish to exit, and opportunity to do so a premium valuation on acceptable terms and conditions. Should you delay your exit, your business will be positioned for growth, enabled by a simple, smart growth system operated by a purposeful team. The results will see organic growth and next-level growth initiatives grow revenue while deepening profits. Ultimately, the years of risk, investment, and sacrifices can now be monetized or sweated further to maximize exit valuations or wait for optimal exit timing.

How we make it happen

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