In any business, the whole is worth more than the parts, and how to achieve that

When building a business, the goal is to scale and grow and ultimately sell your business.

In some cases, businesses are sold outright with everything they are built on, but in other cases, businesses are stripped and torn down simply because the buyer is only interested in one part of the business that he sees as valuable, which is not a desirable outcome for the owner because he does not receive the actual value of his business.

Listen to this podcast from The Money Show where Pavlo Phitidis discusses valuation and successfully selling your business.

A business that Aurik is currently working with was about to be acquired. However, in the acquisition, the offer they received for the company was way under what their assets were worth and their understanding of the value of the business.

There are 2 key takeaway points which could be seen as red flags in this business:

  1. Even though their revenues were growing, and they were thriving through the COVID period, their profits as a percentage of revenues started to diminish. The more they grew, the more they started to erode the valuation of the business itself.
  2. So as the revenues grew, what happened? The costs grew in tandem with the revenues. And when costs and revenues marry each other tightly, very little drops down to the bottom line. And the bottom line, ultimately, is what people are looking for in order to understand whether the growth that they are buying is going to be profitable or whether the growth that they are buying is going to be trouble.

For a successful business sale or exit, start at the end and imagine yourself as the buyer; this may help you with business valuation. Grasp the mechanics of valuation and simply construct a business to demonstrate those mechanics. A few key elements to consider are:

  • Determine the journey and how many years it will take you to get out of the business.
  • Define the product.
  • Determine brand positioning for the company in order to understand the end consumer.
  • Look at your business in terms of customer groups and understand that businesses are 99% psychology and 1% product, not 99% product and 1% psychology.
  • With the changing times in business and valuation, brand building is key to a good valuation for your business. A brand is your perception of a product or a company. And an experience is created, yes, in part by the product, but mostly by how that company behaves towards you. That is the key.

Build a coherent business where the sum of its parts far greater than the whole.

Success in succession

Succession in business ownership means the transfer of a business from one generation to the next.

We tend to think of succession in terms of family businesses, where it can become very tricky and may fail unless it is done right. However, the same applies to the services industry, where businesses like architectural firms, engineering firms, accountants, lawyers and advertising agencies almost always grow through succeeding generations of leaders in their company. These businesses also face the hardships of succession if it is not done right.

In this podcast from The Money Show, Pavlo Phitidis discusses businesses that are affected by succession in the services industry. 

In private companies, succession not done right erodes or stalls the retirement wellbeing of the exiting generation and robs the next generation of their future wealth creation path.

With around 75% of these efforts failing, understanding what goes wrong and how to prevent it is critical. Here are four key points to look at for a successful hand over:

1.            Aligned future visions.                  

The misalignment in terms of what that business needs to look like, and be shaped into going forward tends to delay succession or creates a lot of bad blood. This is often because, for example, the exiting founder plans and promises to let go and hand the business over in a year or two. This turns into 15 years during which nothing changes because either he or she has not got the courage to align with the new vision, or their vision is misaligned with the new business owners.

So, getting that alignment right is the first thing that starts the process of succession.

2.            Communication across the team        

Many business owners only realise they want to sell when it is already too late to sell. If you are looking to sell through succession, the communication with your team has to begin first and foremost with you looking in the mirror and saying, “There are only two outcomes for every business in the world: a sale or closure. Because the way that you build a business to generate income is very different from the way that you organize a business and lead a business towards a successful handover.

Communication with your team will help to shape and develop your team and the business differently for a sale and exit.

3.            Relationship transfer                            

Most professional services businesses begin with deep relationships. A good example of this is two professional engineers working for a large engineering group who develop strong relationships with clients. They then decide to step away from the firm to start their own business by servicing that clients. Ten to twenty years down the line, they still hold onto those client relationships. And even  when the leadership of the company finds a young talent in the ranks who they think can continue the legacy of the business, it is difficult to have this transfer because the business has been forged on relationships that were retained by the owners for all these years. The relationship that contributes to 40% of the revenue is tricky to hand over.

So how do you hand over those relationships? It takes time. There is a structure to it. There is a methodology to it, there is a practice to it.

4.            Valuation and exit criteria                          

Once the business owner makes the decision to sell and has found his successor, this can still go wrong for the successor, especially if it’s a senior employee who the business is being handed over to. As an example, the owner will price the business at R20 million, which is an amount the employee will not have nor have had the time to accumulate in the time of employment. So where would you acquire that kind of money?

If you do not get the metrics of this right with the view to educating your successor on how valuation will occur and with the view to aligning yourself with that successor so that this successor can acquire the shares over a period, you’re shooting yourself in the foot.

Succession is not something that just happens. It typically has a five-year runway. So, if you want to exit your business in five years and your plan is to do so through succession, you should get on the horse right now and start planning a showcase.

How to Start a Business with No Money.

Pavlo recently had a discussion with a young entrepreneur who wants to start a business. However, this individual has no capital to fund his idea, and sadly, in this country, there is no bank that funds start-ups no matter how good the business idea.

In the discussion with the entrepreneur, these were some of the takeaway points:

In this podcast of the Money Show, listen to Pavlo Phitidis share how you can build a business with zero funds.

  • Having a passion for what you are doing goes a long way. Knowing why you are doing it and the joy that comes with it goes a long way too. Identify an industry or segment of an industry that you have enough passion for, to learn inside out.
  • Build an Asset Stack! Go get a jobin the same industry you want to service or create products for.
  • When there is no business yet, funders will invest in you, so consider what you would need to become an asset that they will invest in. And what you would need to do to demonstrate your value and the value of your idea to a potential funder.
  • Build an impeccable reputation for yourself in the industry you are working in. This is key to access funding in an environment where no one else can access it.
  • Enlist the help of some good mentors or guides from the company you’re leaving to start a business.  
  • if you’ve worked somewhere for, say, ten years, you’ll have learned all the traits of that industry, and seen all the loopholes and problems that need to be solved. If you can solve it, your current company becomes your first customer.
  • How does the business itself rate from a risk point of view in the industry it is in and then narrow down to the business itself? The narrower the industry is, the more the funder is able to see you’re making more headway in that industry. In other words, it is dominating a small slice of that industry.

The alternative is to just blame, blame, blame the challenges in the country for you not doing something. This view blocks the opportunities, which are out there.

Stay on the bridge in stormy seas and resist going into the engine room

Pavlo recently spoke to a 58 year-old businessman who had started his business 20 years ago and built it up to employ more than 50 people and earn average annual revenues of 86 million. Four years ago, his business was worth around 60 – 70 million – a healthy capital exit if he had chosen to sell then.

Fast-forward Four years later, and the business is not doing well. This business owner now has 11 staff members and is headed for retirement. He will continue the business, but no longer as something he was once passionate about, and more of a hobby to keep him busy in his retirement.

His is one of many businesses who were hit by a shockwave in the face of the COVID pandemic and the after-effects of it. In the unknown, expansion and growth were afterthoughts, not even mentioned, and many business owners withdrew to their core skills, to see if they could salvage their business by fixing their product or service.

Listen to this podcast from The Money Show where Pavlo Phitidis shares how dangerous it is to weather the storm from the engine room, where this business owner was.

Persistent uncertainty eroded the confidence of the captain and drew him back into the engine room from the bridge. Navigating the direction of a business in a storm  down in the engine room gives a sense of purpose. It gives a sense of confidence that you are tackling this uncertainty, and it creates and erodes. It creates massive erosion in the business.

As uncertainty increases, resist the temptation to go into the engine room, where you can get stuck putting out fires instead of staying on the bridge and navigating your business through and around the changes that come with the storm. The storm could be the Ukraine war, the inevitable recession, or the after-effects of the COVID-19 pandemic.

Finding the opportunity in crisis

Global inflation and the strong Rand create an environment that is ideal to position your business to expand into global markets. Now is the time to explore the opportunities and make it happen!

Building and growing a business in an inflationary environment

On the one hand, global inflation rates are beginning to rise,. On the other, the strong rand helps to supplement measures that are sometimes beyond our control. However, the two together are providing an excellent atmosphere for a company to grow into worldwide markets.

In South Africa , we’ve become accustomed to inflation and the Reserve Bank’s ability to manage it by adjusting interest rates. And for us, dealing with this in our business is almost almost a kind of muscle memory. In more developed markets, this is profoundly unfamiliar territory.

This is compounded by the ongoing COVID supply chain crisis. It’s not going to change anytime soon and businesses are realising they need to learn to live with it.. As a business owner, protect yourself, get yourself a jab, do what you need to. But business isn’t going to stop any longer because it can’t afford to.

Listen to Pavlo Phitidis in this podcast of The Money Show, share the possibilities of expanding into global markets.

Why is it that the time is right to grow your business in developed economies like the UK and US?

The US and UK markets are viciously competitive to levels that we as South African companies are not, so entering those markets is not a simple task.

So, understanding the market environment, guiding, and managing changes to your product or service, and finding access to those markets requires you to find someone who will be able to conduct market research for you and look out for your interests. It’s not something that you can commission from a so-called research agency that might be well located in the US, somewhere in Europe, or in the UK, where it may be. And I say that because, very often, those services bill you and then leave you with a document that contains a lot of theory but no practical path to getting to revenue quickly.

What you need to do to make it happen

The fear mongering taking place across the UK, in the US and Europe about the very real inflation impact – something that those environments are not used to – is creating a lot of discussion, and a lot of consternation, right across business. And that consternation is leading to a slowdown on the take up of services, and of investments. . In those environments, the rand albeit stronger than it has been in a while, acts favourably for us because outsourcing to countries like South Africa, to companies that can respond effectively to it is where we are seeing massive growth across the clients that we are working with in South Africa.

It is a prime, prime opportunity to get that toehold in, which is so hard to gain. Now is the time  because when you do, you learn fast what you need to do to upgrade your service and product and capability. You might as well have thrown a grappling line onto what will be the fastest moving ship for your revenue two or three years from now. But you need to build your business into an Asset of Value to ensure you’re ready to scale and grow into markets beyond South Africa.

Plan and run better meetings to ensure a better return on time

Meetings can be a huge drain on time. And as business moves from online meetings to some in-person engagements, the demand to deliver a return on time – not just for you but for the person you are selling to, is more important than event.

While in Chigaco, Pavlo attended a conference on experts tactics to advance sales and business growth. In this podcast from The Money Show he shares a few of these to optimise your outcomes from any business meeting.

How you set up a meeting, how you manage it, how you follow through after

How do you set up a meeting?

First impressions count, and people buy from people, not companies.

Creating this impression is entirely in your control.

Why are you meeting? Who needs to be there, who will be there, and what does success from that meeting look like?

The meeting agenda is the most powerful tool to get this right. Set it, confirm it, and use it to build consensus and excitement ahead of the meeting itself.

How do you manage a meeting?

How you enter the room counts. If you are selling to a team or to a single person, getting there ahead of time, being appropriately dressed, and knowing who your audience is sets you apart.

Introducing yourself and your team correctly reduces time wasting and creates a connection immediately. Your audience needs to remember your name, know why you are with your company, and find reasons to connect with and trust you.

The job of your team is to connect and resonate with the audience relevant to them and create an alliance and champion out of them.

How do you take notes in a meeting?

People buy from people, so whilst taking detailed and comprehensive notes has value, avoid doing it in the meeting. Eye contact and connection are more important. Make a list of who will be in the room and what their roles will be ahead of time. When it comes to discussion, which you’ve allowed for by setting up the agenda, write down only the powerful words that you can remember afterward to create your notes around. After the meeting, in the car, record your notes before leaving the parking lot.

How do you follow up after a meeting?

Always send a follow-up email. Using your notes, confirm what you heard, ask if anything further needs to be added or corrected, and confirm the action items and follow through that you agreed on in the meeting. Saying thank you at the end of a meeting as opposed to next steps impacts your audience’s expectations and what they are committing to doing next.

To “Scale & Grow” you need to up your game in the most important game of business, selling, is how we can get a return on time and cost. New habits are needed since repeating yesterday won’t change anything tomorrow.

Beyond building a salable business asset build a strategic business asset to double your value

About 94.6% of businesses started fail to sell and close at great cost to the owners, their families, and employees.

This should worry any business owner.

Aurik is currently working with a client who led the market in automated SME lending a few short years back, with two rounds of funding backing their development and growth. Today, they find themselves increasingly irrelevant, superseded by lending platforms that have AI and ML baked into their performance. They created the market opportunity, and competitors followed with advanced technology to outcompete their more traditional services. To lead again, they must rebuild their platform at a high cost, requiring another round of funding, diluting all parties further!

The lessons are clear. A business never stops needing innovation, and therefore investment, to stay ahead. It means a business owner invests continuously in their company if they wish to remain relevant and ahead of their competitors. There are always fewer buyers than sellers. Your business will be priced based on that competitive environment, with buyers spoilt for choice in a crowded space.

There are two paths to success worth talking about.

Build a business into an asset.

  • It must meet the definition of an asset – ie deliver income AND capital growth
  • It must be built to deliver the 5 levers of value and exit.

Build it to be a strategic asset.

  • With the 5 levers in place, you must build it into a strategic asset for a group of 2 or 3 well-defined acquirers who preferably compete.
  • Success here will see multiples rise rapidly. The deals are strategic rather than financial. Your company’s revenue contribution is nice but immaterial to a big player. It’s the strategic value of your business to that buyer that matters most – think Facebook buying WhatsApp at an eyewatering valuation of over $19 billion.

Selling to strategic buyers needs extensive forethought and deep knowledge of your sector and industry. It’s the 5th act of leadership in any business owner’s journey and one that few have the commitment and obsession to attain.

A well-built company with $5m EBITDA can earn you a cool $35m. However, the same business sold to a strategic buyer can earn you $100 million in half the time. It’s worth getting right!

Despite the uncertainty in the world, if your business is not growing, it’s dying!

If you are not growing, you are dying. The war in Ukraine, global supply chains, microchip scarcity, remote working, COVID, and inflation will kill your business… if you allow them to!

Inflation in a business is like cancer in a body. It’s often not detected until it’s either too late or requires a massive effort to eradicate and remedy. The best way to understand how it works is to think about R1,000 and what you do with it.

Say, inflation is running at 5%. If you place it in a current account, no interest is payable. At the end of the year, that R1K has the buying power of R950, and at the end of the following year, it’s worth around R900 and so on. Alternatively, you could place your R1k into a money market investment offering 4.5%. That way, before tax, you maintain the purchasing power of that money over the year. It’s worth R1,050 at the end of the year and so on. But the problem, of course, is tax and its impact on your purchasing power. That R50 interest earned can only be worth half of that, depending on your tax rate, but in any event, it still sees your money eroded. So here is the problem: many business owners don’t run calculations like this. They are too busy contending with the many challenges in the business environment. Their heads are also full of the deafening, seemingly relentless noise created by the information overflow generated by local, national, and global events.

But you leave it in your current account because you need to have it at hand.

In this podcast, Pavlo Phitidis discusses how your business may thrive in today’s economy, where the business environment, political environment, and global environment all play a role.

Why do you need to have it at hand and readily accessible?

Plan to plan, but no plan yet.
This is likely to develop a growing aversion to risk as well as a mindset that only ever sees risk. If you are here, either sell your business or get some help to get into the next option below!

The plan to sustain
Do what you’ve done until you have an idea of what you want your business to be. Whilst it’s better than not having a plan, it’s not good enough. The reason is simple. In your industry, you have competitors that are planning and acting on their plans to grow. Their growth erodes your business.

Make plans to expand.
Turn an idea into a plan, a plan into a document, the document into action. Or, even better, you can anchor your business into the future by defining what your company needs to be: an Asset of Value™. You engage your leadership team to set the 3-year plan and your operational team to develop the 1-year plan. Once all are aligned, you work with that team to break the year’s plan into quarterly milestones (measured outcomes over time). Once done, you create a budget. Once done, you delegate and assign the budget.

In this economy, business environment, political environment, and global environment, it’s tempting to feel overwhelmed, small, insignificant, unworthy, and incapable of fulfilling your dreams and ambitions. Many people retain the shroud of an imposter, seemingly in control, up and at it and succeeding. The Jekyll and Hyde conflict exists in everyone – you are not an exception. It’s valuable to acknowledge and embrace. The frustration of this world must turn into anger. That anger must turn into positively inspired action. This is the turbine that propels action to make a difference and create a reality different from what we are told makes up the world. It’s a choice, and it’s in everyone’s power and self-interest to make it so.

Delegation demons that reside in us all

Without a team, you have a job. Ask yourself – what happens when I’m not there? And if the answer is nothing, then that is a job. If you want to rather build a business, then you need to invest in and build a team. It’ll change your job into an asset. And that is a business that can be sold, monetizing your years of effort, risk, and care.

To build a team, you must learn to delegate. To get it right, many of us must slay several demons that reside in us.

Pavlo takes a look at a few of them in this podcast from The Money Show, and see which ones reside in you.

  1. The Adrenalin Junky

I don’t want to delegate because I get meaning from working hard and being very busy. I love it when people say how hard I work, because it makes me feel like I’m making things happen, big time.

  1. The Speed Freak

Nobody can do things as fast as I can. It takes more time to teach someone something than just get it done. And I’m good at it too!

  1. The Saboteur

I don’t want to see anyone succeed beyond me or perform better than me. I’m going to set them up to fail – consciously or unconsciously. I’ll set targets too high or delegate something and then take it back repeatedly. I might even exclude some of the insights or activities that you’d need to succeed in the task I’ve delegated to you.

  1. The Perfectionist

Well, nobody can do it as well as I can. Nobody is good enough. I’ve always said it: if you want something done properly, do it yourself!

  1. The Cynic

My people are useless. and helpless. They show no initiative and don’t care about anything other than their paycheck, lunch, and public holidays.

  1. The Paranoid

Nowadays, you can’t trust anyone.

  1. The Empty Nester

If I delegate that, what will I do? Where will my value come from if I don’t perform the tasks that I do if they are delegated to someone else?

  1. The Superhero

Only I can do these tasks. I invested in the product. The service was my brainchild. You need special skills and insights, and this belief makes it impossible to delegate.

  1. The Imposter

I delegate lots of things and expect people to get them done. I’m not sure how, what, why, and all that. They should just use their initiative and figure it out. Why can’t people just apply themselves and figure it out?

  1. The Micro-manager

I delegate things, but I find you really must watch everything that people do when fulfilling the tasks. It’s the little things that make the big differences, and you constantly must be on your people to make sure they do them right.


Several other demons reside in us as business owners when it comes to building a team and working with our people and colleagues. Should you be growth-minded, each of the demons will show up, and your job is to ensure you slay them, one by one, to constantly build and lead your team better. It’s the answer to growth, innovation, and building your business into an Asset of Value™.

Getting new employees up to speed and returning value

The economy is emerging from the Covid slump; it’s the beginning of the year – there are a lot of new hires. So how do you get new employees up to speed fast and effectively?

Employees are drawn to different companies because of their distinct characteristics, whether it be the company’s remuneration package, culture, or growth opportunities within the company

What’s going through the employee’s mind.

  • As is—”re-alignment to the new company and its model and structures.”
  • As was – “It’s not like the past, company, it’s different here”
  • Still settling—”I haven’t settled yet, but I’ll get there, or will I?”
  • Constant flux – “Will I make it past the first 3 months the way things are going?”

Every employee needs a structure for them to get their work done. When there are systems in place to help the employees reach their full potential, it will be easy to settle.

If you build your business on solid systems, you will be able to make use of the right technologies to automate your business systems. The trick is to first build those systems manually and automate them in stages for the employee and the business after this. The implementation of good business systems will result in business achieving scalable and sustainable growth with the new employees and across all areas of the company.

Listen to this podcast from The Money Show where Pavlo Phitidis discusses how to get new employees up to speed and returning value.

HR System

Job Description

This must say exactly what you want the person in the role to deliver. It must thoroughly define what the person must come in to build, run and be responsible for.

It’s even more important to make sure that the new employee ticks the following 3 blocks:

  • The right Fit – they must fit into your company in terms of its culture, values, work ethic
  • The right Skills set – they must have the right skills set for the job they’re hired for
  • The right Aptitude – they must have the capacity to be easily adaptable (change is still on the cards)

Recruitment

A clear and accurate Job description will play a critical role in searching for and selecting the right candidate for the role.

On-Boarding

Training – what and how

Its important to make sure that you prepare a safe landing for your new employee. Make sure you understand the system they will be coming into fully and how they will fit in it so that it becomes clear from the get-go what it is expected of them. Failure to do the onboarding process effectively and provide essential training that enables the new employee to be effective in their role will leave them feeling like a misfit in your organization and lead to their loss of confidence in their own ability to deliver desirable results within their new environment.

Performance Management

Measurement

Without the measurement and management of performance in your organization, you will not be able to gauge your organizational performance. The key here is to ensure that performance is consistently and fairly measured for all employees. Most importantly, good performance must be rewarded, and there must be consequences management for non-performance. This will help you retain good performance and help you weed out non-performers.

© 2003-2021 Aurik
Aurik and Asset of Value are trademarks of Aurik