Protecting your company from "mayhem"

[Editor's Note: The " protecting your company from mayhem" series received significant positive response when it first ran. So we decided to update it for 2016.                             -dpm]

In a popular series of television commercials that has run for several years for a property and casualty insurance company, there is a "Mayhem" character who causes unexpected disasters for auto/home owners. In one commercial, he's a satellite dish falling off a roof onto your car; in another he's your navigation system gone haywire causing a crash. The message behind these commercials is that since mayhem is unavoidable, you need insurance.

It struck me that companies generate their own versions of mayhem - things that occur that may on first blush seem to occur unexpectedly or just be unfortunate.  

Here are some examples:

• Discovering that you don't have the rights to use the trade name you've been using for 15 years
• Discovering that your employees have been plagiarizing content
• The employees that are developing your blockbuster new product all leave at once
• A new competitive product offering undercuts your price by 60%
• Your customers discover that one of your key vendors has been substituting a hazardous or substandard material resulting in product malfunction or customer injuries
• A new business model renders your product irrelevant
• Discovering that new regulations no longer allow you to ship your product
• Discovering that there is no liability insurance for all the products in the field that you've made for the last 10 years...and a latent defect has just been discovered
• Discovery that a "trusted" accounting clerk has been methodically stolen $800,000 over the last 10 years

All of these are true. Some might say bad luck. Synonyms for mayhem are chaos, disorder, confusion, turmoil. The dictionary defines it as "needless damage." In truth, all of these examples of mayhem were identifiable ahead of time and most could have been avoided or significantly mitigated.

In tough economic times or in times of rapid growth, companies can be myopic and can ignore the need for strategic planning, competitive scanning, and can defer implementing business processes and controls.

Some thoughts as you enter calendar Q2:

Develop a strategic growth and execution plan (Please- not just another retreat but a meaningful plan of execution)

• realistic assessment of where you are (strengths and weaknesses, opportunities and threats)
• competitive scan looking at traditional competitors as well as possible disruptive threats
• develop some scenarios of the future (including those at extremes) and actions to be taken as these play out
• develop specific actions, metrics and accountability to shore up the weaknesses, fill the gaps, address the risks, and take advantage of the opportunities and strengths

The best time for strategic planning is during the May -September time frame so that the organization has adequate time to develop the business plan for next year.

Don't let another year go by. Neglecting the next steps in your company's growth and maturity can be very short-sighted. You need to protect your company from mayhem!

Please comment 

About The Mead Consulting Group  Helping Companies Achieve the Next Level of Success  The Mead Consulting Group, Inc. has been providing strategic planning & execution, execution coaching,  strategic marketing, business development and leadership development services to mid-size businesses since 1981. We specialize in working directly with owners and CEOs to help their companies reach the next level of success.  Our clients have achieved superior results and consistently out-performed their peers.   It's All About Results! We've stood in your shoes, worn your hats and walked your talk Like no one else, we can help you successfully navigate through    Strategic Growth and Execution    Increasing Profitability and Cash Flow    Maximizing Value for Exit But, don't just take our word for it. Ask our clients. For more information, see our website www.meadconsultinggroup.com  or  contact Dave Mead at (303) 660-8135 or meaddp@MeadConsultingGroup.com

Attributes of a Lifestyle Business or an Equity Value Business

[Editor's Note: In the last Issues for Growth, "Which do you have - a Lifestyle Business or an Equity Value Business" we outlined the major differences between a lifestyle business and an equity value business and why it was important to be clear about the "purpose" or intent of your business because the way a business owners  approaches building a business must be very different depending on how you will define success. A number of you who have heard me speak about this issue asked me to publish the matrix of attributes comparing a lifestyle vs equity value business. So, here it is below. I hope you find it helpful.           - DPM]

 

 Lifestyle Vs Equity Value Attributes Matrix 

Attribute	Lifestyle	Equity Value
Focus	Short-term Lifestyle; Run for Owner's compensation	Long-term Equity Value; sacrifice short -term comp
Pace	Owner's pace	Dictated by desired outcome
Management style	Command & Control; Centralized	Decentralized; individual decision-making
Owner Management	Can tend to be viewed as inconsistent, capricious and changing	Consistent with overall strategy and core values
Expense Control/ Spending decisions	Tightly controlled at top	Managed through approved dept budgets and policies
Outside Capital	Debt; Investors not interested; Growth may be restricted due to availability of capital	Equity investors
Empowerment	Limited; Loyalty Rewarded; Small circle of trust	Expansive; Performance rewarded; Systems to enhance empowerment
Objectives	May change at owner whim	Clearly outlined; transparent
Employee Equity	No	Yes; equity awarded
Career Development	Limited upside	Significant upside
Employee Capability	"Steady Eddies" Thrive here	High performers thrive here
Sale of Business	Usually only to Employees or Family	To third-party Buyers (Strategic or Financial)

As we outlined in the last article, neither is necessarily better than the other. It is important to recognize and be clear about which type you have - and want- if you are to be successful. If you have questions about this, contact me at Mead Consulting to set up  a free appointment.

Which Do You Have – a Lifestyle Business or an Equity Value Business? It’s Important to Know the Difference

Which Do You Have – a Lifestyle Business or an Equity Value Business?

It’s Important to Know the Difference

In speaking to a group of business owners recently about defining their business vision, I suggested that they be clear about whether they want an "equity value business" or a "lifestyle business", because the way they approach building a business must be very different depending on how they will define success. 

The Lifestyle Business. The term “lifestyle entrepreneur” was coined in 1987 by William Wetzel, a director emeritus of the Center for Venture Research at the University of New Hampshire. Mr. Wetzel was using it then to describe ventures unlikely to generate economic returns robust enough to interest outside investors. In financial jargon, “there's no upside potential for creating wealth," he explains.

 "Lifestyle ventures are usually ventures that are run by people who like being their own bosses," Wetzel says. "But they're in it for the income as well. Indeed, lifestyle entrepreneurs offer a different...view of success than those who are mainly focused on longer-term wealth accumulation.

Lifestyle businesses are businesses that are set up and run by their founders primarily with the aim of sustaining a particular level of income and little more; or to provide a foundation from which to enjoy a particular lifestyle. Some types of enterprises are more accessible than others to the would-be lifestyle business person. Those requiring extensive capital are difficult to launch and sustain on a lifestyle basis; others such as small “creative” businesses are more practical for sole practitioners or small groups such as husband-and-wife teams.

Lifestyle businesses typically have limited scalability and potential for growth. In conventional business terms, lifestyle businesses typically have limited scalability and potential for growth because such growth would impair the lifestyle for which their owner-managers set them up. However, a lifestyle business can and do win awards and provide satisfaction to its owners and customers. These are firms that depend heavily on founder skills, personality, energy, and contacts. Often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographic area, or simply to express themselves. But without the founder’s deep personal involvement, such businesses are likely to, well, founder. Professional investors therefore rarely get involved with lifestyle businesses. A lifestyle business is also one that can allow the owner to call his/her own shots and to move at his/her own pace. It’s a business that fits his/her current way of living rather than dictating how things ought to be done. For millions of people, these sorts of small ventures are an excellent way to “do what you love.”

The Equity or Value Business. Equity can be defined as: A company's assets, less its liabilities, which are the property of the owner or shareholders.  Popularly, equities are stocks and shares which do not pay interest at fixed rates but pay dividends based on the company's performance. The value of equities tends to rise over the long term, but in the short term they are a risk investment because prices can fall as well as rise.

An equity or value business is one where the owner intends to build real assets with a grow-able, tangible value that can be bought and sold - either as shares or the entire business. Success would be defined as the increase in value of the business over time. These businesses by definition will be built to succeed without the presence of the owner(s). In many cases, current lifestyle of the founder/owner is sacrificed in order to build significant long term value. In equity value businesses, owners focus more on building value as seen by potential buyers: sustained improvements in revenue/EBITDA, strong management team that can operate and grow the business without the owner’s constant involvement,

By contrast, a lifestyle business is one where the entrepreneur seeks to generate an "adequate" income while living where s/he wants, doing what s/he loves, or having the flexibility to be around when the kids or grandkids come home from school or take long weekends in the winter to go skiing. Success would be defined as an increase in satisfaction with one's life over time.

It’s imperative to decide which one you are. These are very different scenarios. "Equity value or lifestyle" is one of those fundamental decisions you should make early in your company’s history. If you're contemplating going into business with a partner, determine if you both would answer the same way. So why is it important to decide? Businesses that do not have a clear understanding of the type of business they want – and are prepared to be suffer inferior returns. Going down a path that straddles both lifestyle and equity value camps is sure to generate both lower current cash (compensation for the owners) as well as lower growth and value potential (lower equity value). Consider one company with an innovative product in the education products space. The founder had a stated goal of building a value business. However, actions demonstrated to key employees and managers that the true motives of the founder were to facilitate lifestyle. A confused culture prevailed. Top employees and managers interested in growth left the company, leaving a cadre of lower performers, interested in maintaining the status quo. The company growth and profitability lagged and the company ceded its leadership position to more aggressive competitors. In the end this company accomplished neither growth in value nor an exceptional lifestyle for the owners.

Be honest with yourself about your appetite for risk, your need for autonomy, your desire for current compensation. In the end, neither is good or bad. It's just, which one is for you?