Most executives are relentlessly focused on finding the next source of revenue, but there’s a good argument for having an exit plan at even the earliest stages of your firm’s growth. Someday, you’re going to want to get out, cash out, retire, or reinvest your profits elsewhere. At the same time, you might like to leave a legacy behind for your next generation of leaders or another firm to acquire and continue to evolve. Successful businesses create “goodwill” and real-world value for their employees, their customers, and their communities, but building a firm depends on the steady guidance of its principals and their ability to lead teams of highly skilled teams. Poor leadership will kill the best of intentions and minimize the value and goodwill of the most profitable, growing firm.
Effective leadership, which is always important in the management of your business, might seem like an elusive resource that doesn’t factor well into calculating the value of your business as an asset when its time to make a deal. But exceptional leadership is one of the variables that savvy investors look for when it comes to making an offer and diagnosing the health of an acquisition.
A poorly led company might look good on the P&L but it might be hiding symptoms of the disease and instability in an organization that will cost an investor additional resources to right the problems, thus reducing the offering price, or might cause them to steer clear of the acquisition entirely. The connection between sound leadership qualities and your bottom-line are widely accepted, but they can also be a little abstract, or even blurry when you start to think about how to put them into practice.
You Might be an Imperfect Leader
Your temperament or your personality, or even your training, might be at odds with your technical or day-to-day management expertise. You might be too passive or too aggressive, or even too passive aggressive to get out of your own way. Interpersonal characteristics are hard to change because the ingredient of “character” is somewhat intangible.
If you’re struggling or at least motivated to build a sustainable, profitable business that you can sell one day, effective leadership doesn’t have to be a unicorn. You can apply the following 5 actionable leadership upgrades to your business and put yourself on the path towards a big return.
Plan to Replace Yourself
A business worth acquiring can be acquired without necessarily keeping the owner around. Investors want to steer the organization new directions without needing to re-engineer the management in a sudden leadership vacuum or retain the existing owner for an extended period. The costs to keep your services don’t change the sale price. They simply limit your options and keep you from moving forward. Replacing yourself is a measure of your ability to build a competent team and to empower others to create value in your absence. Remember, an investor is acquiring your talent as much as they are acquiring your customers, your portfolio, and your profits.
Develop a Listening Practice
Listening is the most important ingredient in understanding, and the most overlooked requirement is the practice of asking for feedback. Sometimes we don’t like what others have to say about us or our business. Asking your employees gives you the opportunity to demonstrate compassion and empathy for their perceptions and it helps stimulate trust and a culture of feedback. As a practice, you need your team to be actively seeking feedback from customers, because it is their journey and their perceptions that drive the purchasing and the branding process. It’s important to meet your customers where they are and when they need you so that you can build a relevant and preferred brand. Better customer insights can lead to better products, better customer service, and bigger profits.
Building a competitive asset requires looking at your business from the outside-in, through the lens of your customers’ perceptions. Use surveys and interviews to gather observable feedback and document insights about the experiences and motivations of your clients. Leverage this direct “listening and observation” research as a filter to guide your strategies. From an investor’s perspective, a business that consistently listens to customers and then incorporates their feedback into useful intelligence is a more reliable bet.
Use Transparency to Create an Ownership Culture
Don’t keep your team in the dark about where you’re business is headed or your current progress. Let your team share in the organization’s goals and the challenges so that they can take ownership of the obstacles and celebrate the accomplishments. Transparency comes with a few requirements – it demands that you are willing to set specific time-based performance goals and then select the metrics required to measure your progress. Developing a financial dashboard of KPIs can help educate your team about the mechanics of your business and clarify how performance is measured. Businesses are often valued, though a little crudely, by a multiple of their revenues or profits. You may not be able to improve the multiple for your industry, but you can surely improve the profits by starting years in advance with clear goals and transparent communication for your team.
Solve Tomorrow’s Problems
Now that you’ve implemented an active listening practice, you’ll be in a good position to anticipate the challenges your customers will face in the future. That’s what your customers are looking for, someone who understands their business and who can solve problems and provide solutions to emerging challenges. To do so, you’ll need some insights and some momentum to address what’s on the horizon. A decade ago, your clients were having different conversations in communities than they are today. Now they’ve scattered. Imagine having the foresight to envision where to find them? Be your best customer and stay ahead of your competition by treating your business with the same focus on innovation.
Stop Failing and Start Optimizing
Your business is an engine that doesn’t always run smoothly. It comes with a lot of moving parts, and you are going to lose momentum if you shut it down every time you have a misfire. Failure is what happens when you catastrophize every misstep or mistake. Instead, prepare for the unexpected by accepting that you are leading and managing in a dynamic environment. From a practical perspective, you need to select a handful of manageable objectives and variables and let data drive the changes that you make. Be clear about your goal. As you collect useful, measurable information about your progress, make small changes to course correct with the engine running. Persevere and repeat.