9 Principles Of Solid Businesses – 6. Build A Business That Runs Without You

Why did you start your business? Business owners start their businesses for a whole host of reasons. I have come across people who have started their business when they:

  • thought they could do better on their own, rather than stay with their employer;
  • were made redundant and rather than go back into employment they took a risk and went on their own;
  • had an idea to make or do something new and different. A new niche or market encouraged them to take a risk.

For many business owners, that initial reason for starting up is wrapped up with a sense of having more freedom. That could be freedom to make their own decisions, take their own risks. Equally it could be the freedom to work where and when it suits their lifestyles.

Typical Business Owners

Unfortunately, for far too many business owners, that freedom doesn’t come in big measures. That work / life balance is always round the next corner. There’s never enough money to buy free time. The business demands more time and effort than expected. That freedom to make decisions turns out to be regularly reacting to problems that seem to get in the way of growing the business.

And that probably describes the world for many business owners, call them ‘typical owners’. Especially with COVID and a recession, they are aspiring just to survive.

Value Builder Owners

But there are some business owners who aspire for more. The research done by the folk at The Value Builder System, shows there are owners, let’s call them ‘value builders’, who apply 9 principles of business that build solid companies and personal wealth.  I’ve been looking at those principles in greater detail over my last few blogs.

The first five principles were:

  1. Start with the end in mind
  2. Prioritise value over revenue
  3. Own your product
  4. Protect your equity
  5. Win subscribers not customers

Principle 6: Build a business that runs without you

In a typical small business, the founder is a hub within a wheel where employees, suppliers, and customers are the spokes. It’s known as the Hub & Spoke model. Decisions get made at the centre of the business – the hub. As an owner it can feel powerful and important to be at the centre of the business. Hey, its your business. You can do whatever you want. Equally, being in the centre of the business means you can control the money and the people.

Being the hub might be an ego-supporting role, but it comes with several downsides:

  • Its time-consuming, working long hours, keeping an eye on everything, responding to calls and emails. Not a great role when you have a family you want to see;
  • The Hub & Spoke model limits the growth of the business. Your time is limited so you can only make so many sales or manage so many people. Never mind the time to plan the future of the business. I often remind business owners that their team are looking to them to plan the future because the workforce is too busy working on the present;
  • Finally, a Hub & Spoke business is unattractive to an acquirer since the business depends entirely on the owner. You will probably be asked to stay on for 1-3 years with an earn-out as the acquirer gets under the skin of the business. Those earn-out periods are rarely enjoyable for seller or acquirer.

Could Your Business Survive Without You?

Bringing this Hub & Spoke problem right in front of your eyes….if your business couldn’t survive without you, it’s worth about 33% less than if it would hardly suffer without you being there and doing what you do.

If your end game is to sell your business, you need to figure out how to get your company to hum when you’re not there.

Recognising You’re The Hub

Damien James earned a bachelor’s degree in podiatry in 1996 and started Aged Foot Care. He approached nursing homes, suggesting he visit during the day. With a compelling offer and none of the traditional overhead of an office, he had discovered his million-dollar idea.

By 2015 it was generating roughly $200,000 of profit on $2.5M in revenue.

Despite his success, James was frustrated. The company’s growth had stalled, and his management team seemed perpetually incapable of hitting its targets. James recognised he was the hub and decided it was time to bring in outside help, so he hired Nick Beckett, who had just come off a successful run growing a tea company, called T2.

To recruit Beckett, James knew he would need to give up some equity, so he offered Beckett a salary plus 5% of the company and  another 3% for every $1 million Beckett grew the business past $5 million, capped at a maximum of $10 million for 20% shareholding.

The partnership got off to a fast start. James stepped back from day-to-day operations, and the company continued to thrive under Beckett’s leadership. In 2017 — a little more than two years after Beckett was hired — Zenitas acquired the business for $13.4 million. The company had grown in value by over 500% in less than three years.

You can hear the full story in his interview from John Warrillow’s Built to Sell Radio, a regular podcast revealing the stories and advice of business owners who have sold their businesses. To hear the full interview, click here.

Stop Being The Hub

You may recall me talking about an old friend and client of mine, Steve Quinn. The guy who sold his school catering business, Cucina, and started up a restaurant. In his story I didn’t reveal that when Steve sold the business he was no longer the Managing Director. Several years before, when he was the MD, he was involved in sales proposals and presentations, leading on new school openings, recruiting staff – you get the picture, he was busy all the time.

Finally as the business kept growing he realised he was the hub and decided to find someone to run the business day-to-day. So, he went back to contacts from his old Compass days and invited one of his ex-colleagues to take over as MD.

Steve was then able to focus on strategic growth of Cucina, which eventually led to the business being sold.

So, are you building value in your business?

Now you have had time to think about the stories above, are you building value in your business? If you want to be a Value Builder and not a hub with a spoke, there’s a few things that you can do to help your business to run without you:

  • Document your processes – as Michael Gerber wrote about so forcefully in his classic, The E-Myth. Once your processes are documented, automate as many of them as possible to eliminate human error in their delivery.
  • Consider hiring a second-in-command (2iC) to run your business day-to-day, just like Damien James did.
  • Take regular and increasing periods off to give your company a dress rehearsal for operating without you. Upon returning, look for areas of weakness, and repair them with new processes, training, or technology.

You can also take the value builder assessment to see where you are in your business now and identify where you need to make improvements.

In the meantime, please get your free copy of the eBook, Famous Or Rich: 9 Ways Value Builders Prioritise Wealth Over Recognition.

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