By: Heidi Pozzo
Increasing the value of your business. How do you do it? From a pure mechanics perspective, the answer is easy – generate a consistent, increasing stream of earnings and people will typically put a higher value on your company. It takes a lot of work to get there, and usually many years, but it is not rocket science.
Here are the ten essential elements to get there:
1. Get/keep the right people on the bus
Businesses are about people. It doesn’t matter the industry or business segment, the use of technology, the provision of services or the reliance on equipment. At the end of the day it all comes down to people – the decisions that are made, the focus or lack thereof, the choices that are made every day that result in progress being made or ground being lost. Having the right people makes the biggest difference in the success of an organization.
2. Have a clear focus on the business
How often do people in your company ask – why are we doing this? Or you look around scratching your head wondering why people are doing what they are doing? These are signs that the focus of the business is not clear. Having clarity about what business you are in and sticking to it every day is critical. If not, people start doing what they think is right, with the best of intentions. Then you lose sight of the core of the business, products or services and begin drifting into other areas. The results most of the time are a drain on earnings. Imagine the alternative – an aligned team rowing the same direction. The most aligned and synchronized teams outpace the competition.
3. Cash is king
Cash is my favorite metric. It is easy to understand and drives every business. And yet in many businesses, a quick poll of key leaders reveals that most don’t know how much cash the business has on a regular basis. It is critical to understand what is driving cash – what profits are each product generating. Knowing where the cash comes from is one of the biggest indicators to me of whether the business is healthy. If you can’t tell me with data – not gut feel – how much cash you have, you are lucky or headed for a ditch.
4. Align pay with performance
People do what they are incentivized to do. It is one of the most fundamental drivers of human behavior. Given that – are you paying people to show up or get results? When you pay people for performance – both in base pay and in incentive pay – individually and collectively, you will get the results you desire. Of course it all comes down to implementation, so make sure you get the measures right.
5. Look forward, not backward
Having the right perspective is critical. You don’t drive down the street by focusing on what you see in your rearview mirror. So why would you run your business that way? Do you know what your customers value and the trends in their business? What are your competitors doing? How about new regulations that are coming your way that will impact how you run your business? Do you know how much you will generate in sales and what it will cost to do so? This is information for decision-making and it is critical that you have it to make the right decisions.
6. Know when to adjust course
Something isn’t working and needs to change. Do you know what it is and why it isn’t working? Can you make a decision to change quickly? Being nimble may make the difference between keeping or gaining customers or losing market share. Having an organization that is flexible enough to adjust when things change, because they will, has a significant impact on the future of the business.
7. Reduce variability in the business
Do your earnings bounce around or are they fairly stable? Variability is usually not a good thing. It is an indicator something in the business is not being managed and investors don’t like that. Really understanding your business, its risks and the drivers of “surprises” is a critical first step to having stable earnings. Sometimes the economy will have an impact on earnings – when it does, be clear on what that is vs. the rest of the business. Don’t just use it as an excuse for poor results. People see through it.
8. Have a well-oiled machine
You show up at work every day and start going about your business. Is it hard or is it easy? Does critical equipment break down all the time? Or do you have a Cadillac when a Chevy will do? Your processes should be effective and efficient, and designed to support the vision and mission of the business.
9. Don’t fall into the excuse trap
How often do you hear “we are different because” in explanation for poor results? That is an excuse not an explanation. The only time this phrase should be used is when you are doing better than the competition. Taking a hard look at what is going well and what is not is critical to getting better. Organizations work when there is a culture of understanding strengths and weaknesses, allowing for mistakes, taking calculated risks and incentivizing people to fix underperformance. Fix problems – don’t make excuses. At the end of the day, if you aren’t getting better, you are getting worse.
10. Do what you say you are going to do
As a leader, people listen to what you say and remember it. Whether it is the people in your organization, bankers, investors, customers or suppliers, people expect you to do what you say you will do. Credibility or lack of it will translate into every area of your business. Will you deliver the earnings you committed to? Will you give your people a raise? Will your customers get the product or service they expected in terms of quality, timeliness and fit for use? If the answer is yes, good for you. If not, you have work to do. At the end of the day people only care about whether you did what you said you were going to do, without excuses.
Businesses are valued on how much cash is generated. Steady, increasing streams of cash are valued more than small (or negative), inconsistent streams of cash. Whether you intend to sell your business or hold on to it, focusing on the elements above will help you increase the value in your business.
Copyright © Heidi Pozzo.
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Heidi Pozzo is a strategy and performance improvement consultant. She has helped transform businesses by connecting the people in the company to the strategy, resulting in significant increases in earnings and business value. To find out more about her services,
or call 360-355-7862.