- Written by Rick Riebesell
Your Business – What You Can Do Now About the Future
If you own a business interest and that business interest is profitable, certainly you have done some things correctly. But what will you do now to affect the future of your business interest? You have worked very hard and created value in that business interest. You have made good decisions. That is an accomplishment, no question.
Now, are you relying on fate or luck, hoping that the future will bode well for your business interest? Situations change and the actions that created progress in the past may not work to get you to the next point in the direction you want to go. What will you do now with the business interest you own? What is the goal of your business interest ownership?
There are two broad categories of answers: sell or liquidate the business interest for cash or hold the business interest to realize future growth and value.
There are a variety of reasons why an owner might want to hold a business interest, even when that interest already has created significant value. Frequently, there is a desire to maintain the business within a group such as a family. There often is a life-style factor, the conduct of the business being a way of life an owner does not want to leave.
The danger of holding a business interest is that often the owner’s wealth is invested in the business and that value is subject to business risk – a much higher risk than that typically experienced with personal investments.
Often, it has been my experience that in holding a business interest, an owner becomes complacent and negative events (from business risk) are more likely to happen. If a business is not growing but deteriorating, a sale to capture the remaining value might not be possible. The best solution is to maintain growth and increase business value as much as possible as though planning for a sale, even if there is a reason to hold the business interest.
The rational long-term goal for the owner of a business interest is to liquidate that interest for the maximum amount possible. There will be a period of time where the value of the business interest grows, then the business interest is sold to capture the increased value. The business interest is “cashed out” to be transferred from business risk to investment risk. The amount of growth possible and the period of time it takes to realize the growth will vary with the business.
The reason for the rationality of that long-term goal is at the basis of wealth creation. Funds created by business activity should be transferred over time from business risk to investment risk. Wealth occurs when personal funds invested at low risk sustain the expenses of living at a desirable level. Funds invested in a business are subject to high risk and often cannot sustain wealth over time.
If you got to where you are now with planning and hard work, continuing with that is not a bad idea. You should continue on a dual-track: build value in the business by creating a group decision-making process that provides the business with consistent good decisions and at the same time develop ways that the value now in the business will be transferred to you as an owner to increase personal wealth. It is through these endeavors that personal wealth will be created.
Your good decisions have placed you where you are now. How do you develop the decision-making capability of your business to ensure future value? You will need help creating planning and executing actions to create business value. The services of Business Transition Consulting may be of interest to you. As the principal consultant, my work is to help business owners act now to create wealth in the future.
- Written by Rick Riebesell
The Art of Leadership and Decision-Making – Realizing the Aspect of Time
An important element to consistent business success is the implementation of an effective decision-making process in a business. That process can lead to a structured and sometimes time-consuming approach to making decisions, and that often is a very good thing. However, leadership and decision-making are intertwined. An important part of the art of leadership is understanding the aspect of time with regard to decision-making.
An example of that art is described in Louis Gerstner’s book, Who Says Elephants Can’t Dance? In 1993 Louis Gerstner was brought in as Chief Executive Officer of IBM when it was nearly bankrupt after having its most profitable year in 1990. The rapidly changing computer industry had eclipsed IBM, and the company was dissolving into separate and divergent units. Most observers thought Gerstner would preside over this dissolution, but Gerstner made a decision that the company should become a customer-focused provider of computer solutions. Gerstner took his first 100 days to make this decision. Despite pressure from all sides to make a more immediate decision and take quick action, Gerstner took the time to observe IBM operations, review the governance system, and understand the culture of the company. At the 100 day mark, he announced his decision to keep IBM together and not spin off various units of the business. This decision determined the course to take on governance, strategy, and culture. During Gerstner’s tenure as CEO from 1993 to 2002, revenue increased from $64.5 billion to over $85 billion, net income increased from -$5 billion to 7.7 billion, and the stock price increased from $12.72 to $120.96. Making the decision too soon would have diminished the impact, and waiting too long would have irreparably damaged the company.
- Written by Rick Riebesell
Orienteering for the Business Owner
If you are lost in the woods without a map, you might wander aimlessly hoping to find your way. If you have a map, the first thing to do is to try and orient your map. The fact that the upper part of the map is north means nothing if you do not know which direction is north. So you look on the map for certain characteristics that can help you face the map in the direction you are looking. Those characteristics might be changes in elevation, a river, a lake, or some other unique area. You may have to walk around to get oriented, but once the map seems to be oriented, you follow it to verify that you are following the map as it relates to what you are seeing. Doing this helps you find your way.
A business owner in a period of economic turmoil easily can feel lost. The process to lose that lost feeling is to orient the existing business plan. The processes that worked before will work again, but the perceptions now are different. The map is the process that was working before. The solution to the problem is not to react to sudden changes and abandon planning, but to orient the proven planning process to the new perceptions and conditions to get the business on course.
For the private business with an implemented planning process, the map is in good shape – it just needs to be oriented to new situations. Without a planning process in place, the business has a more difficult task. It is lost without a map. With no documented business goals, it is more difficult to understand what the course was to be before things changed. What needs to be done is to create a map - set a new course. The worst thing to do is wander around without a map by simply reacting to changing conditions.