Entrepreneurs Know How to Create Value in a Business… Do You?

Do you already own a business?
Is much of what you need to operate your business “in your head”?

Businesses that rely on their owners for success have less value because replacing the owner is much more difficult and they are not ready for growth. Yet that’s how most small businesses still operate today.

Working ON the business, as well as IN the business can be hard when you are putting in 60 hours a week to keep the business running.

Many business owners are happiest applying the technical skills that got them there in the first place – the mechanic who started a garage or a baker who opened a bakery. They are in their comfort zone.

Dealing with their business vision, market segmentation, planning, process development, systems development, documentation, training programs, quality standards, sales processes and collateral, developing customer feedback mechanisms, employee encouragement, tracking systems and the like is not what got them started and it may not be what they enjoy. Yet it’s what makes the difference between a successful very small business and a great business that is poised for growth and highly saleable. The existence of these processes and systems adds great value to a business. Lacking them reduces the business worth.

Somewhere along the line, people started calling business owners entrepreneurs. While they can be, many are not.

I explain this at seminars I hold for individuals interested in buying a business. While buying an established business is a statistically successful means (98%) of creating their own job, being able to recognize and appreciate the intangible assets will make them a better buyer. If such assets don’t exist, the opportunity is there to create them and thus improve the business performance, growth potential, and value. That’s where entrepreneurial skills come in.

Examining the entrepreneurial myth

Michael Gerber published his first e-myth book in 1985 and it’s become a management classic. Here’s what Wikipedia has to say about the e-myth.

E-Myth refers to the Entrepreneurial Myth- the idea that most business founders are technicians that were inspired to start a business because they were good at delivering a product or service. They have created a job for themselves, rather than a business.

It is a myth that people who are experts regarding a product or service will also be expert at running a business that provides these. Most make a good living doing it but do not develop entrepreneurial skills.

Entrepreneurs are success-oriented. They know how to supplement the skills they don’t have and eventually work themselves out of day-to-day operational responsibilities.

What are the key traits of an entrepreneur?

The Guardian Life Small Business Research Institute has some excellent studies on small business. They identify six dimensions that characterize success-oriented small business owners, owners who exhibit a strong success orientation based on their desire to enjoy longevity in their businesses, expand revenues and grow the size of their companies.

  • Collaboration is one of the key dimensions that lead to success. Those who can effectively delegate and build strong relationships with their management teams, employees, and peripherals, are more likely to connect with customers.
  • Being self-fulfilled. Successful small-business owners value the gratification they get from running their own companies and relish the respect that comes with being their own boss.
  • Focusing on the future. Planning, both for the short term and the long term, helps entrepreneurs hone their business. A careful eye on cash-flow helps them run their business better both on the day-to-day and year-over-year fronts.
  • Curiosity. Success-oriented small business owners are keenly interested in learning how others run their businesses.
  • Use of effective technology Being “tech-savvy” helps entrepreneurs increase market, reduce costs and communicate effectively.
  • Being action-oriented. Success-oriented small-business owners are decisive and willing to take calculated risks to take their business to the next level. They view adversity as “a kick in the rear to help you move forward”.

The Guardian Life Small Business Research Institute has found sharp differences occur in what matters most to small business owners as their companies evolve from very small entities to sizeable enterprises. (I’ll write more on that in my next post.)

Knowing what matters most is something that individuals buying a business also need to define. It’s important they clarify their skills, interest and experience, as well as their personal and financial goals before they start looking at any businesses.

A business broker can then work on matching them with business opportunities best suited to their profile and objectives. It’s also a help if sellers stay on a few months to assist the new buyers with transition and training. That’s pretty standard with the businesses we sell. We also introduce new buyers to other professionals who can help them grow their business. Lawyers, accountants, bookkeepers, bankers, wealth advisers, marketing specialists, insurance professionals, and business coaches, each have valuable expertise and services they can draw on.

Sellers can also work with these professional advisers to maximize value while minimizing risk and taxes when they sell. As I mentioned at the start of this post, it’s important that owners make their business independent of them.

If you want to add value, make sure systems run the business and have a great team running those systems.

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Gregory Kells
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