Leadership Is the Second Step to a Higher Valuation

Many businesses revolve around the owner or founder. These people started or bought the business and, when times were tough, they did everything. Now your company has grown and become more complex. The “jack of all trades” approach to leadership no longer allowed for the company to have sustainable growth.

This is the third in a series of nine articles that follow a business owner, John. He is taking action to increase the value of his company before transitioning or selling it and moving into retirement. In the first article, he learned that Tom—who owns a similar business—had sold it for a much higher price than John was told his company was worth. In the second article, John discovered the importance of having a business plan and what it should include.

John decided to follow Tom’s lead. He hired an advisor to develop a comprehensive written strategy. His goal for this was to capitalize on the growth and value enhancement opportunities already inside his company. Here’s a quick recap of what John learned about “value drivers” from his advisor.

Business Value Enhancement 101

Value drivers affect either the earnings or the worth of an operation. Being in business is about making a profit and creating sustainable transferable value.

Value isn’t always about the numbers. Environmental and qualitative value drivers have a dramatic effect on a company and its ability to grow. Knowing what creates—and destroys—value helps owners and managers make better day-to-day decisions. That also allows them to build increasing a company’s value into its culture.

The place to begin is a detailed discussion about the quality of the organization. This should include the owner, management team and advisor. At Birkdale, we use the results in our Deep Discovery and an Enterprise Value Assessment and the Value Enhancement Process. An initial conversation broadly examines the eight main value drivers:

Planning         

Marketing         

Leadership         

Operations

People            

Finance            

Sales                  

Legal

In taking an in-depth look at each area, John moved to the second category: leadership.

Leaders Drive the Vision, Mission and Culture of a Business

Many businesses revolve around the owner or founder. These people started or bought the business and, when times were tough, they did everything. As the founder, that was true for John. Now his company had grown and become more complex. His “jack of all trades” approach to leadership no longer allowed the company to have sustainable growth.

John’s advisor told him an important way to begin changing this was to develop vision and mission statements.

The Vision Statement describes how the world views the organization and why it exists.  This helps attract customers, vendors and employees who believe in what the organization aspires to do.

The Mission Statement identifies the company’s core purpose and focus, which usually remain unchanged over time. It helps members of the organization get on the same page and focuses tactical planning and short-term decision making.

Both statements should be shared with the entire organization, customers and other stakeholders. They also should be reflected in the culture of how the company does business.

Knowing the Difference between Leaders and Managers

As a company grows and becomes more sophisticated, it needs to operate without its founder. That makes it necessary to attract two different types of people: those who can lead and others who can manage different functions. In addition, both groups must be able to work together.

These functional areas require a leader: the chief executive officer, chief financial officer, chief technology officer, chief operating officer, etc. They are responsible for driving the mission, vision and culture of the organization within their area.

Good and successful leaders are made—not born—through development, education, training and a history of experience. They have a talent and mindset to influence others to accomplish an objective in a direct, cohesive manner. They inspire trust, influence people, have a long-range view, and communicate often with managers and other employees.

Leadership’s main function is to produce movement and constructive or adaptive change.  They do this through processes, such as establishing direction through visioning, aligning and engaging people, motivating, inspiring and challenging the status quo.  Leaders look at the horizon and what is ahead.

The main function of management is to focus on systems and structure, have a short-term view, be bottom-line oriented, plan, organize and coordinate. They implement rather than create the strategy, and do this through processes such as planning, budgeting, organizing, staffing and problem solving.

John now understood one reason his company’s valuation was lower than his competitor’s. He hadn’t cultivated other leaders and didn’t have enough time to personally direct all of his managers.

Leadership in Communication

Clear, concise communication is one of the most important keys to becoming a great leader. Leaders use communication to motivate, promote discipline, accountability and strategic alignment.

When leaders’ values are clear, how they communicate these can have a profound effect on their organizations. The way values are shared is important, and the digital age gives us many options. This also means leaders must carefully choose how they reach out. For example, serious conversations should not be done by email or phone but in person. Often the stakes are high when communicating. When done properly, the culture and morale of your company and employees can be significantly enhanced.

John saw how his attempt to keep everyone on track by micromanaging left him little time to think about what—and how—he was communicating. One result was that he lost a good manager last year because he hadn’t told her how much he valued what she did.

In our next article, John will take a closer look at how his company treats its people—and the effect this has on its value.

By Barry Goodman, CPA CEPA CMAA CVGA

Managing Director, Birkdale Transition Partners, LLC

Copyright: Cannot be Reused without Author’s Permission.

Birkdale Transition Partners LLC is the objective source for those seeking business sustainability, growth or considering a business transition. Our goal is to ensure business sustainability and to maximize the value of an enterprise before any transition or transaction. Business owners without a transition plan often are unable to sell or transfer their company at its highest value. We help them to balance a company transition with the owner’s personal goals. Then we work with them to avoid problems caused by the lack of planning and/or not recognizing what needs to be added, corrected or modified before then.

Birkdale is unique because it only offers an unbiased assessment and solutions for the company owner. We do not sell any other products or services, so are a fee-only firm. We work in partnership with the company’s current professional advisors and staff. Because we help companies increase their monetary value, owners view our assistance as an investment—with payback and payout occurring during and at the conclusion of an engagement.

For a no-obligation, confidential discussion of your situation, please contact Barry Goodman at 312-626-1820 or contact us.

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