How to build a business that will outlive you

built to last

The topic today speaks to my personal path of building a business that becomes great such as the likes of Apple and Microsoft.

My two cents on this matter is as follows.

Determine what your purpose is, that is the spirit which you will pour into your business. To do this well, one needs to rid themselves of internal conflict or cognitive dissonance over what it is they believe they are here (on earth) to do. One way to find out is to look for that golden thread in all your areas of involvement. Are you passionate about being an enabler for others or are good at starting projects from nothing and enjoy seeing them grow.

Next is to think about what exactly it is you want your business to stand for. This is the why, why are you in business? It is normally linked to your purpose. So spend time considering what you stand for and what would your employees be volunteering for if your company was a social movement? Can this be something which you view as a dedication to your life’s work?

What problem is your business providing a solution to? I have asked several consultants on business development what it was that they find start-ups tend to get wrong. In many ways they have told me that start-ups tend to underestimate the market for their products. This leads to understated budget forecasts which in turn frustrate operations. Knowing your market requires an understanding of what it is that drives your client’s purchase decision and what factors influence your own margins. This information will help you know what to manage during an economic boom as well as during a recession as the client’s (and your) context becomes different which impacts their purchase decision.

Where is your client? The client or customer has to be top of mind throughout every effort you make in your business. Companies (even the big ones) can get so deeply involved with themselves and forget adding value to their client. The client is the person who determines whether or not we have a business to run in the first place. So we need to place them squarely at the centre of each strategic plan, product development and restructuring process. A word of caution however is, do not try to be all things to all people. Ensure that in doing things right (for the client) you are doing the right things.

Consider the specific type of client your business is providing solutions for. Your mission statement and values statement will help profile the type of client you are targeting. Tim Williams, lead consultant at Ignition Consulting group, states that a business is defined by the clients and services it does not have. To further illustrate this point, Williams states that narrow companies can have large markets; companies such as Mittlestand and Basecamp are a case in point. It is through their focus that they have developed specialisation in their fields. One would travel (and spend a pretty penny) for a specialist doctor whilst no one would do the same for a GP.

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Governance in small businesses

corporate governance

The word governance refers to the processes of ruling or controlling resources in particular. The pillars of corporate governance are ethics and risk and main elements of governance are fairness, accountability, responsibility and transparency.

The increased importance of governance in business today is from the collapse corporations such as Lehman Brothers, Enron and WorldCom as a result of breaks downs in one or in the case of Enron, all of the elements of corporate governance.

Corporate governance as a practice has grown immensely subsequent to the economic impacts of the collapse of these global giants and has been strictly required of large corporations. Organisations of this size are powerful and they tend be most at risk of such power being abused by individuals on the other hand this places investors and other stakeholder with legitimate claims to the corporation at the mercy of management and this relationship is a risk of being abused.

The question now however is whether small businesses should be expected to instil good governance procedures in their companies. It is said that compliance with the codes of good corporate governance such as Sarbanes Oxley in the US in particular costs companies millions per annum and yet they don’t necessarily prevent impropriety from occurring where good corporate governance is concerned. So what then is the point for small businesses many of whom barely make enough to get by?

The opposing view particularly among advocates of codes such as the King 3 report (SA) and the Combined Code (UK) will tell you that investors are more likely to pay a premium for equity in a well governed company than pay a discount for one that has no proof of adequate controls or governance measures in place.

What then of small businesses?

Well according to research by 4imprint, a research company which provides “how-to” articles based on this research, small businesses should start integrating corporate governance practices in order to support its investors.

Corporate Secretary, an online publication on governance, says reasons for corporate governance in a small business are;

Small companies are always growing so they need to implement policies and procedures ahead of time. This will eliminate future risk of growing bigger in the future such as insidious growth of the wrong culture of distrust or abuse of power.

Regulations, unfortunately part of being in business is to comply with regulation and a big part of this regulation is to ensure that the business has transparent procedures and policies that provide its employees with a framework on how to conduct business while still being compliant with the law.

So how can this be done exactly?

An advisory board is probably the simplest way in which this can be done as it would be composed of independent members who are able to help the organisation identify risks, address conflict of interest and identify how the business can operate optimally. This advisory board can be a type of business “mentor” to the small business and by extension would fulfil a function similar to a board of directors in a large corporation.

Further to this the small business should consider consistent financial reporting which will equip it with the resources it needs to closely monitor its revenues and expenses. These records will also serve to hold staff accountable and promote transparency.

Lastly, addressing compensation and benefits by means of a kind of policy or protocol for how staff (owners included) is remunerated. Once again this promotes transparency and fairness and goes a long way to ensuring that in the future the company has entrenched in its culture the moral code of doing the right thing.

 

 

 

Sources:

Corporate secretary.com

SA Business Index

4Imprint