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How to position your business now so you can sell it later

Passion without purpose is not enough to get your business sold or funded. 

Pavlo Phitidis, Entrepreneur, 15 February 2015  Share  0 comments  Print

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Passion is infectious! It makes you believe that you can change the world, and people too. Whilst the former is possible, the latter is unfortunately a fallacy.

The case of Jack and his business 

Jack walked into my office, eager to meet for our consultation. He was brimming with energy and excitement. My receptionist offered him a seat and he distractedly flipped through a few magazines trying to speed up the time.

He was escorted into our meeting room and offered tea. He has a coffee instead. A double shot cappuccino. He needs more energy? I ponder.

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Immediately he broke into a soliloquy of woe and wonder. Woe at the state of the furniture industry in South Africa; wonder at the fact that he’d found the antidote to the problems in the industry. He had the silver bullet, the final solution if only he could get people to work with him.

Jack began with very little behind him his whole life. Everything he has today he had to fight for. He has the gift of the gab, and can sell anything. He entered into the commercial furniture industry 15 years ago and excelled as a salesman.

Six years back he began his own business after falling out with his former boss. Very quickly he established himself in the trade as a dealmaker and broker of furniture, matching customers like restaurateurs, hoteliers and business owners to suppliers. He struck deals with a voracity that was astounding.Putting -up -a -for -sale -sign

Jack told me that he’s succeeded by sticking to certain principles in the manner with which he conducts his business. The customer always, always comes first; don’t leave any money on the table since the selling effort should maximise returns; and innovate continuously.

Applying these principles relentlessly has gotten Jack to where he is today, operating a business with 32 staff on an annual turnover in excess of R36 million.

Two months back he employed a new partner with design and décor skills and he had begun selling consulting services in this area. He did this in response to customer demands and it went to the core of his principles.

He needed funding to make two acquisitions. The first was his biggest supplier, a manufacturing business making wooden furniture and the second was a plastic furniture importer who had a number of agencies between Europe and the East.

His frustration was that in a recent bid to get a funder on board, the deal collapsed at the 11th hour. It was the fifth time in six months that this had happened.

The critical questions to answer

Forty five minutes had passed and I insisted that Jack let me ask a few questions.

1.  Who is your customer and why do they care about you?

Jack lit up. From restaurants to retailers to any other business that operates out of an office. They cared about Jack because he offered the best customer service, innovated all the time and left nothing on the table. Put differently he was a one stop shop. Customers first, he reminded me.

2. Who operates your business and who grows your business?

He does both he answered. His day begins at 7am and finishes anywhere from 6pm to 9pm. He works every weekend to catch up the admin.

He doesn’t mind this as he is passionate about his business and in any event, he is the lead sales person too, requiring him to grow the business whilst operating it.

 3. When last did you take a holiday?

Jack said he didn’t need a holiday as he loved what he did. His work was actually not really work but his hobby.

He added that he didn’t need holidays as even if he takes time off all he thinks about is his business. Finally he said the last holiday he took was a disaster; things went pear-shaped on a customer delivery and it created more stress than the holiday was worth.

Related: How to find the pricing sweet spot

Let’s see your numbers…

Now the excuses and apologies began to flow. His numbers were in a mess but this is not unusual. Very few entrepreneurs begin a business to do administration and compliance back-office work. As I looked through the numbers, the revenue numbers over the last four years showed impressive growth. The big problem was the thin, very thin, profit numbers. Jack’s business was in trouble.

As I looked at Jack I could see that he was burnt out. Beneath his exuberance and excitement about what he does, how he does it and his enthusiasm about the furniture sector, Jack looked 15 years older than he was.

His excessive energy levels belied an undercurrent of panic which was indicated by an overzealous and insistent notion that everything will come right if he simply gets the funding he is looking for.

I disagreed and after making contact with the funders he had spoken to, I realised that the issues in the business were far more fundamental.

No strategy, no business 

The single greatest fear of each funder is that Jack has no strategy. His desperation to please every customer he engages with and the variety of customer segments that he markets and sells to create far too much risk in Jack’s business. Without him there, Jack has no business.

The extreme complexity and noise arising from a business that is trying to be all things to all people has resulted in Jack being everything to everyone. This includes his staff. No Jack meant no business.

Jack had not created a business asset that a funder could invest in. Rather, he had created a job for himself and no funder can lend into that.For -sale -sign -on -the -grass

If a funder won’t lend, for the same reasons it’s unlikely that any smart money out there would buy the business either; something Jack had considered before coming to see me.

Today we are at work to redirect and more importantly reprioritise Jack. It has nothing to do with his business and everything to do with his mind-set, focus and priorities.

Passion is the fuel that is absolutely necessary to start, build and grow your business. Without passion for what you do, you will struggle to get beyond the first few months or few years in this long process. Yet, passion is not enough.

Related: Pricing your product correctly is key to competitiveness

Purpose is equally, if not more important. If your purpose is not single mindedly to build an asset of value, you will land up as one of the 94% of business owners who never sell their businesses. They cannot sell their businesses because nobody wants to buy an entrepreneur.

An asset of value promises three broad possibilities:

  • Your business is positioned in a niche defined by a customer experience
  • Your business is run by a system of delivery and not you
  • Your business has the ability to diversify its cash flow risk across a number of customer segments that are very closely aligned
  • You can take holidays and your business still runs successfully
  • Your business is… simple.

Whatever your reasons for starting your own business, be it necessity or opportunity, ensuring that your purpose is to build an asset of value is critical to your success as an entrepreneur.

Building our businesses driven by passion alone does not ensure this. For this reason, passion is important but not enough. Don’t realise this too late.

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About the author

Pavlo Phitidis, Entrepreneur

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