Value

I was amused to read today that the value of Rebecca Addlington’s Olympic Bronze medal is less than three pounds or “less than the price of a sandwich”. The writer makes the mistake of basing value on the cost of the metals used in striking Olympic medals.

The true value of any item is in reality a function of a number of factors, as is the value of any business.

Olympic Games are held every four years and at any meeting there are a finite number of medals awarded. For any event there’s just one Gold, one Silver and one Bronze medal. So, here’s an item that can only be won, and can’t be bought – unless the winner chooses to sell.

I’m not suggesting that she would want to part with something that symbolises the culmination of twelve years of dedication and hard work, but if Rebecca chose to sell she could significantly increase the value of her Bronze medal by putting it into a collection along with the two Gold medals she won in Beijing four years ago. Value and rarity are usually strongly linked.

The value of a trophy in many ways parallels the value of a business. A business that has a track record of dedication to quality of its products and services, improving performance year on year, and operating in a niche market will attract a significant premium if it were to be sold.

Rebecca won her Bronze with a time that was faster than that which won her a Gold four years ago. The competition has got better, just as business competitors can up their game. There’s always been a need to be aware of competition, but perhaps never more so than in the present economic climate and with the rapid advances in technology.

And of course no athlete, not even those like Rebecca who do individual sports, would achieve much without a team around them. With athletes that team comprises fitness trainers, coaches, dieticians, physiotherapists, sports psychologists. Successful business owners surround themselves with experts in finance, marketing, sales, customer service, operations, and the market value of the business reflects the strength of that team and the processes that link their efforts.

Business Management – what can Amir Khan teach us?

The link between business management and sport is usually confined to “team building” exercises and a few former sportsmen becoming inspirational speakers.

I suggest that business managers could learn much from the examples set by sport and sportsmen. Amir has joined a growing list of British boxers, for example Herol “Bomber” Graham and Frank Bruno, who could hit hard but never learned how to protect their glass chins. Boxing used to be called The Art of Self-Defence, and whilst there’s strong evidence that attack is the best form of defence, the boxers who have stayed top of their game have the all-round attributes of attack, defence, superb physical fitness and mental toughness.

Business management needs all those attributes too. Successful businesses need to be lean and mean, quick to attack opportunities, work hard to strengthen their weaknesses, and business managers need the mental toughness to deal with the difficulties that stand in the way of achieving long-term goals.

Managers need to work on developing businesses with all-round strengths and a basis of robust systems. Once they have these in place they should be prepared to take quantifiable risks.

Look at the performance of the England team in Euro 2102. The defensive system could hardly be faulted, but we didn’t have a forward able to hit a barn door with a banjo. We didn’t have all-round strength, so we failed.

One final thought on the subject. We all like to have confidence in the people we’re buying from, so it’s important that businesses have marketing that makes justifiable claims and customer service that can fully support those claims. Think here of the many British sprinters who, having made the podium in some minor events, seem more interested in adopting weird hair styles and wearing bling than in training for success at major events.

Contrast Michael Johnson. Four Olympic Gold medals and eight World Championship Golds. Now there’s a man who deserves to wear golden running shoes! Talent, perseverance, and his success as a coach and as an articulate commentator prove that he was smart enough to plan for the future.

Are you sitting comfortably?

Then it’s almost certain that your company’s value and its chances of survival are reducing. It’s a fact of life for most businesses that if you think you’re standing still you’re really going backwards.

Too often I meet owners who have operated in their comfort zone for years, only to find that when they think about selling up and retiring the value of their business is much less than they had hoped.

It’s been really refreshing in recent weeks to work with the owners of two quite different businesses, both at or beyond “retirement age” but wanting advice about preparing their businesses for sale in two or three years time and, more importantly, being prepared to act on it.

I can’t think of a business that’s immune to the passage of time. Consider what happened to the British motorcycle industry in the 1960s; think about the way that Nokia have lost ground in the mobile phone sector in recent times.

I was fortunate to be a development manager in the printing industry in the 1980s and 90s and to have the opportunities to take commercial advantage of advances that at the time were revolutionary but which today we take for granted – digital origination, laser and ink jet printing, UV curing inks. Whilst some, not least the four print unions, would have preferred to stay with paste up and hot metal type, we embraced the advances and achieved massive growth.

In 11 years of providing help and advice to companies across the B2B community I’ve worked with many who have equally taken advantage of advances in technology, and I’ve helped them to gain maximum commercial benefit.

My training as a scientist taught me how to solve product and process problems, my experience as a managing director taught me the value of applying technical advances to increase profits. Today I get a buzz from putting all that experience to use to help owners grow their businesses and achieve maximum profits.

For more see my website or email me.

Business Growth

Business growth is the aim of all business owners. Over the years I’ve found that the methods that owners use to achieve growth range from wishing and hoping, to having a full blown business growth strategy.

Since the credit crunch of 2008 few owners of small businesses have had much time to think about strategy. For most the priority has been survival. Yet history teaches us that times of difficulty  in the world economy are exactly the times when a business growth strategy can deliver great results for companies.

The trick is to have a strategy that accurately reflects the reality of the market(s) in which the business operates, and the tactics to deliver the strategy on the ground. For some there’s a need to recognise that their products and services have been overtaken by competitors with better products.

In those cases only radical action will avoid declining performance. In the case of manufacturing companies achieving business growth may mean a need to invest in new equipment, and this in turn may mean attracting finance. In other cases the supply of complementary products, perhaps through a strategic alliance may be a better way forward.

In any event the company will need to have a business growth plan that clearly demonstrates that the owner(s) understand the marketplace and have the expertise within the business to achieve the planned results.

If a company’s products and/or services are well suited to the marketplace, business growth can often be achieved by using different routes to market. This in turn may mean the owner(s) coming to terms with the need to use expert help.

In almost all cases the changes in the way the company works will involve the recruitment of people with different skills. Sometimes this is best achieved by recruiting full time employees, alternatively it may be best to use interim managers or to simply outsource the requisite functions.

Genuine business growth is only ever achieved by owners who are prepared to step back and take a cold hard look at their business, recognise their own strengths and weaknesses, and plan accordingly.

Increasing your Business Profits

Business profits can, broadly speaking, only be increased by sell more and reduce costs.
 
Many years ago a millionaire and inspirational speaker called John Fenton wrote a book called “How to Double your Profits”. In it he suggested twenty areas of a business where the directors could take action to either increase sales or reduce costs, the cumulative effect being to double profit.
 
Do the sums; if you can find twenty things that you can improve in a small way then by getting an average 3.5% improvement in each and the result is double profit.
 
So here are some suggestions as to how you could increase your business profits. Just how hard would it be to:
Sell 3.5% more of your current products or services to existing customers
Increase your customer database by 3.5%
Reduce your material costs by 3.5%
Reduce your wage bill by 3.5%
Increase your selling prices by 3.5%
Reduce your indirect costs by 3.5%
Get your sales people to make 3.5% more calls per month
 
OK it’s a theoretical exercise. But achieving those 7 improvements would increase your business profits by 23%. And the list goes on.
 
Not easy in the current economic climate, but all the more reason to set your mind to it. In the past I managed to achieve better than 20% per annum increase in business profits during a recession by using just that kind of approach.
 
Sometimes you have to think outside the box but if you’re not increasing your business profits and improving cash flow your business is going backwards.

What do businesses do when seeking business advice?

That was the question asked in a survey by the University of Nottingham – Barometer Project.

Following the demise of face-to-face business advice that used to be offered by Business Link, the survey asked a panel of business owners where they now sought business advice.

The results showed that just over one-quarter (28 per cent) of respondents use an accountant, one-fifth go to colleagues (21 per cent), smaller proportions use business advisers/consultants (15 per cent) and trade organizations (8 per cent). Just over one-tenth reported that they used nobody in particular (12 per cent).

Now according to my maths that’s a total of 84% and the report doesn’t tell us what happened with the remaining 16%.

Based on more than 10 years of providing business advice to owners of small and medium businesses I’m amazed that 72% of owners claim they actually ask for advice! And at the risk of upsetting accountants I’m even more surprised that more than a quarter of people surveyed say they see their accountant as the primary source of business advice.

There are some very good accountants but relatively few have the knowledge or experience of running a business that’s needed to advise on anything other than the financial aspects of a business. And anyone who has run a business knows that, important as good financial control is, there’s a whole lot more to growing a successful business.

The advice I give is based on practical, hands-on experience of running successful small businesses, and I deal with issues outside my own knowledge by referring to associates I know and trust.

As a former Development Manager, and having spent the last 8 years helping owners to sell their businesses, I get a buzz from helping younger owners to grow their businesses and helping the more mature owners to prepare their businesses for sale.

For more about the University of Nottingham – Barometer Project, please see www.ukbb.ac

Business Loans

In a move to make business loans more readily available to small busineses the Chancellor George Osborne has today launched the National Loan Guarantee Scheme saying it is good for the economy. Four of the UK's biggest banks have signed up to a scheme to encourage them to offer business loans more cheaply

Under the Scheme loans from Barclays, Royal Bank of Scotland, Lloyds and Santander, and banking minnow Aldermore, will be guaranteed by the Government.The theory is that they then pass on this cheaper funding in the form of lower interest rates on business loans. Skeptics wait to see if this will lead to them relaxing their loan criteria.

The launch of the scheme comes at a time when alternative forms of borrowing are generating more and more interest. In particular there is growing acceptance of peer-to-peer lending, and in the UK this is led by Zopa for private borrowers and Funding Circle for the provision of business loans

Whilst these companies are not FSA regulated they use exactly the same credit rating resources as the banks, and many commentators predict long term growth for these companies, perhaps at the expense on traditional banks whose reputations have justifiably suffered since the start of the credit crunch

What’s important for peer-to-peer lenders to recognise is that Zopa and Funding Circle are acting as brokers and it is they the lenders who take the risk in the case of any defaults. 

What’s important for companies seeking loans to understand is that lenders, whether banks or peers, or indeed equity investors, will judge them on their creditworthiness and on the justification for borrowing. In other words the strength of their business plan.

Business Plans

As someone with experience of writing business plans for owners seeking business finance I was interested to see a comment from Maria Lyle, assistant director of the Department for Business Innovation & Skills in the East Midlands. Commenting on applications for Regional Growth Funding she said that the bids most likely to succeed were those that presented short strong business plans, broken down into simple language and without jargon.
 
"The Treasury doesn't like phrases such as 'transformational step change' when assessing bids," she added. " And those of who work with High Growth businesses and others seeking business finance are only too well aware that Business Angels, Venture Capitalists and Banks don’t like to see such “management speak” in the business plans they receive either.
 
So where do such phrases come from and how do they find their way into the business plans of small and medium size businesses? I suspect that in most cases they’re put there by consultants who have spent their whole working lives in corporate life where it’s essential to be up to speed with the latest “in” phrases; especially the ones your boss uses.
 
Those of us who have spent our lives running and advising small and medium size businesses don’t talk like that, and nor do the high net worth individuals who act as Business Angels and Venture Capitalists.
 
The business plan that is most likely to attract funding starts with an Executive Summary that sets out the business case briefly and in a way that enthuses the reader to reading on. The body of the plan should set out in more detail the well researched business case, with realistic and achievable targets, a clear statement of why the finance is needed, and how the investor will be repaid. All the supporting evidence for the business case should be contained in Appendices.
 
There’s no point in owners bleating that their bank won’t lend them any money. Many banks and other sources of business finance are sitting on pots of money waiting for strong businesses with well defined plans for their future to state their case.
 
And I’m always looking for owners who need, and more importantly are prepared to accept, guidance on developing their businesses, whether they need additional business finance or not.

Finance for Small Businesses

I see that the Federation of Small Businesses has today called on the government to support non-bank finance for small businesses. It’s certainly true that since 2008 bank finance for small businesses has been in short supply, and whilst government support would be welcome, if somewhat belated, the fact is that over the past few years there are plenty of organisations that have moved to fill the funding vacuum left by the banks.

There are a number of online peer-to-peer lending sites catering for both small business loans (e.g. The Funding Circle) and personal loans (e.g. Zopa).

Whilst the B2B sites offer loans at fairly competitive rates many owners will be looking for more substantial finance for small businesses than these sites can offer. Fortunately companies are finding alternative and flexible ways of meeting this demand, and any competent business finance broker will be able find a suitable provider to meet a particular business need.

And there are plenty of business angels and venture capitalists looking for small businesses with high growth potential that they can invest in.

When considering what finance is needed business owners should also consider the availability of government grants, and tax incentives such as those available for research and development, the criteria for which are far wider than many business people realise.

Whilst not seeking to defend the performance of banks in recent years I have to say that many owners don’t put nearly enough effort into justifying their need for business finance. I’ve seen plenty of business plans that barely merit a second glance, much less serious consideration. Owners must understand that any organisation or individual with money to invest needs to see a coherent plan that sets out how the business will repay, with interest, the investment made.

Some find The Dragons Den good entertainment, but it bears little resemblance to the reality of finding finance for small businesses in the real world. Most owners don’t even get to the stage of having their requests looked at, much less meet an investor, because they’ve simply not written a good enough business case.

Well written business plans can attract investment, and fortunately there are experts who can write the plan for you whilst you focus on running your business.

Defining Business Success

I was struck by the following quote from Robert Brault, writer (b. 1938)

“If a rabbit defined intelligence the way man does, then the most intelligent animal would be a rabbit, followed by the animal most willing to obey the commands of a rabbit.”

It made me think about how we define success. For many people in business success is seen in terms of measures such as sale growth, profit, cash, and in lots of bigger organisations it’s growing your own little empire. Defined in those terms “success” is often achieved at a cost to others; those within the business and those in the family or close friends.

I’m not proposing that we all become tree huggers and spend all our time worrying about “work life balance”. Rather I’m suggesting that for all managers, but especially for business owners, we look at the broader measures of success that include achieving both business and personal goals.

As every business owner knows starting your own business takes many hours and lots of effort to achieve success, and most of us appreciate the help and support our nearest and dearest give us. There’s often little thought given at that stage to long term goals or to what we will in the future see as business success. But don’t we all want to see our businesses achieve stability, and increase in value, whilst having the time to enjoy the fruits of our labour?

I suggest that the only way you’ll achieve real business success is to develop a team around you that’s well trained, competent, and capable of running the business when you’re not there. Look at any self-made multi-millionaire and you’ll see someone who has recognised the need to employ experts who are motivated to take the business forward. They have recognised that no-one can be good at every aspect of business and so to build stability, long-term growth, and therefore value into their business they need to develop a management team.

For owners the result of business success is that in their personal lives they have both the time and the money to enjoy their leisure pursuits. And for those of us who work to live rather than living to work that’s a true measure of business success.  

The value of a brand

I was asked this morning about the value of a one-man business, and that led to an interesting discussion about micro businesses in general. In particular I was asked about the value of Intellectual Property Rights (IPR) in micro businesses.

For most micro businesses any IPR will comprise the Trade Mark(s) provided they are properly protected, and the brand image. Occasionally there will be registered designs and copyright manuals and training matter.

Whatever the IPR it only has any real value if it contributes to the profitability of the business. It’s any intangible asset and in assessing the value of a business it, like any tangible asset, is only worth something if it’s generating profit, otherwise what’s the point of owning an asset?

Let’s assume for the moment that a business is making a profit; what’s the value of the brand? Micro businesses can’t hope to have brand recognition like Cadbury or Coca-Cola for example, but what they can do is to mirror the attributes that give big brands their national or global recognition.

They can become recognised as having expertise in their niche market, for making high quality goods, for delivering excellent service, for delivering their goods and services in a timely fashion, and for giving value for money. All of which develops reputation and for a small business that’s the equivalent of brand recognition; being known in your region or niche market as the “go to” business.

Of course the only real measure of value of anything is what someone will pay to acquire it. With a large business it’s normal for most staff to remain in post after the shareholders have sold and gone, and so the skills and expertise remain post-acquisition.

For the micro business, and especially the one-man business this is not the case. But that’s not to say there’s no value in the “brand”. The trick is to work out how to maintain reputation post-acquisition. The new owner has acquired the business’s clients and will want to retain them, and that almost inevitably means an extended handover period, and a deal that’s structured so as to retain the outgoing owner’s commitment throughout the handover.

So, whatever the size of a business brand is an important factor in determining the value of the business.