Flat or Pyramid Governance Structure for Effective Business Decisions?
Release Date: 07/31/2023
The Risks of Not Implementing an Owner Agreement
Business Concern
Owners of small to medium sized businesses want to realize the maximum value for their business interests. There are many risks preventing realizing maximum value for a business interest – most can be avoided by the implementation of an owner agreement. Where an owner does not hold a controlling interest, there is the risk that the owner will not have control over the outcome of certain business transactions that may diminish or terminate the owner’s interest. There is an increased risk of misunderstandings and conflicts. Where there is no written owner agreement, there are no defined...
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Lightning
Business Concern
I like to walk my dog, but the other day when the time came, I decided not to. The disappointing reason was that when I looked outside, I could see lightning and hear thunder. At the same time, I saw my neighbor outside walking his dog and looking very unconcerned. I later learned that during the storm lightning caused a fire in a house near ours. I did not regret my decision not to go outside, but I do not think my neighbor regretted his (he was unscathed by lightning, and his dog was able to go on schedule). We all have levels of awareness when we are more aware of foreseeable, adverse...
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Business Failure
Business Concern
One in four private sector U.S. businesses fail within their first year of operation. After five years, almost half (48%) have failed. After ten years, the failure rate is 65.3%. (According to data from the U.S. Bureau of Labor Statistics.) Generally, businesses fail when they run out of cash. Cash flow is a metric indicating how money is coming in and being spent in a business. Marketing decisions influence how much cash comes into the business. Operations and growth decisions control how the money is spent. Good decisions made about cash flow will prevent business failure. Small to medium...
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Discovering the Owner Agreement for Your Business
Business Concern
Where there is a small or medium sized business with more than one owner, there is an owner agreement. It may not be obvious – in most cases it is not written. But for any multi-owner business the owner agreement must be there for the business to function. To start a business there must be agreement about the business entity to use, the initial capital, the basic governance, and the operational functioning of the business. In various documents regarding these matters there will be writing documenting the decisions made by the owners, but most owners do not document the basic strategy that...
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Where to Find Help
Business Concern
As the owner of a small to medium size business, you may have felt the need to ask for help but not felt comfortable doing so. Owners of businesses are often skilled in the business they own and enjoy the respect of their family and friends. If their businesses are successful (profitable), it is usually based on their leadership and good fortune. But things change and sometimes the successful are faced with difficulties and even poor results. The humility it takes for an owner to recognize that business is a team effort and that the policy-making group of a business needs help is a principal...
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Creation of Wealth for Business Owners
Business Concern
Among the common goals of members of a capitalistic economy is the creation of wealth. This is often a reason why people own businesses. For an individual, the concept of wealth creation is the escape from dependence on earning funds for current expenses to live a certain lifestyle to building up assets and resources that appreciate over time and are of a magnitude to sustain that lifestyle or a better lifestyle without the need to earn funds for current expenses. Creation of wealth is a reference to accomplishing financial independence through the creation of passive income from investments....
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When Planning Becomes Dynamic
Business Concern
Traditional planning is static. If there is a written plan, we see the plan formulated, documented in writing, presented at a meeting, and then put on the shelf to be consulted for next year’s retreat. This is the opposite of a forceful and changing dynamic plan. A dynamic plan can accomplish continuous improvement in business performance over time resulting in increased profitability. How does a static plan become dynamic? The answer is in the format of the plan. To be forceful a plan must be understood and implemented at all levels of the business – operational as well as management. The...
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The Concept of Time – How Its Progression Affects Important Tasks
Business Concern
The Concept of Time – How Its Progression Affects Important Tasks Time is the progression of events from the past to the present into the future. Time marches forward relentlessly. From birth to death, we age, and every moment that passes is unique and unrepeatable. The more important tasks we accomplish within our lifespan, the more fulfilling and impactful our lives can be. But what defines "important"? Is it happiness? Recognition? Pursuing a passion? How we define, or not define, “important” has a great deal to do with how we spend the time of our life span. I believe in defining...
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Pay Attention to What is Important
Business Concern
In the new year make sure you pay attention to what is important but not urgent. This is the time to make resolutions – that process involving review of the past year and resolving to do something different in the new year. It is a given that urgent but not important matters often replace important but not urgent matters in the time allocation of business owners. This diverts the owners from accomplishing important long-term tasks such as obtaining maximum value for their business interests. To pay attention to what is important you must prioritize paying attention to what is important by...
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Important Accomplishments
Business Concern
As a business owner imagine how it would feel at the end of the year to look back and realize you have reached one or more important accomplishments. You used your values to create a strategy. You set a goal at the beginning of the year. You created a plan to act to accomplish the goal. You executed the plan by acting to reach the goal. The feeling would be one of satisfaction and a sense of accomplishment. For most owners this feeling of satisfaction will not be possible. Most will not have articulated their values and created the strategy to set the goal. Some will not have published the...
info_outlineGovernance of businesses generally consists of two structures: hierarchical (pyramid) or nonhierachical (flat). Can it be determined that one structure is more conducive to effective decision-making than the other?
The hierarchical structure is the traditional legal governance structure of the corporation. That structure creates an overall executive officer (president or chief executive officer), a vice president, secretary, and treasurer. Other officers are added to the structure for administration of other common departments such as human relations and technology. Below the officers in the structure are managers who are charged with operations and report to the officers. This structure may be multilayered and quite complicated.
Nonhierarchical structures generally use teams, where each team has a responsibility or project. Team members are encouraged to self-direct and to be innovative. There are few levels of authority. Multiple teams can make organization and coordination of teams difficult. Advocates of nonhierarchical structures believe the structure makes businesses more adaptable and able to act quickly. Examples of businesses using a nonhierarchical structure are Google, Zappos, Altassian, and Netflix.