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_outlineIs “strategic planning” an oxymoron? Asking that question and considering an answer gives us a clearer way to look at strategic thinking that will make our planning more effective and make our businesses more profitable. Strategic thinking involves considering the probability of future events, while planning involves detailed descriptions of actions to be taken with current resources to achieve certain goals. How do strategy and planning combine to form a strategic plan? Or do they?
An oxymoron is a figure of speech that pairs two opposing words. Examples of an oxymoron are: old news, deafening silence, organized chaos, friendly fight, completely unfinished, absent presence, and alone together. To reach oxymoron status, strategy must not just be different, it must be the opposite of planning – actions to be taken to reach goals.
Strategy is deciding what is important. It is determining where you want to be. Strategy asks: in what arena will you will do best? Strategy requires computing the probability of future events. None of this is planning. The plan narrative describes how to move toward where you want to be – how to take actions toward accomplishing certain goals – with resources that you now have.
What is important to an owner is determined by the owner’s values, and, for the business, the owner’s values with respect to the business. For an owner, the success of the business will not only be the profitability of the business, but also the receipt personally of the direct benefit of owning the business. An owner’s strategy will define what is important and what needs to be done to deliver the benefit of owning the business to the owner. A statement of an owner’s strategy might be, for example, to own the business not more than five years with a sale for maximum value of the business interest placing the sale proceeds out of business risk and into the owner’s investment account.
Yet, even when owners do strategic planning, which is not often, I do not find a statement of owner strategy in the strategic plan. There are goals, presumably based on strategy, and the “strategic plan” is drafted as a long-term plan for the business with stated goals based on unexpressed assumptions about strategy. Many times when I review such a plan, the goals reflect no strategy other than a purpose to be as profitable as possible. I think this lack of thinking about strategy occurs because thinking about strategy is hard to do. But it is well worth doing.
Creating a strategy need not take a long time but it does take some contemplative thinking – that is the hard part and the part that invokes procrastination. For the sake of clarity, I recommend taking things in order of importance. Start with the values of the owner. Can the owner articulate the owner’s values? If not, the determination of what is important becomes impossible. What are the owner’s values with respect to the business? These of course will be determined by the values of the owner.
Once the owner can make a statement about what is important about the business to the owner, the owner should share these values with respect to the business with the other owners. This sharing requires the other owners also to have the ability to articulate their values with respect to the business. This process of the owners deciding about what is important about what the business does and where it does it is strategy, not planning. Most of the time it is not done, because the strategy step is skipped and the initial step begins with the planning process. What appears to be urgent (“we need a plan”) is attended to while determining and recognizing what is important (determining strategy) is ignored.
Returning to semantics, where the phrase “strategic planning” describes a situation where there is no strategic thinking and a plan narrative is written containing goals based on assumptions, then the phrase is an oxymoron. There is no strategy in that strategic plan. On the other hand, in the sadly unique case, where strategy and planning are two separate functions and documentation of strategy is a prerequisite for setting plan goals, “strategic planning” is not an oxymoron.