Tough choices
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I always remember a friend of mine who was the MD of a family-owned business, which had been around for over 70 years.
The business was barely profitable and the company hadn’t got the capital to purchase modern equipment. In short, unless it invested it was slowly going to become less competitive and eventually go under.
My friend knew that they had one product line and brand that the competition would pay really good money for.
He managed to persuade the family to sell it and cut the business by half, ruthlessly slashing the small and unprofitable accounts. In the end, the company was 50 per cent smaller both in workforce and sales, but it was profitable and strongly cash generative. That’s a tough decision to make, particularly when dealing with ‘sacred cows’.
Costly mistakes
It can easily go the other way. I’ve lost count of the number of times I’ve seen the go-ahead being given to invest in a new breakthrough product or technology. Millions of pounds are spent and things just don’t take off.
Manganese Bronze, the maker of black taxis, did this with Zingo, a mobile radio system similar to that employed by Computer Cab.
It cost a fortune to install but never worked and only when new management came in, under pressure from other shareholders, did the company sell the product and concept⦠for just £1. The new managers had made the right decision, but it was a tough one â“ too tough for their predecessors to stomach.
Quite often, the hardest decision to make is the one that is contrary to everyone else’s. The natural instinct for entrepreneurs is to expand, develop fresh ideas and grow sales in unchartered areas. But sometimes the best option is to focus on the knitting and actual fabric of the company. It’s a common theme of mine â“ manage the existing business better!
Growing your installed base is often by far the most profitable business model, but the temptation is to use second-line sales and marketing people.
Don’t. Concentrate on your core business first, and when you’re ready to expand, be brave and go for the best.
Personnel problems
The toughest decisions are invariably based around people. We know that management is the key to most businesses and yet getting rid of old friends and even business partners is often the hardest decision we have to take.
Funnily enough, many businesses are sold because the founders can’t crack this problem. Fortunately, there are alternatives, such as using outside advisers or mentors. A hard decision that you have wanted to make yourself can be announced via an independent party. But I have to say I have never met anyone who regrets changing key people who are not performing, only in the sense they wished they’d done it earlier.
A big deal
I guess high on my list of tough decisions would be whether to take external finance, such as venture capital. In many respects this is a watershed for many companies.
Prior to that you are totally independent with no controls on you, other than day-to-day business worries. When you bring in external finance, you have to answer to people, explain your actions and even justify your own pay. Not much fun.
The catch is that often, if you want to create real capital value, you have to do this. And on the bright side, the discipline it enforces can greatly enhance the way you run your business.
My software company, Sage, faced this decision some 24 years ago and I’m glad to say we took outside finance. The rest, as they say, is history.
Another tough decision is when or if to sell your business. The first pill to swallow is that selling could, in effect, mean you’re going into retirement, and that can be a daunting prospect when you have worked flat-out all your life. You had better make sure you have plenty of hobbies by then.
If you’re able to reconcile yourself to letting go, the timing of a sale is always difficult. When a business is going well and the order books are full, you’re often not in the mood to sell. But when things aren’t so great, lacklustre results can make you sell too cheap.
While at the helm of a growing business, chances are you’ll be too busy with the day-to-day operations to plan your eventual exit, but I can’t emphasise how much you should be doing exactly that.
Keep a good eye out for any companies in your sector to see if they have sold and for how much. Go and talk to some mergers and acquisitions people. Your accountants will almost certainly have a department specialising in this area.
If you’re thinking ahead, that tough decision might just be a little easier to make.