Part One: What do we mean by “Working On the Business”?
We often find ourselves in conversation with our medium sized business and Not for Profit (NFP) clients, typically a business with 10+ staff and/or $3M+ annual revenue, about them spending less time working “In the Business” and more time working “On the Business”. What do we mean by this, why is this so often an issue, and what are some options to get the focus (and time) better balanced between the two?
Working “In the Business” is typically the default day to day “way of operating” – making sure you are (as much as possible) staying on top of the day-to-day challenges which is of course important and necessary. Our experience however is that this “busy-ness” can mask the fact that the business isn’t performing to its potential. The daily grind is just that, so it is important to elevate the focus at least quarterly to look at your business from the perspectives of an owner and of a prospective buyer, and focus in on the things that will drive the long-term health and value of your business i.e. turn your focus to the important as opposed to the urgent.
Working “On the Business” then is about focusing on the things that will grow the value of your business. Often these get lost in the push and pull of the day-to-day hurly burly. We work with our clients to create a view of what the “On the Business” measures are and then establish and maintain the process to drive improvements against these measures while still of course keeping a close eye on the “In the Business” metrics.
On the Business metrics, while linked to some of the traditional Profit & Loss or Balance Sheet metrics like Revenue, Gross Margin, Net Profit, Working Capital, and Gearing (i.e., Debt: Equity), extend beyond these to focus on what drives the value of your business. Putting it another way, it’s looking at what can help lift your “value multiple” from say 2 or 3 times to 4+ times earnings.
We strongly believe that keeping these On the Business measures in focus and taking deliberate actions to improve them is the highest value enhancing strategy that a business owner can take.
So, what are some examples of On the Business measures? In addition to the standard financial metrics identified above, we would focus in on:
- How reliant is the business on you the Owner, or key team members?
- Could the business survive (at worst) or thrive without your or other key team members’ active involvement for say 4 to 8 weeks (or longer) period?
- Do you know who your most valuable customers are?
- How happy are your customers with your service and what percentage of your revenue is recurring?
- How much of the next 6 to 12 months revenue will come from these customers and agreements you have in place today?
- Is there a significant and hard to copy point of difference you have or provide that is recognised by your customers (i.e. do you have a market driven reason why customers will stay with you over the long term)?
- Do you have any unique Intellectual Property (“IP”), patents or other “trade secrets” that drive value, retention and/or future revenue?
Working On the Business means investing time to identify the right measures for your business and then setting aside a regular structured time to review how you are doing against them, working out what needs to improve, setting targets, and undertaking actions to improve them.
We know this isn’t easy to do given most Owners schedules, so the initial focus is about finding enough time to get started on the journey. Once you start getting traction it will free up more time to allow you to increase the time available to focus on your On the Business KPI’s and further improve momentum.
Our following Blogs in this series will dig a little deeper into potential ‘On the Business’ measures and establishing a regular review and improvement process.
Author: Andrew Carmody, Management Response Limited
