Building, Buying, Running and Selling Companies, Part 1
By Barry Farah, September 25, 2019
I have had the opportunity to build businesses from scratch, buy existing businesses, run businesses and sell them. I thought I would share a few things I’ve learned along the way in four separate blogs. Here, we will glance at Building from Scratch.
Building from Scratch creds: My first real business was a landscaping and tree-trimming company in High School. We enjoyed high margins and had fourteen full-time employees. After IBM, my MBA, Ford Motor and a consulting firm, I launched a business-to-business service that included benefits administration, payroll, accounting and other services, which expanded nationally. Concurrently, I built a Department of Defense related software engineering business that upgraded NORAD’s satellite and radar systems. I also built and ran an extended stay hospitality business, including the ground up development and functioning as general contractor.
The primary advantage to building from scratch is total control of the culture. You don’t have to work against resisters and obfuscators as much. When people join a start-up company, they know to some extent what they are getting – and, at first, it is basically, you!
There were a few less significant businesses that I built from scratch not mentioned above – and in those instances when I was not as involved in the cultural aspects, they yielded lower ROI. Culture really does matter in the build from scratch phase.
When you build from scratch, if you invest your time, energy and heart, you don’t have to clean up someone else’s mess – you are just building. The goal of building from the ground up is to reach sustainability. This is when the company generates a strong free cash flow and has enough systems, customers and breadth to be successfully run without the founder.
To reach sustainability, my three top lessons are :
1) It always costs more than you think. The working capital component is almost always underestimated. Even in a service business, it takes more time and money to hire, train and pay your staff while you are building revenues than anticipated. I counsel entrepreneurs to double their projection.
2) Building a culture takes more deliberate focus than you think. I thought I could talk about three great values, define Customer Success and be done with it. But culture building requires a systematic onboarding and ongoing training system. The primary challenge during the zero to one phase is that all you have to offer is your vision. It is hard to attract top talent when you don’t have a history of success. I found that the Customer Success concept – even though it only existed in my head in the early days – was helpful in hiring “up”.
3) It pays to write it down. Most entrepreneurs like to wing it. If you make your culture and vision statement part of your business plan along with your financial, marketing, operations, technology, legal and HR plans, it will pay off. The vision statements need to be thought through before you or your investors plow any money into people, brick and mortar or furniture and equipment. More now than ever, your primary hiring pool, the 77 million Millennials aged 23 to 38, are interested in heartfelt values and a strong philosophy that they can be proud of; it isn’t just the right thing to do, it in vogue and very good business. At minimum:
a. Establish a business philosophy statement. What great things do you want to provide for your stakeholders? And, how will you go about doing business? Include:
i. How you will sell with integrity.
ii. How you will you talk about your customers.
iii. How you will treat your vendors.
iv. How you will create a culture of respect with your employees.
v. How you will handle debt – answer what kind of a financial steward you are.
vi. How you will practice good business ethics.
b. Establish a customer experience vision statement. This needs to be measurable and objective. It is generated from asking empowering questions of prospective customers prior to opening the doors. This will be tweaked after you have actual customers. Include:
i. Your selling proposition – what value are you bringing to the market? More than features and benefits, why is the customer purchasing from you?
ii. How you want the customer to feel about the service or product?
iii. How are you going to keep your customers coming back for more?
c. Establish a talent acquisition vision and strategy. How will you attract and retain world-class talent – or at least hire “over your head” to get the right people on the bus.
i. What tools will you use in the interview process?
ii. What will you do to keep top talent?
iii. What will you do to make the culture so satisfying that they recruit their friends?
iv. What is your people development strategy?
During the build from scratch phase there is so much “survival” going on that building culture might seem superfluous. In my experience it was essential. In fact, I should have developed my Customer Success training modules before I started the business. I just did it off the top of my head in the early days. But, later, leading the company with those modules gave my team specific tools to work with to solve problems and to win the customer’s loyalty. In addition, it created a reliable framework for the team to make smart business decisions – this is particularly helpful at this phase when there is no way to anticipate everything that comes up. And, the values we promulgated had meaning – they were not just fluff. That continued to attract top talent and helped push us into “sustainable”.
On my next blog, I’ll share a couple thoughts related to buying companies.