Forget about shortcuts. Manage for the long haul
Young entrepreneurs often ask me, What is the most important thing to focus on as I’m building a business? I tell them, “You should build it as if you were going to have it forever and, yet, at the same time, build it so that you could sell it tomorrow for as much money as possible, even if you don’t intend to.” They usually give me a funny look and ask how they can do both. “Actually, they’re almost the same,” I say.
Building a company to last forever means you don’t take shortcuts. You always make decisions with the long-term health of the business foremost in your mind. For example, you don’t hire salespeople from competitors. It’s a temptation, I admit, especially when you’re just starting out. You think that, by hiring a competitor’s salespeople, you can save time and money. They’re already trained, for one thing, and they know the industry. They probably also have leads you can use. They may even be able to bring some customers with them.
I had those thoughts when I was starting my first business, and I learned the hard way just how misleading they are. To begin with, I found that salespeople from competitors had a lot of bad habits I couldn’t change. They’d learned all the tricks of the trade, including the worst ones, and would do whatever was necessary to make a quick sale. When I tried to have them take a longer view, they wouldn’t listen. They thought they knew better than I did how best to get new business.
As it turned out, however, they weren’t better salespeople than those I hired from outside the industry and trained myself. When I took on competitors’ salespeople who’d told me tales about the great things they’d done in their previous jobs, I learned that I shouldn’t have been so quick to believe them. I also learned that any salesperson who betrays a previous employer by stealing customers will someday try to do the same thing to you.
Experiences like that—and, unfortunately, there were others—taught me that it’s never a good idea to take shortcuts in business. You won’t, though, if you’re focused on building a company that can last forever.
If you’re also building it so you could sell it for as much money as possible—which is actually a similar idea—you’ll implement best practices. By best practices, I mean things that add value to the company by increasing the likelihood that any future owner will be able to earn the maximum return— even if the future owner is you. There are no shortcuts to best practices, which will help your business thrive, whether or not you decide to sell it. One best practice, for example, is to stay in direct contact with your customers and keep the relationships up to date, preferably in the form of renewable contracts. Smart buyers will examine those relationships closely, for the simple reason that they want to be certain the customers will stay with the company after it is sold. You would be wise to insist on the same level of certainty in your business. It’s all too easy to let those bonds erode through neglect, and then discover to your surprise that an important customer has been lost.
Another best practice involves making sure you have such accurate financials that banks and other outsiders can have absolute confidence in them. Obviously, we all benefit from having good financials, as I’ve noted many times before. But I’m talking here about taking it a step further and getting certified financials. Yes, the certification process will cost you some money and take some time, but certified financials increase the value of the company. For one thing, they will make it much easier for you to get a loan if you suddenly find you need one. They also make the business a lot more attractive to potential buyers.
Follow those two rules religiously, and you’ll wind up with a well-managed and valuable business that can keep growing and improving for a long time. Ignore them, and you’ll limit your company’s ability to ever reach its full potential.