The Five Challenges
We have seen CEOs and owners struggle to meet the challenges to building sustainable value in their companies. These challenges are shown as a progression from low value at the survival stage to a high value exit plan at the top of the stairs.
Challenge Number Four—Improving Alignment and Execution
A fourth challenge is company alignment, both internally and externally. Many owners are not aligned on strategy, investment options, compensation, and other critical areas. Family-owned businesses may not have “one voice” from the owners to management. The result is a management team that is out of sync on company goals, purpose, business philosophy, and even ethics. This misalignment leads to inefficiency, false starts, misspent capital, products that add little value, and management turnover. The outcome is weaker financial performance and lower value.
Challenge Number Five—Developing a Viable Exit Strategy
An old adage says, “It is easier to get into business than it is to get out of business.” Middle-market companies usually fail to focus on how to create sustainable value. They do not know how to align the company’s capabilities and position it to appeal to targeted investors and acquirers. Planning a viable exit strategy forces companies to ask, “What is attractive about the business, who would be attracted to it, and what needs to change so that it is more valuable?”
These companies often disregard the notion of scalability, brand equity, bankable management teams, and recurring revenues. These are just a few of the important factors in designing an attractive exit strategy. Owners might not choose to exit a business, but they should know the factors that build sustainable value. The challenge is to have a plan for building sustainable value that can be measured, managed, and executed.
If the exit strategy leads to the sale of the business, owners must decide the acceptable price and terms. They must be prepared emotionally to sell if their terms are met.
How to Meet the Challenges
Overcome the challenges with a strong internal team supported by an advisory board and the governance process it brings to the company. The authors have created an effective advisory board process called the professional advisory board process or PABoard process. Learn more in Game-Changing Advisory Boards, available soon.