To Sell Your Business Avoid The Complexity WhirlPool
To Sell Your Business Avoid The Complexity WhirlPool
Those of us who started a business based on an idea or a skill set will remember the long hours, chronic undercapitalization, and strained relationships with our spouses. There invariably were large portions of the business that lacked automation due to the nature of the start-up.
The business owner needed to acquire electronic equipment at great expense and then had to climb the learning curve mountain with very little help. This premature acquisition of equipment was a key element of failure. It aggravated the stresses in the business and lacked planning, showing that equipment and software are rarely used to the fullest in small businesses.
However, much like any evolution pathway, the business is slowly transformed into a more mature and stable rendition of itself. In most cases, the business arrives at a reasonable homeostasis as it reaches a workable momentum level. If the business does not fail, we notice that the growth of the business is largely organic and there is a change in its behavior as processes are added to cope with the growth and deal with the challenges.
These processes are largely done on an ad hoc basis and, from my observation, are a response to years of previous programming from learning institutions, mass media, and half-baked responses to political propaganda, ideologies, and self-gratifying government intervention.
On the surface, the business gains credibility and commands a certain presence in the marketplace. The business owner adjusts to the changes and the constant need to patch inadequacies that result from conflicting systems and generic add-ons. They respond to marketing pressures where many coaching experts guilt them into behaving differently or purchasing their management software, touting the need for growth as their leverage.
Each “improvement” adds a new cost burden and tends to complicate the processes already introduced. The solution capacity of these aids is rarely used to the fullest or at best is not fully suited to the business needs. The required input and analysis of data places a tangible burden on the business operators.
Most of this pressure stems from the excitement-fueled startup with an inadequate understanding, lack of experience, and a “sink or swim” necessity generated by start-up debt. Business owners react rather than respond, and the resultant outcomes are clumsy, unwieldy, and sluggish monoliths that are temporary fixes.
I find that the condition and health of such a business rarely improve or are rarely fully reconciled in the lifetime of the business. The evidence of patched chaos is even there at the point of sale. It is a moment of reckoning for the buyer and the seller, although not fully understood.
The ramifications of this can easily be seen. The buyer will notice that there is a need for modernization or change but has reasons for buying an established business. The due diligence is a measure of the income and tracks or records certain financial outcomes. The assumption is that a healthy income makes the business successful. At this stage, it is often difficult to assess the business beyond that.
What is often missed by the seller is that they have grown with the business and have been instrumental in the complexity that has just been described. In this scenario, a buyer might have the capability and skills required but is seriously lacking in the experience of running a “complicated” business. This may either cost the business sale or create a travesty of inevitable failure when the business changes hands.
The 1929 Nobel Prize winner in literature, Thomas Mann, stated that “order and simplification are the first steps towards mastery.” This thought is backed up by Tony Robbins who stated that “complexity is the enemy of action.”
So, complexity, especially if it is caused by the tyranny of poor time availability, can create the need for tools that manage the complexity. Such involvedness is expensive and generates a larger workload than necessary. To me, a little-known secret in selling and obtaining a “top dollar” sales price is to be able to present a profitable business that is easy to manage and that a buyer will understand from the outset.
Simplifying your business can be achieved by analyzing the business and breaking it into components that are developed into systems. Training and implementation are about managing these elements in such a way that a person with no experience can be taught and be secure in their work. Manuals are easy to follow and consult.
The employees are experts in their operations and do not need to be concerned about the business outcome beyond their immediate responsibility. This approach was codified by Michael E. Gerber in his book *The E Myth*.
The evidence for success using this method of simplification can be observed in the McDonald’s Franchise. Young adults working for a reduced wage due to their age, mostly working part-time as they are also school attendees, manage to work together and operate a large, complicated business.
When a business is sold, a handover to a new owner is measured and well defined. If the systems are effective, then the new owner will be able to continue the momentum of the business. Changes in the systems are a matter of tweaking the processes rather than trying to reinvent the business so that it is suitable for the buyer. This is a leading cause of failure.
Too many buyers imitate the seller’s approach to the business and do not uncover the pitfalls as they are simply continuing the bad habits. Furthermore, they inherit the baggage of the previous incumbent, dooming them to repeat the mistakes of the seller and soon falling into the complexity trap.
Complexity, however, can also be a strategy to counter and “crush” competition in the marketplace. I remember attending a marketing conference in the United States where Bill Glazer, together with Dan Kennedy, the internationally renowned direct marketers, urged us to make certain processes very complicated so that it was next to impossible to successfully imitate. However, this complexity is different. It is planned and with the correct keys can be repeated.
Much of what we do as business brokers can be complicated. We use the term “many moving parts.” There is a duty of care, and we need to come to the negotiations with a clear, systematic approach.
A confused complication of the process is detrimental to your profession and ultimately your success.
Tags: selling exit strategy tips small business
About the author
Ray Dye
As a previous multiple business owner in South Africa, Canada and Australia, Ray has an exceptionally high level of expertise when it comes to knowing ...
