Is Your Business Thriving?

Is Your Business Thriving?

Chia-Li Chien | May 07, 2012

Jim Collins’ recent book, Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite Them All, contains extensive research into what I call Mission Critical Behavior to create extreme business value in terms of Shareholder Value Creation. The primary focus of the research is on public companies, although many of these behaviors are interchangeable or applicable to small to mid-sized private companies.

Collins calls these types of companies 10Xers, or in other words, companies that can create 10 times or more shareholder value over 10, 15, or even up to a 30 year time period. His research has proven that leaders of these companies, compared to those of other companies were not:

  • More risk-taking
  • More visionary
  • More creative
  • More lucky

Instead, 10xers have Mission Critical Behaviors that Mr. Collins’ defines as 10X Leadership. “They (the leaders of 10X companies in the research) were more disciplined, more empirical, and more paranoid,” said Collins.

When it comes to private companies, often there are constrains in duplicating Mr. Collins’ business solutions such as 20 Mile March, Fire bullets, then cannonballs, Leading above the death line and SMaC. In my experience, private companies, especially ones with less than $25MM annual revenue, face the following:

  • Lack of sustainable economic engine or misalignment of business model.
  • As a result of the misalignment of business model, cash reserves and profitability often get in the way of achieving ultimate extreme business value for the entrepreneur or business owner.
  • This creates significant challenges for owners seeking capital funding (both equity and debt), lines of credit (both traditional or hybrid) or even terms.

Some owners tell me they have limited resources, (people, money, technology, strategic partners, distribution channels, etc.). I often encourage them to revisit their business model. Not having the right business model often is deadly—just like climbing Mt. Everest without any idea of which path is most logical to prepare for, to execute a plan for and then to be prepared to make flexible changes on this challenging exposition.

What impacts business value? There are three broad categories of actions or goals you might consider:

A. Increase/recast EBITDA
B. Reduce risk
C. Employ additional high yield capital

Remember, what buyers, investors, banks and financial institutes are looking for is to increase their ROI (return on investment) and reduce their investment risk. If you can demonstrate those two benchmarks, then they will view your business as a good match for their investment dollars.

Your goal as an owner is to sell your business anytime it will be profitable. That being said, you must have fundamental value for merger and acquisitions (M&A or exit) regardless to whom you sell. Although not a direct route, here are my comparisons to Collin’s behaviors.

Collin’s 10Xer BehaviorsMy Mission Critical Behaviors
(categories of actions)
20 Mile MarchIncrease/Recast EBITDA
Fire bullets, then cannonballsReduce Risk
Leading above the death lineIncrease/Recast EBITDA
SMaCEmploy Additional High Yield Capital

You must consciously grow your business in value in terms of these three broad categories, which impact your business value. Let me quickly review the three broad categories again:

A. Increase /recast EBITDA
B. Reduce risk
C. Employ additional high yield capital

Share this post

Leave a Reply

%d bloggers like this: