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Most entrepreneurs go through their entire business career focused on generating revenue and net profits. In other words, an income-focused mindset. This mindset’s elements are things we know well as entrepreneurs and business leaders. These include people and culture, profitable revenue generation, customer retention and relationships and systems and processes, amongst many others. If focused on correctly, these familiar elements will undoubtedly generate profits and, ultimately, a successful company.
If you asked a long-time entrepreneur (one that perhaps has owned their company for two decades and has navigated outside factors like a pandemic or a recession, who started their company out of the shed in the backyard or the bedroom in their home) if they thought their company was successful, many would proudly say, “Yes.” They have built a great company. They have a purposeful product or service. They have great customers and a select few with deep and potentially long-term relationships. They have great people and a great culture; perhaps the owner is even the heartbeat of this culture.
Some systems and processes move things along and allow people to operate in the best environment possible. They are proud and feel successful in what they have built. However, when they go to sell this same company, they are metaphorically slapped across the face. Someone has called their baby ugly for the first time in their long, successful history. Their business is not worth what they thought it was, what they need it to be, or worse yet, nothing.
This entrepreneurial mindset of income generation has caught up to them. Though they might have something successful, they do not have something transferrable. A transferrable company is ready and attractive to outside buyers or internal investors. It has a master plan that embraces and aligns with the entrepreneur’s business, personal and financial goals. Not just a successful company but a significant one. A significant company is highly valuable, transferrable, ready and attractive in any market and also aligns with the owner’s business, personal and financial goals.
To go from successful to significant requires critical mindset shifts from income generation to value creation. This value creation mindset has three components. Those shifts are 1) business is personal, 2) exit strategy is a business strategy, and 3) embrace contingency planning.
Mindset Shift #1 – Business is personal
We have been told the opposite: “Leave the personal at the front door before you enter your business.” But the fact is that we are one person, especially as an entrepreneur. Many entrepreneurs have been so focused on building their companies that they have spent less time investigating personal plans, purpose and vision for their lives in and outside their companies.
A significant company has an alignment between three critical factors called the Three Legs of the Stool — the Business, Personal and Financial aspects we referenced earlier. Imagine a three-legged stool with one of its legs missing. You wouldn’t be able to really sit comfortably upright.
Now, imagine that one leg of the stool is shorter than the others. The stool would be wobbly at best. Spending equal time on all three legs is critical. To integrate this into our daily lives as entrepreneurs, we must realize we have two concurrent paths. One path is the business. One that we know and love well. The other path is personal, which embraces the personal financial planning we need as entrepreneurs and the personal planning that allows us to find purpose and have a vision for a complete life.
Mindset Shift #2 — Exit strategy is business strategy
As an entrepreneur, your business is likely your largest personal financial asset. Harvesting its value one day is going to be critical. But did you know that as an entrepreneur, you do things daily in your business that eventually affect your exit? Entrepreneurs must shift from income-generating measures to value-creation tactics.
Focusing only on income generation does not mean you have a valuable company. Yet you likely have a successful one. But by focusing on value creation, not only do you create more value long term, you create a more efficient and more profitable company today. Value creation measures often improve the four intangible capitals in a business. These are human, structural, social and customer capital. When the intangibles are strengthened, the business has employees who integrate well into your culture and stay long-term, documented process, strong company culture and a loyal customer base. Nearly 80% of your company’s value lies within these intangibles. By integrating a value focus into your daily business operations, the organization moves toward best-in-class performance and ultimately becomes a significant company.
Mindset Shift #3 — Embrace contingency planning
As entrepreneurs, we are not invincible. We are mortal. 50% of the exits in the United States of America today are due to one of the 5Ds: death, divorce, disability, disagreement and distress. These consequences can lead to bankruptcy, layoffs and an unplanned exit as the business is forced to shut down or transfer at a price much less than what the owner wants, needs or even deserves. If not planned for at least in part, these destroyers of companies could kill your company. Knowing they exist and actively planning for them in your strategies protects your largest asset and considers your personal financial and personal goals.
By incorporating these three critical mindset shifts into their business, entrepreneurs can take their company from successful to significant. When the owner has a strong team of advisors, employees and leaders that also embrace the value creator mindset, they can reach an entrepreneurial lifestyle aligned and blended with their business, personal and financial goals.