We have a saying around the office: “Small businesses don’t stay small on purpose.”
If a business is small, there are two dominant causes. Either the business model or the leadership team, or both, are holding it back.
Typically there is something or some things a business owner is doing, or more likely not doing, that are blocking the business from growth. These things are non-obvious, which is why they’re not being done.
Of course, this is why we like investing in small businesses.
We can help an owner -- who is typically rolling forward equity with us -- to identify and solve the problem. And when that happens, value is created.
There are more of these opportunities at smaller businesses, which is one reason why smaller buyouts tend to outperform larger ones.
Having said that, you don’t necessarily need adventur.es to buy your business in order to unblock growth. In fact, if you are thinking about selling your business now or in the future, we’re happy to share this piece -- our playbook -- and our Instant Appraisal tool to help you build your business and increase its value.
Although that may seem counterintuitive, all else being equal, we are always happy to pay more for a business where hard work has been done to make it more durable because there is always something more that can be done.
As long as you’re up for it, the pursuit of a bigger share of a bigger pie can go on forever.
GET STARTED UNBLOCKING
We put what we call “the business of business” in five buckets, listed here in order of importance to become a fully functioning enterprise:
We say that these are listed in order of importance, but that is not to denigrate the financials, people, marketing or tech. Rather it’s to acknowledge that a business can run without those functions being finely tuned. It will run poorly, of course, but we’ve seen it done.
A business with sound operations and finance is in a slightly better spot and on and on down the line.
A great business will do all five of these things well, but we have never seen a small business that is also a great business. If they were stellar in each area, they’d grow tremendously.
What’s more there are sub-buckets within each of these buckets, which rise from the table stakes to higher level thinking.
The Operational bucket, for example, consists of the core business process (i.e., the thing the business gets paid to do) then the org chart, or allocation of talent, and then planning.
Finance has an accounting and cash management function, then tax, and then a finance function that includes forecasting, capital allocation and balance sheet management.
When it comes to people, you have the compensation and incentives, then recruiting and retention, and finally company culture.
Marketing has basic operations and assets, then strategy and spend allocation. And then technology is systems, processes, and strategy.
Here’s all of that in a checklist with some relevant questions:
*Featured post photo by Michał Parzuchowski on Unsplash
**Originally appeared January 14,2020