Building a Business that can Run Without You
As businesses approach and breakthrough the million dollar turnover threshold, they have joined a prestigous club – the top quartile of Australian Businesses. If this is your business, congratulations. In the Empower Business Solutions Lifecycle model, typically the business is at the Growing Pains stage.
Based on my experience with working with numerous businesses at this developmental stage (as well as both smaller and larger businesses, which helps me understand where they have come from and where they are going), these are the conclusions I have drawn:
1. To reach this stage of development, owners have achieved a great deal and should pat themselves on the back! These owners have already done the ‘easy’ stuff and know what they don’t know. They are prepared to invest in their business, if it makes sense.
2. At this stage owners have actively sought information to improve their businesses. They may have attended seminars, read lots of books, done courses and may even have hired a coach, all of which will have contributed to their achievements. What they are looking for now is an ongoing way to keep them sharp, with a constant source of new ideas and advice. The discipline to keep going. They aren’t searching for a quick fix because they know they are unsustainable and don’t work.
3. Business owners at this stage are in it to build a valuable asset. Unlike those below this threshold, the business is not a hobby or a lifestyle accessory. They have commitments to suppliers, customers and to either employees or contractors that depend on them. The business is also an important part of their income to support themselves and their families. The business is financially viable and has a great future, but it still depends on them.
4. Owners at this stage are willing to invest in their business development, BUT it must be affordable, and they must be confident that it will work.
Is this what you believe too? Is this you? (Please let me know if you disagree and set me straight if you think I am wrong.)
Why have a Board?
In any business, large or small, the owner/CEO can lose sight of the big picture. They may become obsessed with one way of doing things, in spite of repeated evidence that it is not working. They can be too internally focused and miss important opportunities. Even the best of CEO’s can miss their own shortcomings.
When Roman generals rode into towns to be welcomed by the cheering crowds, having just been liberated from the grip of their local thug-king, there was a slave placed in the general’s chariot whose job was to whisper into his ear “Remember – you are not a god”.
Who is whispering in your ear?
The board is there to cover the CEO’s back- to ensure that he/she does not miss something and to offer objective feedback on how they are doing their job. These are just some of the roles of a formal board:
- Ensuring enduring value to the shareholders
- Strategy formulation and policy making
- Monitoring performance against shareholder expectations and strategic plan
- Recruiting and overseeing the CEO
- Guide and motivate CEO/management
- Ensure the organisation meets shareholder expectations of compliance
In a formal board, this is the arrangement:
The function of a formal board can represented in the following way:
All successful medium and large businesses operate with a board that includes non-executive directors, who are uninvolved with the day-to-day operations managed by the CEO and his/her executive team. The non-executives bring outside experience and perspective to the executives and hold them to account, ensure good governance and that the interests of all stakeholders are protected. They also ensure the executives do what is agreed by the board, and monitor performance.
Smaller business, but with turnover greater than $1m, will often have Advisory Boards. The members of these boards are not directors in the company, as for larger businesses, but provide advice and accountability. The primary difference to formal boards is that these advisors can not enforce actions in the way that a board of directors is legally obliged to do – as non-executive directors in a legally constructed board can be held financially accountable for the failures of the executives if they have not fulfilled their fiduciary duties. As a result of this responsibility, formal boards have the authority to sack the CEO for non-performance!
The Advisory Board is a great arrangement for owners of smaller businesses as they do not want to dilute their control. Also, to attract directors who will be prepared to take on the legally required responsibilities in a formal board is a much higher cost than bringing in advisors without the legal burdens of a director. A business at this level may have 3-4 external advisors on their Advisory Board.
The Advisory Board has weaker accountability than a formal board as the ultimate decision on whether to proceed with a particular course of action recommended by the board is that of the executives (owners). However, if the owner keeps ignoring the board, and performance deteriorates, the advisors won’t hang around for long. Even though they have no legal liability, the advisors would not want to be associated with such a business as it will damage their reputation. (On the other hand the owner who ignores their advisory board, and is continually proved right should sack their advisors!)
Working towards an Advice and Accountability Board
Before this stage of their development, businesses have poor reporting systems and do not regularly review performance against a plan. Empower Business Solutions can prepare businesses for this stage by:
- Helping to develop performance measurement systems
- Reviewing the effectiveness of their current strategies
- Providing an insight on how they compare with similar sized businesses
- Giving objective advice on the issues that affect their business
- Creating the necessary business discipline
- Providing a regular dose of motivation and a reality check with a kick up the butt if appropriate to keep them going and on track
This enables the owner to grow their business, achieve their business goals, create a Saleable Asset and have a business that runs without them.
To find out more about how to take your business to the level where you are ready for an Advisory Board request a Complimentary Business Evaluation and find out how to:
May Your Business Be – As You Plan It!
Dr Greg Chapman
CEO – Empower Business Solutions.