Series: Kicking @$$ in Today's Business Environment
Hey there, changemakers! Think back to when you first learned to ride a bicycle. In order not to fall over, you have to look out at where you want to go - even as your initial instinct is to have your eyes on the road under your wheels. Running a business is no different. You'll never get to your desired destination if you don't keep a laser focus on your end in mind.
Target Practice
When we initially sit with company Founders, one of the first things we ask them is "how much do you want to sell your business for down the road?"
Oftentimes, this generates a puzzled expression, a sort of "I'm just getting started and I thought we were discussing how I might be a good candidate for your Accelerator services - why are you asking me how much I want to sell for? I'm light years away from having a truly saleable business, or even an ongoing concern that anyone would be interested in acquiring."
Of course, the point of the mental exercise isn't to land on a dollar figure to exit tomorrow, but to imagine not only the possibilities, and more importantly, the goal. Every business is for sale - all that is negotiated is price. In this case, it's vital for us to establish the target so we can "begin with the end in mind."
The Value of Knowing Your End in Mind
This serves multiple purposes. First off, it indicates whether or not the Founder, and their company, might be a viable candidate for either our Hatchery program, or potentially, as a portfolio company. It also signals whether they'll be receptive to growth strategies necessary to truly get out of the gravity well. There are plenty of small businesses that are perfectly content to stay small; however, that's not an ideal fit for us, and given the constraints of the elastic limits of time, we want to make sure that we're allocating ours where it will be best served.
Creating a Path for Growth
Long-range planning also assists in defining the parameters for growth, while keeping in mind that "the journey of 1,000 miles starts with a single step."
For example, if a company is projecting $875,000 in top-line revenue this fiscal year, their goal is to eventually exit for $45,000,000, and they're making healthy products in the CPG space, based on current exit multiples for private companies in the sector, we know that we'll need to circle a $5M EBITDA target in order to successfully reach that threshold.
This, in turn, will directly impact things like the approach to overall ad spend as a percentage of gross revenue, the way that we benchmark KPIs, and even the manner, and order, that we schedule key hires down the road (for example, a small company content to grow at 8%/year with a founder who wants to run the business for the next 20 years is much less likely to need to retain accomplished consultants early on than one aiming to quintuple revenues in 24 months while maintaining healthy margins).
The End is Just the Beginning
Once long-range planning has been sketched out in terms of end-game, the scaffolding of strategic structure can then begin to take form.
Continue on to the next post in the series: Fearless Leader[ship]
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