(Time to read this Blog is about 3 minutes)
Before we get to the main topic, here are a few things to get you thinking:
- My biz quote of the week:
“Many people say, ‘I’d be happy if I had a glamorous job.’ A glamorous job is when you love what you do, who you do it for and who you do it with. Other than that, glamour is an illusion.”
- Why I don’t quit. I’m no ‘spring chicken’ and many colleagues ask why I don’t quit and ‘take it easy’, whatever that means. The answer is that I’m still relevant, helpful and loving the work! Below is a quote just received from one of our Biz Coaching clients that says it all:
“Donald, the impact you’ve had on our business and our life over these last 5 and a half months is incredible. We continue to grow our knowledge, our customer base, our Team and our bottom line with all the amazing seeds you are planting. To think that just over a year ago I was ready to walk away from the business and go to work for someone else. Thank you!”
So, here’s a question. As a person and as a business, what are you doing to remain ‘relevant’ in this rapidly changing world? Relevant to the most talented people in your industry or market and relevant to a growing number of profitable customers?
- Fun ‘Bat Facts’. I’ve just read an article stating that a single bat can eat 4,000 to 8,000 insects in just one evening. The article made no comment on how many insects a married bat can consume.
Now, to this week’s important topic:
The importance of developing ‘wise investor thinking’:
Note: This Blog is especially important for business owners and family businesses.
Most business owners think of themselves as being in a particular industry or geographic market, good or bad, rather than thinking of themselves as investors who are currently invested in a particular industry or market, but open to other investment possibilities.
I’ve had many clients with a ton of money tied up in businesses with a mediocre return, little or no growth, serious disruption on the horizon for which they’re not prepared…and it stopped being fun years ago. Or, the business has become their ‘neat fort’ where they go every day to feel safe, comfortable and in control and they no longer see it as an investment to be optimized but a place to hide from business and personal realities. By helping these clients develop ‘wise Investor thinking’, they start seeing more prudent investment possibilities and diversified risk management strategies.
Here’s an example of what this shift from ‘Industry thinking’ to ‘wise investor thinking’ looks like. When I ask a client what they do, they typically respond with what I call ‘industry thinking’. They’ll say something like…
– “I’m a Ford car and truck Dealer in downtown Ottawa.”
– “I’m a heavy-duty engine rebuilder in Edmonton, Alberta”…or,
– “I’m a building materials retailer in a suburb of Atlanta.”
An important shift in thinking for all business owners is to adopt what I call ‘wise investor thinking’. For example, instead of saying…
“I’m a Ford car and truck Dealer in downtown Ottawa, Canada.”
…a ‘wise investment thinker’ would say, we’re…
“A family investment company with 95% of our assets currently invested in a Ford car and truck Dealership in downtown Ottawa.”
This way of describing your business as an ‘investment’ raises several important questions, such as:
Question #1: “What is our current investment in the business?” The answer to this question is very different from what you might think. In ‘wise investment thinking’ your current investment in the business is what you could sell it for in the next few months. That’s it. Nothing else matters.
For example, if you’ve put a million bucks into the business and could now sell it for $5 million, ‘congrats’ you have a capital gain of $4 mil. If you put a million into it and it’s now worth just $700,000, you’ve peed away $300,000.
Question #2: “What is our current Return-On-Investment (ROI) in the business?” Given that our investment in the business is what we could sell it for in the next few months, what is our annual return on that investment (ROI) in our business? Is that return competitive with the return that we could make with all or some of that capital invested in something else?
Question #3: “Is this the best industry, best brand of Dealership, best market and best location within the market in which to have so much of our capital invested?”
What are the longer term possible risks in our industry, market, our specific location or to our current business model? What innovations, technologies or other disruptive factors might affect the sustainability of our business, or our entire industry, and endanger the capital we have invested in it?
Question #4: “What are our investment options…and what prudent decisions would a ‘wise investor’ make?” If what we do and where we do it has more to do with ‘history’ than with current realities and future possibilities, it may be time to look at other options. In the interest of risk management, should we be more diversified in our investments?
Question #5: “Is our industry consolidating and how does that affect our options and our strategy?” Most industries are consolidating, and we have 4 clear options:
- Be a buyer. Start buying up competitors.
- Be a seller.
- Find a profitable niche market that the ‘big guys’ can’t or won’t serve,
- Do nothing, sit on our behind, become irrelevant, fade away and lose everything.
Question #6: “What are the non-financial considerations and personal priorities that should be looked at in addition to ‘return-on-investment’ and ‘capital preservation’? Is it still fun? Do I still love it? Do I have the energy, drive and ability to embrace and deal with the disruptive changes that are coming?”
Question #7: “Do we have the right management team to lead the business in the next 3 to 5 years in a way that will maximize our ROI? Am I the best person to lead the business and the team? If not, what will our plan be to strengthen our team? What kind of help might we need with this critical process?”
“Do we have a sound Succession Plan for me as a leader and for the current management team?” Is there a ‘next generation’ who is both capable and interested in taking over the business? If they’re only capable of maintaining it, but not growing it, they’re not the right choice. ‘Maintaining’ a business is simply presiding over its slow and painful demise. These are tough questions, but they must be answered honestly.
Question #8: “How will we use ‘wise investment thinking’ to ensure the preservation and growth of our family’s financial capital?”
A few years ago I did some biz coaching for a gentleman who, at age 47, had been running his 4th generation family Building Materials business near Atlanta, Georgia for 24 years. The business was running well but he was bored and burnt out. He had a 21-year-old son in the business who was clearly not capable, and 18-year-old daughter who was not interested and another daughter who’s ‘sharp as a tack’…but she was only 10. In the meantime, he’s had an incredible offer to sell the business for a price that he fears he may never see again.
Should he try to hang on for 12 or 14 years to see if his ‘sharp as a tack’ daughter is interested and capable…or end the family Building Materials dynasty at 4 generations? He was feeling ‘crushing guilt’ (his words) that if he sold the business, he’d be letting the family down.
So, the big question here was what’s more ‘sacred’ to my client and his family? Is it the family tradition of selling building materials that’s ‘sacred’, or is it the preservation and growth of the financial capital that the family has worked so hard to accumulate over 4 generations?
These are tough decisions. ‘Wise Investor thinking’ can be very helpful in opening up the conversation and making prudent choices. I helped him realize that there was no way that he could hang on for 12 or 14 more years and that, indeed, it was the preservation and growth of capital that’s most important. When you have investment capital you have business options and life choices. When capital erodes, the walls start closing in.
If you’re a business owner or member of a family that owns a business, how might ‘wise investor thinking’ help you make more prudent decisions about your business and the preservation and growth of your investment capital?
That’s it for this week…
Stay safe…live brilliantly!
Donald Cooper speaks and coaches internationally on management, marketing, and profitability. He can be reached by email at firstname.lastname@example.org in Toronto, Canada.