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When I started Ask Josh Patrick I thought that it was important to have three distinct stages of business I talked about. It’s how I think about the natural progression of a successful business.
I believe that They keep themselves ready for sale whether they’re interested or not. When your business is “sale ready” you have more options. Sale ready businesses tend to be more successful than those that aren’t. If you own a sale ready business you work on your business much more than you work in the businesses.
Let’s start with Stage 1
Stage 1 is all about tactical excellence. It’s where you move your company from a good idea to one that creates regular cash flow. You understand what creating enough profit for growth is and you make plans for your business to deliver on that need.
You learn about putting systems in place and understand that your employees depend on these systems to know what they’re supposed to be doing. Your employees don’t want to have to figure out how to deal with your customers every time a new problem appears. You’ve helped your people think through these issues and have developed systems to support them in providing an excellent and consistent experience for your customers.
If you’re a successful stage one business owner you think strategically but just don’t have much time to spend time putting strategic plans together. Your company might be doing well by outside standards. At the same time, you wish you had more time to work on your business. You believe you spend entirely too much time doing day-to-day activities instead of helping your business develop capabilities to move to the next level.
Moving to Stage 2
Your systems have developed to the point that you have time to not only think strategically, but you also have time to start acting and working on strategic initiatives. This is where enterprise value is built. The key here is you’ve worked on yourself and learned how to delegate which allows you to become operationally irrelevant in your business.
Some strategic activities might be installing a lean manufacturing system, working on a well-defined niche, developing a repeatable sales process or putting together a strategic marketing system. Your strategic activities will always include an innovation process that is repeatable and can be taught to those you work with.
While working on your strategic activities you will make sure your company not only covers its cost of capital but also creates enough additional cash flow where others will be interested in owning what you’ve built. This doesn’t mean you’re going to sell your business today. It means that your business will be sale ready at all times.
A sale ready company is one where you have all options on the table. You can keep the business, sell the business or transfer the business to your children or managers.
Stage 3, you’ve built it now what?
Stage 3 is what I call the transitional stage. You might decide to make yourself into a passive owner. You might decide to start moving management to a new generation of owners. Or, you might decide there are other things you would rather do and its time to move on and sell your company to an outsider.
A successful stage 2 business allows you to move into stage 3 with many options. The more successful you are in developing a sustainable business the more options you have. Once you enter Stage 3, there is no rush in leaving. You can take your team finding what works best for you.
It’s important to not let others tell you what you should be doing. This is about you. Like all major decisions, Stage 3 is the time to ask the question why and make sure you get a defining core answer. If you do this, you’ll likely make a decision that fits in well with your life and business needs.
I’ve seen businesses go through all 3 stages and do it well. I’ve seen businesses get stuck in both Stage 1 and Stage 2. Sadly, I’ve seen too many businesses never make it through Stage 1 and fail because the owner never learned the basic rules of running a business. Which fate awaits you is in your control. I hope you decide to be one of those who looks back at their business career with pride.
Why don’t you let me know what you think about managing the stages in your business in the comments below.
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