Building an Enduring Business

Over more than 25 years, I’ve been work­ing with founders of com­pa­nies to help them to con­tin­ue to make their com­pa­nies bet­ter and stronger and want to share what I’ve learned.

A cou­ple of weeks ago, Brad Giles — my pod­cast part­ner in crime – and I had a great dis­cus­sion about what it takes to real­ly build a com­pa­ny that con­tin­ues to suc­ceed for decades. The pat­terns are very clear — not only in research that oth­ers have done, but in what we have seen, through big wins and loss­es, with our clients.

Log­i­cal­ly, I could start with hav­ing a vision, but I’m going to start with:

1. A strong bal­ance sheet

Build a very strong bal­ance sheet and have lots of cash so that you are ful­ly pre­pared, no mat­ter what hap­pens in the world – COVID, a nat­ur­al dis­as­ter, some­thing goes wrong in the busi­ness — or a mas­sive oppor­tu­ni­ty that could cat­a­pult you ahead.

Many com­pa­nies have a very weak bal­ance sheet and don’t have ​“rainy day” or ​“amaz­ing oppor­tu­ni­ty” funds on hand. War­ren Buf­fett once said that the rea­son he gets great deals com­ing his way is because, with cash in hand, he can make deals hap­pen in a mat­ter of days.

Here’s recent blog I need about how to man­age cash on hand.

• Start­ing point: At least one year’s prof­it avail­able to you in cash — not room in your line of cred­it but actu­al cash in the bank.
• Mas­tery lev­el: A min­i­mum of one year of oper­at­ing expenses.

Peo­ple have dif­fer­ent philoso­phies — like those in pri­vate, equi­ty-backed com­pa­nies who like to ful­ly lever­age and use all their cash (which is excel­lent for ROI and fast growth) but fam­i­ly- or founder-led busi­ness­es need to be their own back-up, if times get strange. They’re bet­ter off with a dif­fer­ent strat­e­gy. The idea is that you can stick to your plan and not go into pan­ic mode.

2. Con­sis­tent prof­it growth

Some com­pa­nies have a hard time con­sis­tent­ly grow­ing their prof­its, and can have an amaz­ing one year and not, the next. They lack the sta­bil­i­ty in growth — and the sys­tems and dis­ci­plines — to weath­er mas­sive sur­pris­es. Sur­pris­es always hap­pen but hon­ing that prof­it- and cash-gen­er­at­ing machine indi­cate that you are doing things right.

And there’s a lot that’s required to make this happen.

3. Data to make the right deci­sions and to learn from the wrong ones

When busi­ness­es are small, it eas­i­er to run them by touch and feel, because most things hap­pen with­in 100 feet of the leader. But, as they grow — and in times like 2020, with many peo­ple work­ing vir­tu­al­ly — you can’t oper­ate by sight. You need to have the right data to make good decisions.

A small busi­ness leader is like a recre­ation­al pilot, with Visu­al Flight Rules cer­ti­fi­ca­tion, who can fly a plane with their eyes, with instru­ments to help. As a busi­ness gets big­ger, the leader then needs the skills of a high­er-skilled com­mer­cial pilot with Instru­ment Flight Rules cer­ti­fi­ca­tion. Rely­ing ful­ly on the right instru­ments and data, the plane can be flown suc­cess­ful­ly even if the cock­pit win­dows are cov­ered or through crazy weath­er. Some­one who is only oper­at­ing visu­al­ly, in those cir­cum­stances, can lose their bear­ings and make deci­sions that lead to catastrophe.

4. A sys­tem to iden­ti­fy and com­plete the most impor­tant priorities

Like many things on this list, this could be con­sid­ered basic, but many com­pa­nies are not good enough at it. Even some sub­stan­tial­ly sized com­pa­nies we go into don’t have a sys­tem for set­ting pri­or­i­ties in the long, medi­um and short term, and they have so many pri­or­i­ties that real­ly every­thing is a pri­or­i­ty. They are not focus­ing on few­er, most impact­ful things and the best systems.

The best, incred­i­bly pow­er­ful sys­tem for doing this is in Scal­ing Up: Rock­e­feller Habits 2.0, to which I was a key con­trib­u­tor. Your ulti­mate mea­sure is three or four clear, quar­ter­ly goals for the com­pa­ny over­all, for each of the depart­ments and, ide­al­ly, for every human in the company.

5. A strat­e­gy to deliv­er a sus­tained com­pet­i­tive advantage

All com­pa­nies have a com­pet­i­tive advan­tage as they scale but many lose it or uncon­scious­ly dilute it along the way. This is all about hav­ing a dif­fer­ence that you can pre­serve and that means the cus­tomers con­tin­ue to appre­ci­ate what you do or how you do it, in a way that makes them loy­al and want­i­ng more. And, in the best-case sce­nario, recruit­ing oth­er great cus­tomers for you because they’re so pleased.

As a com­pa­ny scales, you tend to get busy work­ing in the busi­ness not on the busi­ness. You get caught up in tac­tics and exe­cu­tion and fail to keep your strat­e­gy and com­pet­i­tive advan­tage sharp.

The worst case is that is that you mis­tak­en­ly make deci­sions that com­modi­tize your busi­ness or don’t have the data to tell where you’re under-deliv­er­ing what is impor­tant to the cus­tomer. And then you won­der why growth stops.

6. Peo­ple-mag­net machine

Busi­ness is all about peo­ple and, if you’ve got a sol­id strat­e­gy, it’s about align­ing the right peo­ple to get the right things done. You need a very strong peo­ple-mag­net machine to not only bring the right peo­ple into the sys­tem but to grow and devel­op them – and to make the hard deci­sions around them to ensure that the team con­tin­u­al­ly gets stronger. It takes a lot of ener­gy to make happen.

7. Strong cul­ture and behaviors

The right cul­ture min­i­mizes fric­tion in the sys­tem and directs ener­gy to doing the right things for your cus­tomers, where the val­ue is cre­at­ed in the busi­ness – not to deal­ing with inter­nal issues, con­flicts and tensions.

This is about hav­ing the right peo­ple, the right lead­ers and an envi­ron­ment that inspires peo­ple to do their best work.

Read more about the right cul­ture in this recent blog.

8. Long-term vision

Last but not least, you need to build towards some­thing. I’ve seen com­pa­nies with incred­i­bly com­pelling visions that lead a team towards great­ness – and oth­ers with a com­pelling vision that’s been for­got­ten or buried along the way. It’s not alive, act­ing like a mag­net to pull peo­ple for­ward. Still oth­ers don’t have a vision at all and are just caught up in the tasks to get their job done today.

The com­pa­nies we work with con­tin­ue to scale using a vision that is a com­bi­na­tion of prin­ci­ples from Jim Collins:

• A Pur­pose — They are very clear about the dif­fer­ence they want to make in the world beyond mak­ing a prof­it — the kind pf pur­pose that cap­tures the heart and soul of what they’re about
• A BHAG – A great big hairy auda­cious tan­gi­ble goal to dri­ve towards in the next 10 to 25 years.

This is the mag­i­cal com­bi­na­tion of head and heart.

The Chal­lenge

• Rate your com­pa­ny on a scale of 0 to 10 on each of these eight points. Build­ing an endur­ing busi­ness that con­tin­ues to scale and get bet­ter over the next few decades requires at least ⁸⁄₁₀ in each area.