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.
- 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.