The 4 Ms of management and building value in your business
How the ‘Four Ms’ of business development can add real value to your business and your life
Depending on the kind of entrepreneur you are, ‘building value’ in a business can be interpreted in a number of ways. For some, it’s about getting the best price for their company when they sell it. For others, it’s a more personal ambition linked to lifestyle. But all owner managers can create value by focusing on the ‘Four Ms’: markets, money, management and, arguably the most important, me.
The Me theme
It’s simply not possible to disentangle entrepreneurial businesses from their founders. Your business looks and feels the way it does today because it’s yours and is driven by you. So when articulating the future you want for your business, you need to think carefully about where you hope to be several years down the line.
Lara Morgan founded Pacific Direct, which supplies bathroom products to hotels, 17 years ago. She sold it for £17m in April 2008, although she still retains a stake of just under 20%. However, her goals were always clear and this informed both the way she ran her business and how she exited.
“I wanted to build the company up, then sell it so I could reduce my responsibilities and enjoy what I was doing again without drowning in all the administrative bullshit,” she says. “I wanted a better standard of living and security for my family, and to stop pumping all the money back into the business.”
For Martin Smith, co-founder of The Security Company, the value of the business in the short-term is income. “I take out as much as I need to live, rather than taking a salary,” he says. “In the long term, the company is my pension. I will either sell it, or take a back seat and draw income from it.”
In 1998, Ali Clabburn founded the social enterprise Liftshare to encourage more people to share their car journeys. Initially, he saw the value of his business as being about helping people and producing environmental benefits, with little emphasis on monetary gain. However, as time has moved on, Clabburn’s own life has changed and other values have been added to the list. “Its value to me used to be purely about helping people,” he says. “Now I have dependents – a family, a team and a new industry – and value means providing for them and our clients, as well as, most importantly, for individuals.”
Building a strong management team is a sure way of establishing value in your company. If your aim is to sell up, then your managers are of critical interest to a potential buyer as they need to know there are other capable people in place to run the business when you move on. “I wouldn’t be in the privileged position I enjoy now without my team,” says Smith. “No one will buy the business unless there is strength and depth in the management and an excellent skills base.”
One way to gauge if your team is good enough is to evaluate if the company can work when you and your co-founders aren’t around. Smith and his co-founder Jo Wise feel they have achieved just that. “We’ve built a strong team of managers and staff. The business can operate without us. We no longer run it. It would devalue the company if this wasn’t the case,” he says.
However you define ‘value’, your business is likely to be more valuable if it’s in a market with growth opportunities. It’s important to have a sound understanding of your markets and a clear idea of your position within them. “You want to be in a niche that adds value to the business and where you have a sound reputation,” says Morgan. “Blue-chip customers and long-term contracts add value to the business, implying longevity and security to a potential buyer.”
Smith has developed a valuable foothold in his market, which gives it a strong reputation. “We offer a specialised service to a large number of companies,” he explains. “From our point of view, the more customers we have and the bigger they are, then the more valuable we are.”
Smith sets great value on The Security Company’s product itself. “It’s a complex and comprehensive package, and there is inherent value in what we have developed,” he says. “Other people try to offer this service in other ways, but no one comes near what we can offer for the modern corporate environment.”
It’s different again for Clabburn. Liftshare has great value because it’s the only organisation doing what it does. “We’re an industry in ourselves,” he says. “No one else runs forums to discuss car-sharing, lobbies government and promotes alternative travel options. If we weren’t doing it, the risk is it wouldn’t happen.”
Your business is likely to be more valuable if you’ve got a sound track record of profits and is deemed to have predictable future revenues. The best way to achieve this is to have a clear set of targets and measures that underpin your strategy. You then need to cascade these targets through the business, so each individual has a clear set of key performance indicators (KPIs) and knows what they have to do in order for the company as a whole to deliver its strategy.
If you are thinking of selling your business, Morgan has some useful tips. “Planning in advance is critical. The company needs solid finances with cash in the bank, so ensure you run a tight ship with a sturdy structure and strong finances,” she says. “Make sure the team and the customers do not depend on you. And you must have a comprehensive understanding of where you stand in the marketplace otherwise you’ll get nailed.”
Over the past 20 years, the Business Growth and Development Programme at Cranfield School of Management has helped more than 1,000 owner managers to develop the leadership skills they require for the next stage of growth.