Exit Planning Tools for Business Owners

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The 7 Deadly Sins of an Entrepreneur — Reprise

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I make no claim that using the Seven Deadly Sins as a metaphor for business behavior is original. Of course, the original concept is a codifying of “undesirable” human behaviors, or sins. The work probably comes from the Latin word sons (guilty). Various sources attribute it to Old English and Hebrew, but since Latin was the language of the church, this seems most likely.

The concept of personifying the seven sins for popular consumption, as I mentioned in the first column in this series, goes back at least to Dante in the early 1300’s. It’s been used regularly in popular fiction including Roald Dahl’s Charlie and the Chocolate Factory (the five golden ticket winners each represent a sin, with Grandpa as Envy and Willie Wonka as Wrath); and in “Sponge Bob Squarepants” (I’ll assume that most readers don’t know the characters well enough to make identification worthwhile.)

gilligans-titlePerhaps the most amusing application was in “Gilligan’s Island.” The seven castaways fill their assignments well. There’s Gilligan (Sloth), the Skipper too (Wrath).  The millionaire (Thurston Howell — Greed) and his wife (Gluttony). The movie star (Ginger — Lust, of course); The professor (Pride) and Mary Ann (Envy), here on Gilligan’s Isle (Hell?)

My apologies if I just stuck that tune in your head for the rest of the day.

When I present “The 7 Sins of an Entrepreneur” to business audiences, they take special delight in identifying their own behaviors. Maybe it’s because they are relieved (“Gee, I only have four.”) or because they are naturally competitive (“Hey, I hit on all seven!”)

What ever the reason, it’s an easy way to organize negative behaviors. Perhaps that’s why it has remained so dominant a concept. Regardless of your failings, they can probably be categorized as one of the seven sins.

Here is a synopsis in order, with the corresponding “virtues” that counteract each.

  • The Operational Sins: Those which reduce your personal effectiveness as an owner and leader.
    • Lust: Allowing whim du jour to drag the company in differing directions. (Counteracting behavior: A Personal Vision.)
    • Gluttony: Hoarding all authority and decision-making for yourself. (Delegation)
  • The Tactical Sins: Those which denigrate the effectiveness of your organization.
    • Sloth: Settling for “good enough.” (Metrics and Benchmarking)
    • Wrath: Using adrenaline to drive performance. (Planning)
    • Greed: Addressing any problem with more effort or more intensity. (Budgeting)
  • The Strategic Sins: Those that prevent long term vision and improvement.
    • Envy: Thinking that no one else has your problems. (Outside advice and knowledge)
    • Pride: Believing that you are the single most important factor in your company. (Exit Strategy)

The sins are addressed in order. Dealing with the Operational Sins allows you to tackle the Tactical problems. Strategic improvement is only possible if you’ve first dealt with Tactical issues.

The Seven Deadly Sins of an Entrepreneur are an excellent mnemonic for considering your own behavior and those of your company.  Keep them in mind as you run your business day-to-day.

If you enjoy “Awake at 2 o’clock,” please share it with other business owners. Thanks for reading!

The Sixth Entrepreneurial Sin — Envy

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This week we start on the two remaining deadly sins of an entrepreneur. Envy and Pride are the strategic sins. The first two (Lust and Gluttony) are operational; they interfere with how you function as an owner and leader. The middle three, Sloth, Wrath and Greed, are tactical. They interfere with how you run your business.

The strategic sins twist your vision and goals for the business. The first of these, Envy, is defined in the dictionary as a feeling of discontent with regard to another’s advantages.

In our business owner peer groups, we ask new members after their first Board meeting what they took away from the experience. By far the most common answer is “I thought I was the only one experiencing problems in my business.” That’s envy, an unrealistic belief that the face other owners show to the world is entirely true, and that you are the only one facing challenges.

envy whyYou are guilty of Envy if you think everyone else has better employees than yours. If you believe that other owners are making more money, or have a better work/life balance than you, envy is a problem. The common envious phrase that I hear is “My problems are different. No one else has a business that’s as difficult as mine.”

It’s not true. I’ve consulted in hundreds of companies, and I have yet to see one that didn’t hit bumps in the road. Each has its own special challenges.

Take the construction trades for an example. The roofing repair contractors say “No one else is as weather dependent as we are. When it rains, we can’t work. When the sun shines, no one needs us.”

Electricians are the first on the job (to run power for everyone else) and the last to leave (installing face plates on a finished project.) The window contractors have to provide a finished (and fragile) product at an early stage of construction, but are expected to have it still look perfect after months of everyone else working around it.

I’ve heard each say that their issues are unique to their trade, which is true. They also say that no one else has challenges as great as theirs, which isn’t.

The business virtue that counters Envy is Knowledge. Knowledge is a three-legged stool. You need financial knowledge, legal knowledge and business knowledge to succeed in business.

Financial knowledge grows out of meeting with your accountant and banker more than once a year. They can provide a lot of insight into your business if you ask the right questions. How are others in my industry faring in this market? What metrics do you use when judging the credit worthiness of companies like mine?

Legal knowledge comes from talking to an attorney when issues are small, not just when you are afraid of a lawsuit. Do I need a contract for this? What will my possible liability be in this situation? Are there regulations or laws I need to be aware of?

Most business owners acknowledge that they need legal and financial advice. The biggest remedy for Envy, however, lies in the third leg of the stool — business advice. Accountants and lawyers aren’t typically entrepreneurs. Good business advice comes from business people.

There are lots of places to find business advice. Your trade group or professional association is the first place to look. There you’ll find others who deal with exactly what you face. The business departments of local colleges, the Service Core of Retired Executives (SCORE) and Small Business Development Centers (SBDC), both sponsored by the SBA, offer free counseling in most cities.

After five years as a member of peer groups and another two decades facilitating them, I admit to a prejudice in favor of getting business advice from other business owners. There is nothing more valid than real-life experience from folks who have “Been there — Done that — Have the tee shirt.”

Eighty percent of running a business is common to all businesses. We all deal with employee compensation and incentives, new technology, changing market conditions, competitors, regulations, vendors and customers. The other 20%, the part that generates revenue, is all that is uniquely yours.

If you don’t have a safe and confidential place to discuss your business with others who face the same issues, find one. It’s the only cure for Envy.

Thanks for reading Awake at 2 o’clock? Please share it with other business owners.

The Fifth Entrepreneurial Sin — Greed

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Few small business owners identify with the bloated income of Wall Street Tycoons. To accuse an entrepreneur of Greed brings up memories of the Gordon Gekko 1980’s, when “Greed is Good” seemed to be the motto of 30-something Boomers focused on the quest for success. in reality, most owners work very hard for a modest income, and feel that a little more would be amply justified.

(If you are reading Awake for the first time, this series on “The Seven Deadly Sins of an Entrepreneur” starts here.)

wrench and dollar signGreed in your business isn’t the quest for material success. That’s presumably why you own a business in the first place. Greed is a trait that prevents success. Greed is a foolish quest for more without knowing what more is. It’s focusing your efforts on cost and savings in the belief that you never have quite enough…of anything.

You can’t afford to raise wages because you need a little more revenue first. You can’t upgrade your equipment until you have a little more margin. You could be more competitive or expand your presence if you just had a few more good employees.

Greed shows its ugly face in a company where no expenditure is made unless it is unavoidable.

  • Technology is only replaced when it breaks, and then with the cheapest equipment that is the minimum necessary to do the job.
  • The office décor is a tribute to the durability of faux wood paneling.
  • No one gets a raise unless they demand it
  • Your website looks like it was done by a 14 year old (and perhaps it was.)
  • Maintenance and repair expenses increase every year.

Greed comes when an owner doesn’t know how to measure success. He or she can’t identify the most profitable lines of business, calculate underutilized capacity, or estimate return on investment for new equipment.

We previously mentioned that the business virtues that counter the sins of Lust and Sloth are Planning and Benchmarking. These need to be in place before you can defeat Greed, because its countering virtue is Budgeting.

Budgeting is the system by which you determine what success looks like. It starts when you define success, so build your budget from the bottom up. Begin with profit. Profit isn’t what is left over after everything else is taken care of. It’s the entire reason for your company’s existence.

From a target profit, work up through the expenses that will make it possible. How many employees will it require? How much raw material? How many transactions? What will each one cost; and what margin will it contribute?

Now you are ready to project the necessary revenues. Not the revenue you merely wish for (like “Ten percent more than last year,” with no idea  of where it will come from.) It’s the revenue you’ll need to make the profit you want, attract the best employees, and grow your business on something other than a shoestring.

Perhaps the revenue you need seems out of reach. In that case, you can make it into a two year or three year budget. The idea is to understand, in a concrete way, what will actually deliver the business and lifestyle you want. It’s understanding how that revenue will be created, ands what it will take to do it.

If all you know is that it’s more than you have right now, with no idea of how you’ll get there, you are guilty of Greed.

Do you like Awake at 2 o’clock? Please pass it on to other business owners.

 

The Second Entrepreneurial Sin – Gluttony

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This is the third in our series about The Seven Deadly Entrepreneurial Sins. You can start from the beginning here.

Gluttony is the second of the Operational Sins; those that reduce your personal effectiveness as an owner and the leader of your company. There are a number of indicators that you might be guilty of Gluttony.

  • You are the first person to arrive every morning
  • You’re the last one to leave at night
  • You work weekends, but your employees don’t
  • Your “to do” list can’t fit on one sheet of paper
  • Even when you use columns
  • You only work on the next deadline
  • All of the above

do everything notesThe glutton entrepreneur takes pride in being able to do every job in the company better than anyone else. His or her answer to problems and delays is “Never mind, I’ll just do it myself.”

The worst sign is when you cringe at a big new sale, because it only means more work for you.

The Entrepreneurs “Catch-22” goes something like this:

“I could make this company take off if only I had one more really good employee, but good people cost more than we can afford right now, so I can’t make that key hire until we grow just a bit more, but I can’t see how we are going to grow, because I’m working as hard as I can right now, and I can’t accomplish any more until I have one more good employee.”

If this sounds like you, then it’s a good bet that your employees have been trained to delegate up. Delegation is the business virtue that counters entrepreneurial Gluttony.

My thanks to Ken Blanchard and William Oncken Jr. For their book The One Minute Manager Meets the Monkey. Now celebrating its 25th anniversary of publication, it’s still one of the best “how to” guides on delegation. (and remains in Amazon’s top 10,000 sellers.)

Employees will delegate to you if you let them. It’s not like they say “Boss, I’m assigning this to you.” Instead, they appeal to your ego as chief problem-solver and decision-maker.

“Hey Boss, we’ve run into a problem,” “They still haven’t gotten back to me.” “I’m not sure what to do next.” “You know more about this than I do.” Rest assured, your employees have learned the code that makes you stop what you are doing and dash to the nearest phone booth (good luck with that!) to put on your Superman cape.

Blanchard and Oncken describe four simple steps for effective delegation.

Develop a straddle reflex, and define the next step. Be especially careful of the word “we.” If you didn’t have the problem before this conversation, why should it be yours when it’s over? Employees who aren’t accustomed to problem-solving can’t think through every iteration of possible outcomes. Start by getting them to determine the next step, so that the action required seems more manageable.

Assign responsibility. Sometimes it really is your problem. If not, get the employee’s acknowledgement that he or she is the one who will make the next (clearly defined) move.

Insure the risk. The outcome of every decision has implications. If the risk is low, tell the employee to act and then inform you of the results. If the risk is high, make sure you OK the next move before it is implemented.

Schedule the follow up. The employee should understand clearly that the next move has a specific time frame for action. Put a follow up meeting on the calendar (and stick to it.) If you feel the employee is procrastinating, move the meeting forward.

You have to take smaller steps at the beginning. As your employees learn that you won’t take the problems off their hands, they will bring fewer of them to you. As they learn to tackle issues in steps, they will be able to go longer between follow ups.

Building a system for teaching others to work without your constant input frees you focus on the things that will move your Personal Vision forward. Tackle Lust first, then Gluttony. You can only tackle broader challenges in your business after you’ve dealt with your personal effectiveness.

Next week we’ll start the Tactical Sins; Sloth, Wrath and Greed.

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The First Entrepreneurial Sin – Lust

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Last week we described the Seven Deadly Sins of an Entrepreneur. This week, we’ll delve into the first Operational Sin; Lust.

The Operational Sins reduce your personal effectiveness as a business owner. They prevent you from being as operationally effective, on a day-to-day basis, as you could or should be. If you aren’t efficient in your leadership role, it cascades down through your whole organization.

lust handLust is the sin that springs from a lack of self-control. As an owner, few people in your business (if any at all) say no to you. They ask, “Boss, did you do that really important thing you were supposed to do yesterday?” You respond, “No, because something more important came up.”

What does your employee say? It’s probably something like “Oh…Okay. Please let me know when you get around to it, so I can move forward on my job.” They don’t take you to task, so if you don’t manage yourself they just have to live with it.

Lust is defined as a passionate desire, an overwhelming enthusiasm. If we don’t have it, we can’t inspire others to accomplish great things. So what are signs that your Lust has gotten out of control?

Projects never get finished. Long-time customers “disappear” because you had other things on your radar. You get nasty surprises from your financials or operating results because you were paying attention to something else. You find yourself telling employees, “I’m the owner. That doesn’t apply to me!”

Lust results in business planning driven by “Whim du Jour.” A customer requests a new product or service. Because you think you can sell something, you commit the company’s resources to creating it without considering the implications to other parts of the business. “Hey, it doesn’t look that difficult. Let’s do it!”

You can’t enunciate a clear-cut vision for yourself, and therefore for the business. “I just want to make a decent living,” or “I don’t want to work too hard,” are your only yardsticks for the future.

You trust to luck when trying new things. “Let’s just give it a try,” becomes “Why didn’t we see that coming?”

The business virtue that counters Lust is a Personal Vision. What do you want and expect from your company? You are in business for a reason; the company is supposed to provide you with certain things in life. Are you clear on what those are, and how you will get them?

Start with the material things that would indicate your success as an owner. It can be a simple list, such as:

  • Work an average 35 hours a week
  • Own a house at the lake worth $350,000
  • Travel to Europe every two years
  • Put my daughter through medical school
  • Help lead a community agency dedicated to providing decent food for the poor
  • Teach a high school class in entrepreneurship

Be specific. Your goals should be solid enough to allow measurement of your progress. Once you have it nailed down, your Personal Vision starts to become a vision for your business.

How much revenue is needed to generate your target income? How many employees will it take to accomplish that goal? What growth rate is needed to get there by your target date?

Write it down, with all the specifics. Every coach and motivational author says to WRITE IT DOWN! Keep it in front of you, and refer to it often. Then start paying close attention to your daily activities as an owner.

How much of your time is spent moving the company forward? How many distractions are really necessary? Could you be doing things to realize your vision if someone else did what you are doing this moment? Is the business moving in a direction that will fulfill your Personal Vision, or is it holding you back?

A strong, written Personal Vision will help you prioritize your activities, set natural limits on interruptions, and keep your eye on the ball.

Defeating Lust is the first step towards success. As Cheshire Cat famously said; “If you don’t know where you are going, any road will get you there.”

Thanks for reading Awake at 2 o’clock. Please share it with another business owner.