My Recipe for an Enduring Company
Through my experiences, building and scaling self-funded companies, passion has been ignited for the advantage that independence offers. I have seen and experienced first-hand the reality of businesses that have institutional investors. What I’ve experienced is that these businesses are hamstrung and diluted by the short-term thinking that comes with being flipped over and over again.
On the other side, I’ve seen and experienced the reward of long-term thinking, core-values based decision making, and a purpose-driven team.
Self-funded companies have the freedom to create communities that offer rewarding places to work. In turn, they provide greater value and care to customers. With happy customers come happy employees, and the circle of love expands as the company grows.
It doesn’t end there, though. This cycle extends far beyond the bounds of your unique company and community. The opportunity you have, as the owner of an independent business, is the ability to impact the world. I’ve realized that I can create more love and happiness in the world by building more incredible places for people to devote their hearts and their talents.
I was recently interviewed for an article in Inc Magazine, How to Build a Company That Will Be Around in 2115. In the interview, I shared my experience creating and selling the company I co-founded, RegOnline. After the sale, I watched the organization that Attila Safari and I, and our passionate employees built, slowly get dismantled with the product left to be milked as a part of a subsidiary of a massive software private equity group waiting it’s 3–5 years to flip it to the next private equity/financial engineers.
Unfortunately, most of my friends who have sold their company have watched their organizations experience a similar slow demise. A few have been fortunate enough to have bought back their companies and brought them back to life.
What I find curious is how many entrepreneurs frequently fail to consider that it’s possible that they can make more money by continuing to run their business, than they will if they sell it.
Here’s some simple math: Say you have a company with $1 million in pretax profit or $600K in after-tax profit. If it is sold for ten times the pretax profit, and the proceeds, after paying capital gains tax, are invested at an eight percent annual return, the former owner will earn $384K per year after taxes, versus the $600K you were initially making, before the sale. That’s a 36 percent decrease in take home. Oof.
If you’re looking for a break down of this, Inc kindly put together an infographic illustration.
What I’m saying is—you can make more money and have a lasting positive impact on the world, if you build a self-funded business. I’ve experienced it first hand in partnerships with the bootstrapped network of companies that I work with. Through this work, I’ve surfaced a recipe for building an enduring company.
1. Start with a product or service that a big market of people want and need to buy repeatedly. Repeat Customers + Big Enough Industry = Continued Growth
2. Be profitable. Grow the business in a way that ensures that expenses are always a good margin below costs. This profit margin enables you to self-fund your growth without outside investors or debt. To be profitable requires thoughtful consideration and a slow approach to identifying which positions and people in an organization produce the most value.
3. Build a great organization that people can thrive in. Happier coworkers mean happier customers and less turnover of both.
4. Resist the urge to sell when feeling burned out. I’ve seen and experienced the phases of entrepreneurship first hand. At times you might feel incapable, or it’s possible that you’re bored. Don’t seek external fixes, turn your attention inward, work on yourself and these feelings will most likely pass.
5. Create a culture of innovation that keeps the product and/or service you’re building relevant and exciting for a growing number of customers. In other words, don’t get lazy.
6. Create leadership succession by promoting, cultivating, and mentoring the great people you thoughtfully hired.
7. Create an ownership succession plan to preserve the company for many generations to come.
I understand that growing a company for the long-haul isn’t always easy, but it’s not supposed to be. That’s the beauty of it. There will be times when you, as an owner, might be tempted to consider selling. But, before you do, think about the benefits of your sovereignty.
And, join networks filled with fellow independent business owners, where you can share your experiences and hear others’ stories of independence. These groups are enlightening and powerful ways to find connection and guidance.
Owners of independent companies are invited to be members of a community I’m building, called Sovereignty. This is a group where like-minded leaders share experiences, resources, and can find community in the challenging adventure of creating inspired and fulfilling places to work.
