Earlier in my career I had some opportunity to deal in the complex world of buying and selling businesses. One of the things I learned is that many business owners have an inaccurate perspective on the value of their businesses (and not on the low side). The time to start thinking about your business’ valuation is not when you are ready to sell, it is years ahead of time.
What are the factors that drive valuation? Occasionally it is some sort of protected Intellectual Property that is of such value to some deep-pocketed strategic buyer that they are willing to pay almost anything to acquire it. If that describes your business, congratulations! But chances are, it’s doesn’t. Most businesses are valued based upon the cash they can generate (a function of profitability and growth), offset by the risk factors that could lead the business to underperform expectations.
So if you want to maximize the value of your business all you need to do is increase profitability and growth while reducing risk. Sounds simple, right? What isn’t simple is accomplishing that.
That’s where the Entrepreneurial Operating System® (EOS) can help. It comes down to three things we call “Vision, Traction and Healthy”.
“Vision” in EOS is about alignment. The problem in most businesses isn’t that they lack vision, it is that they have too much vision. That is, each leader has their own. So it is critical that the Leadership Team is in lock-step – no light between your shoulders, as I like to say – on where they are going AND how they are going to get there.
But getting alignment on a Vision is only a start. Even if a Leadership Team is tightly aligned on Vision, they’ll never achieve that vision if they aren’t excellent at execution. That is what we call “Traction”. EOS provides tools that enable a Leadership Team to execute with discipline and accountability over the long haul until they achieve every aspect of their Vision.
But to execute well, they must work together effectively as a team. Business leaders – who often have strong personalities – aren’t necessarily the greatest team players. So achieving the vision requires those leaders to come together as a tightly-knit, cohesive Leadership Team. That’s what we call “Healthy” – getting the leaders of the organization to become an open, honest, trusting team that marches forward together, fiercely fighting for the Greater Good.
Achieving Vision, Traction and Healthy with the Leadership Team is a critical start, but it’s just the start. EOS includes the tools and methods needed to cascade Vision, Traction and Healthy to the entire organization. Ultimately, we get to the point where everyone in the organization understands the Vision and is committed to making it real, everyone executes with discipline and accountability, and the entire organization marches forward together in unison for the Greater Good.
It is easy to see how an organization like that will simply perform better, increasing profitability and growth. An organization like that becomes a well-oiled machine, operating with the consistency and reliability that helps potential buyers believe in the organization’s ability to perform for the long-term. That translates to lower risk.
So if you want to increase the value of your business, you might start by getting Vision, Traction and Healthy.
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