Let’s talk business
It is easy to get intoxicated by the success stories of all the businesses around. Everywhere you look, you see flourishing businesses churning millions (or billions) of dollars in sales. Founders of such businesses owning multiple properties, cars and splurging on things as if they’re buying a cup of coffee.
But is it so rosy?
We have heard of people saying that 60% – 90% of businesses fail within the first 10 years. The Entrepreneur puts up a good piece of this claim and shows that it is not necessarily true and the statistics are just numbers with a lot of fog that obscures the truth. It’s only as good as the person interpreting it.
I work as a Mergers & Acquisitions (M&A) advisor. In other words, I assist my clients to buy / sell businesses. Hence, I am sharing this piece purely from my experiences of interacting with different kind of businesses in the market – from start ups to small & medium enterprises (SMEs) to big corporates.
The bright side of business
A successful business can reward its founders in big ways.
Just take a look at this post where it shows that big public listed companies can afford to pay their CEOs A LOT, some of which are the founders themselves. Focus on those.
Even smaller SMEs can allow founders to draw salaries and dividends in millions of dollars annually. In addition, their cars / properties can be bought with the profits of the companies.
At the end of it all, these owners can also cash out a huge sum based on the profits of their companies by selling the business. For a company making RM5 million in annual profits, it can sell for north of RM30 million. That’s akin to taking off 6 years of profits off the table now and no longer needing to worry about the business.
It’s no wonder that people are attracted to starting a business.
Maybe it’ll take you 20 years to build to that level. Isn’t it worth it?
Underneath the Iceberg
We are probably very familiar with this iceberg illustration.
Whenever I speak to entrepreneurs, most of them attribute their success to guts and luck.
- Guts to start the business and take actions where required
- Luck in everything working out in their favour (eventually)
Hard work and persistence is a given, but building a successful business requires more than just that and most of these are not within our circle of competence or control.
For illustration, a business goes through various stages of growth – incorporation / startup, growth, established / maturity, expansion / decline. The mindset and skills required for each of the stages can be vastly different from one another, which calls for a very versatile founder. This is understandable.
As the business prospers and grow bigger, the skill of selecting (& managing) the right talents for the right job is placed above and beyond the other skills. As Jim Collins clearly pointed out in his book “Good to Great”:
First get the right people on the bus,
The wrong people off the bus, and
The right people in the right seats
Jim Collins
There’s only so much the founder can do.
Assembling the team also poses as much a threat to the business. Just look at The Avengers!
The dark side of business
The unavoidable part of business are setbacks and failures. But there are failures that you can bounce back from and some are instant deaths. The key to this is how well a founder can navigate away from instant deaths (e.g. brand destroying calamities, fraud, etc) and keep facing failures and having the will to bounce back. It can be very taxing to the mental willpower of any founder.
And it will never stop. One day it could be as simple as your key employee stealing money from the company, another day it could be a world-wide pandemic such as Covid-19! Founders don’t have the luxury to ignore and move on from these issues, for any issue (however small) can balloon into a terrifying threat if ignored long enough.
It’s a roller coaster ride. On the morning that you celebrated the scoring of a big sales, you could be slapped with a hefty penalty from the tax authorities in the afternoon.
But… the worst position for a business owner is not a dying / dead business.
It is when the business is in limbo – it hovers between small profits and losses every year. I have clients who are in such positions and they struggle on whether to continue operating, sale or just liquidate the business. It is usually very tough to sell the business in this condition, and even if you can, the salvage value will be very minimal.
You might need to continue forking out cash to sustain the business. Liquidating the business might be the most straight forward choice, but it is often not the easiest path to take due to sentimental reasons. Your blood, sweat and tears for the past years will all be for naught if you folded.
It’s like an investment gone bad. Do you keep adding on to your investment position and wait for it to turn around? Or cut your losses and move on to other things? For business, it still demands your time, effort and energy.
Closing Thoughts
Most businesses who come to us M&A advisors are successful businesses whose founders are looking to cash out and exit from their businesses. However, on and off, we also get requests from businesses in limbo who is considering to salvage what little they have left.
It is tough to build a business, no doubt. Sometimes you want to build a business that is worth RM50 million but after 10 years it is only worth RM10 million or just enough to recover your investment capital into the business.
Or it could have grown to RM100 million, instead.
Being a business owner unlocks the potential to achieve a whole lot more than what an employee will ever be capable of in terms of wealth, recognition / fame and satisfaction. However, the journey can be (in most cases) grueling.
Reach for the stars, business owners, and may lady luck shine on you.
