S1-E1: Smart Value Creation – Piers Bearne
Piers Bearne, Founder and CEO of Collingwood Advisory talks about Smart Value Creation at Agency Growth Events Season ONE, Camp One in October 2021.
Piers is an event, media, and information business entrepreneur, who built and sold three businesses and has advised on many M&A deals. As part of his work at Collingwood, he regularly works with owner-managed businesses and advises them on how to overcome common challenges of business growth.
Working on your business not just in it: Delegating for growth.
There are two main streams of work you need to master to successfully grow and eventually exit your business. The first is scaling your business and exiting the day-to-day (read: delegation) the second is knowing how to create enterprise value.
Scaling your business means making decisions that hand over power and responsibility to other people. This can be one of the hardest things for entrepreneurs to do, but it is essential if you want to grow.
Creating enterprise value is all about understanding what will make your business attractive to potential buyers. It is also about making sure you have a robust growth strategy in place.
If you want to take your business on a growth journey, you need to understand how to create value for your business. This presentation will help you understand where you are in the scale-up journey, and how to make value leaps.
Well look at four steps of smart value creation:
What is value creation
The scaleup journey
Your long slow exit
Making a value leap
1- What is value creation?
Financial value is the end result of your business's continued, sustainable success, and value creation is the process that gets you there. It is knowing what factors come into play, the weighting of different metrics in the eyes of potential buyers, and creating and following a strategy that will maximize value for your company and you in the end.
Enterprise value (EV) is the estimated market value of a company's entire business, minus the value of its liabilities. It is calculated by multiplying a company's total earnings by a factor known as the EV/EBITDA multiplier. The EV/EBITDA multiplier measures how much investors are willing to pay for each dollar of a company's earnings before interest, taxes, depreciation, and amortization.
The main goal is to create a company that survives your absence and one that has intrinsic value to its community. If you can achieve these two things, you will have built something of lasting value.
Most owner-managed, bootstrapped businesses go through similar challenges and most of those are management-oriented. As businesses grow, their owners need to learn new skills and understand how to focus on important tasks only, and through effective delegation let go of other tasks.
2- The scaleup journey
Most companies have four stages of scale in the media space:
The first stage is starting up, which is all about getting the business off the ground.
The second stage is high-growth, where you start to see some traction and begin to scale the business.
The third stage is scale-up, where you have a more mature business, start transitioning into a more mature corporate structure, and are starting to think about an exit.
The fourth stage is becoming a platform business, where you have built a business that defines a category and is attractive to many types of potential acquirers including PE.
The startup
The founder is pretty much the company. You just focus on products and customers and nothing else. It is common for companies to have a turnover of £500K-£1,5M in this phase.
The company is of a size where the founder can control all the processes. Things move quickly and the culture is set by the founder and it’s all about making things happen. Hiring in this stage is about finding people who will just get stuff done with very little supervision. This type of person is often referred to as a “doer”. The goal in this stage is to get to product/market fit
High growth
This is your first degree of delegation. The company starts to see some traction and begins to scale the business. It is common for companies to have a turnover of £1,5-3M in this phase.
The company is growing quickly and so are the problems. At this point, the company needs more of everything. More sales, more marketing, more sales, and a bit more management and structure. In this vein, you might launch many products or even new business lines. You'll take a hard look at these in your next phase.
Scaleup
This is the growth phase where you have a high-growth business ready to make some value leaps. It’s common for companies to have a turnover of £3-10M in this phase.
The company has outgrown the “doer” stage and now needs leaders in each function who can build and manage their teams. In this stage, you are looking for managers who have grown with the company and have a deep understanding of the culture and how things work.
You become more professional and more disciplined. You start to focus on retention and start cutting some of the business lines you've created in search of higher profitability and focus on the core products.
This is where a lot of companies realize their exits, which might be a 7 or an early 8-figure sum, which is perfectly legitimate. But there's more to growth.
Platform stage
A platform company is one that starts to take on debt and grow both organically and inorganically through M&A. It’s common for companies to have a turnover of £10M+ in this stage.
At this point, you're willing to take on debt to finance your growth. You're also looking to build out your management team with people who have experience running large businesses. You need predictable product management that gives you non-stop marginal gains.
You're also looking to acquire companies to enter new markets or add new product lines and technologies. This is the stage where you're looking to build a business that can be a category leader and attract the attention of private equity firms.
You'll need a succession plan in place for your next move.
3- Your long slow exit
This is the essence of transitioning from working "in your business" to "on your business". You can't just walk away from the business you've spent years building. You need to have a plan for how to transition out of the day-to-day and into a role where you are working on the business, not just in it.
One way to do this is to bring in a CEO who can take over the day-to-day running of the business while you transition into a chairman or board member role. This can be a difficult process, but it's necessary if you want to extract the maximum value from your business. You need to be able to demonstrate to potential acquirers that there is a team in place that can run the business without you.
Governance is your friend
One of the most important aspects of transitioning from working "in" to "on" your business is good governance. This means having a clear structure and set of rules for how the company is run. The widely accepted delegation, accountability cadence is: owner > board > management team > functions.
It's important to have a board that can provide critical oversight and helps make decisions in the best interests of the company. The board should be composed of people with the right skills and experience to help guide the company through its growth journey.
The management team should be focused on executing the growth strategy and ensuring that the day-to-day operations of the business are running smoothly.
The functions should be run by leaders who are experts in their field and who can scale the business.
Another key issue is addressing reporting rhythm. You need a system in place that constructs the information flow of your company from the bottom-up, while also giving you the ability to pinpoint issues from the top-down.
You need to work on your daily > weekly > monthly > quarterly reporting cycles. Make sure each report serves a purpose at the level it's created at. Don't fall into the trap of creating reports for one's superior. You'll end up slowing down your business rather than enabling a smoother flow of information.
4- Making a value leap
Value creation goes in leaps. There are points in your journey where you have to get much more serious and corporate about how to generate enterprise value. You need to have a clear understanding of the value drivers in your business and how to create value for your shareholders. You need to have a clear growth plan in place that will enable you to make the leap to the next level.
This means having a clear:
Governance systems reporting and processes
Marginal gains on core products
Separating retention from new business
Focusing on revenue per head
Optimizing headcount and focusing on staff retention
Simplifying new product range
The overarching main theme here is delegation. As the business owner, you can't do everything yourself. You need to delegate to a team of experts who can help you scale the business and create value. There are other growth levers that you need to focus on if you want to create a sustainable and valuable business.
What is delegating? or delegation?
Simply put, delegating is giving someone the authority to make decisions or carry out a task on your behalf. It's a way of sharing the workload with others and ensuring that certain tasks are carried out efficiently without your immediate input.
Why is delegation important?
It allows you to focus on strategic aspects of your business that require your expertise and knowledge, rather than getting bogged down in the day-to-day running of the business with all the tedious tasks that need doing.
Delegation also develops the skills of your team, as they are given the opportunity to take on additional responsibility and grow in their role. It encourages open communication, creates increased job satisfaction, and makes team members and employees feel like part of the decision-making process.
When managers delegate it will immediately lead to a more engaged and motivated team who are committed to taking your business forward.
How do you delegate tasks?
Here are some tips on how to hone your delegation skills and delegate effectively:
Be clear about what needs to be done and by when. This is so much more than a simple to do list. You need clear guidelines and resource planning.
Choose the right person for the right task. Improper task delegation will just lead to poor performance and unhappy employees. You need to make sure the people you'll hold accountable have the right skills and resources to succeed.
Set clear expectations for time and budget. You need to take a project management approach to organization delegation.
Give feedback regularly. This is so important for growth and development, and to earn your subordinates' trust. Make sure you give both positive and negative feedback constructively.
Lead by example, give more space, training, responsibilities, and projects to manage to your employees.
Delegation is a key skill for any business owner or manager who wants to take their business to the next level. By delegating effectively, you can free up your time to focus on strategic tasks, while developing the skills of your team.
What are the risks of delegating tasks?
There are a few risks to consider when delegating tasks, such as:
The person you delegate to may not have the same level of expertise or knowledge as you. This could lead to them making mistakes or not being able to complete the task to the standard you expect.
The person you delegate to may not be motivated to do the task, meaning it doesn't get done properly or on time.
You may lose control over certain aspects of the business if you delegate too much. This could lead to problems further down the line.
If you don't delegate effectively, it can lead to resentment from your team who feel they are not being allowed to progress in their role.
What are the benefits of delegation?
There are many benefits to delegation, such as:
It allows you to focus on strategic tasks that require your expertise and knowledge.
It develops the skills of your team, as they take on additional responsibility and grow in their role.
It can save you time in the long run as you won't have to do everything yourself.
It can improve communication within your team as people are given specific tasks to complete.
It can help to build trust within your team as you are delegating authority to them.
It can improve decision-making within the business as more people are involved in the process.
It can lead to increased productivity as tasks are completed more efficiently.
It can improve morale as people feel they are valued and trusted members of the team.
How to follow up on delegated tasks?
Schedule regular check-ins with the person you delegated the task to. This will allow you to see how they are progressing and allow you to offer support or advice if needed.
Give feedback regularly, both positive and constructive. This will help the person to understand what they are doing well and what they could improve on.
Be available if they need you, but don't hover! Allow them the space to complete the task and show that you trust their ability to do so.
Celebrate their successes! This will show that you appreciate their hard work and encourage them to continue doing a good job.
Delegation is a key skill to develop for any business owner or manager who wants to take their business to the next level. By delegating effectively, you can free up your time to focus on strategic tasks, while developing the skills of your team.
