James Sinclair’s Business Philosophy Part 2: How your company should look in 10 years
If you’ve been following my previous blogs, podcasts and YouTube videos, you’ll have heard me say: “You should always build a business to sell, even if you have no intention of selling it.”
In order to reach that goal, you’ve got to commit it to pen and paper. Here’s how you should do that.
My Finish Chart
Ask yourself, “What does my business look like in 12 months’ time, and then 10 years?”
That forces you to think bigger, giving you a distinct advantage in entrepreneurship.
Thinking in 10-year chunks really changes the mindset.
Bill Gates says: “Most people overestimate what they can achieve in a year, but massively underestimate what they can achieve in ten years.”
Profit and revenue
But beware: as your turnover grows, the profit per pound will decrease. That’s because you have more middle management and overhead costs. You just can’t be as frugal with a big business – you need an HR department to manage people, rigorous health and safety policies, insurance, and red tape.
That’s why so many big businesses only make around 5% profit.
When I had my small entertainment business, I’d turn £100,000 and keep £95,000. But when I turned £1 million, I kept £100,000. Where did the £900,000 go? It just gets sucked up by overheads.
You must understand that as the business turnover grows, you will keep fewer pennies from each pound. It’s just an absolute fact.
Team
Top tip: employ an accountant before you can afford it. Make sure you produce a monthly profit and less. Get into that habit as soon as you possibly can. As soon as you’ve got that, you start rising up the entrepreneur’s pyramid faster than anyone else. Know your numbers.
We’re effectively playing Fantasy Football for the future. Who would we like our A-team to be? Once we start committing that to paper, your dreams should come true.
Culture
When you’ve got a small business with fewer than 12 people, you can have the absolute best culture. Everyone gets on with each other, they’re probably sleeping together, you go for drinks together, and you’re all friends…
But when you’re running a big £4-million business, you’re going to have to put procedures in place:
As soon as the team goes over 12 people, you start getting political alignments and cliques.
You might start employing toxic people and you need to be very good at managing them out.
You need to be good at training and enforcing culture.
You need to learn the difference between “friendly” and “friends”.
You can’t have your favourites, which tends to happen as a business grows.
You have to put structures in place, which you should identify at the very beginning.
You
Lastly, there’s you. What are you doing for the business now, in order to achieve all that stuff?
What have you got to become – and what do you have to do in order to achieve your goal?
In essence, you need to work harder on yourself than you do your business, in order to achieve the 10-year goals. That could be reading books, going to seminars, finding mentors, and liaising with other business owners that are doing better than you.
We want to build profitable businesses, gang, not profitable jobs.
Here’s the thing. I’m asking you, “do you want a boutique business or a big business?”
Read more about the three types of entrepreneurs in my previous blog.
But if you’re going to choose entrepreneurship as your career, over having a job, know there are many more risks.
You are going to be responsible for livelihoods.
Every single month, I wake up thinking, “I’ve got to find £1 million for payroll this month. What if we have a tight month, or an economic pressure, or a disaster?”
I’ve got to fund all that stuff and be the person who makes it all happen. There are no excuses for entrepreneurs.
You either deliver or you’re out of the game.
Not everyone can take that on.
If you want to be an entrepreneur, you might as well go for gold. The risks are there, whether you’ve got a small business, a boutique business or a big business.
You’re in charge of your own destiny. You are your own economy.
Employing people
You must employ people if you want to build a commercially profitable enterprise.
I’ve worked with lots of entrepreneurs who’ve gone through successful exits of their business. They’ve sold their businesses for many millions of pounds.
What have they got that investors want to buy into? The management team.
I’ve built up an incredible management team over the years. (Credit: Michael Chudley)
Everyone thinks about profitability, assets, and IP of the business. While all that is important, when I buy companies, I start by meeting the management team.
I’m looking at the people who make the profits happen. Who makes up the team that is delivering for the future?
If you find a business that is key person-driven, run by one amazing entrepreneur who could cause all the profits to disappear if they were taken out of the equation, that diminishes the value of it.
The quality of your management team – the people that make it happen – will drive the value of your business.
Remember, when you’re running a business, it’s very difficult to make profitability and cash out of trading. That’s because there’s always an opportunity that comes along, so you’re using your cashflow to grow the business.
You can’t help yourself, because you’re a bleedin’ entrepreneur. When you’ve got a bit of extra cash, you invest it to try and grow the business.
Therefore, the real wealth of running a business comes from when you sell it.
That’s why I say: “You should always build a business to sell, even if you have no intention of selling it.”
That discipline makes you build a much better business.
So, if you’re in the mindset that you don’t want to employ people, you’re going to find it very difficult to get the real trappings of success that come with entrepreneurship when you get it right.