2 Major Challenges Medium Size Businesses Will Face

According to Andrew Coleman from Teaminvest Private (TIP) there are two major challenges which most if not all medium sized businesses will face in their lifetime and, if they don’t deal with them correctly, they probably won’t ever grow.

Andrew, whose background includes being a behavioural economist and investment banker, presented these insights at the annual general meeting of the Cumberland Business Chamber – the industrial-specific chamber in the Greater West of Sydney.

He laid the foundation of his presentation by posing the question “How many start-ups fail in the first 18 months?” The answer is eight out of 10. And the remaining two businesses aren’t necessarily successful (i.e. profitable) but they do manage to continue operating even if they never make a dollar. He then asked how many businesses transition from small to owner-operator to ‘corporate’. That is, employing 20 or more people. The national statistic (ref. Australian Bureau of Statistics) is a mere 0.82%!

The figures (ABS 2010) are startling. Of the 2.13 million operating businesses in Australia, 2.05 million have less than 19 people working for them. Just 81,000 have between 21-199 employees and only 6,000 employ 200 or more. Based on these numbers the majority of businesses across all sectors are micro and small.

Having revealed the landscape of the Australian business environment, Andrew then asked his audience why it is that “the average business” can’t evolve to being able to employ 20 or more people. The audience response included: fear of growing, not having a business plan, disliking change, a lack of finances, a lack of motivation, a lack of confidence, limited cash flow, not having the right systems in place, human resource issues and not being engaged in marketing or gaining publicity. He agreed and then dialled these down to The Top Five. They are a failed business strategy, poor capital allocation, a lack of confidence, an inability to delegate or transition and insufficient capital.

Which is the “worst contributor”? The lack of confidence.

A classic example is the “E Myth” which is all about entrepreneurs being loners. They lead from the front and are often poor at delegating and building up teams. They have a fear of being burnt. A paranoia of having their dreams torched by non-believers and others who don’t share the same vision and are not willing to work hard for it. The reality is that employees seldom think the same as the business owner and this is one of the challenges that business owners have to face. This is why training and culture are so important.

Andrew said that entrepreneurs suffering a lack of confidence are not willing to plan or risk their capital. They won’t surround themselves with good people and share their ideas. Everything is kept close to their chest. This is a major stumbling block to growth because having “a council of elders”, a “sounding board” or “think tank” is vital to stepping outside your Comfort Zone and being willing to learn and grow.

Andrew calls this dilemma the Confidence Ceiling. It happens to all business owners when they get to that point where they can’t answer all of their own questions. They usually decide upon four common responses:

  • do nothing
  • gamble their assets
  • hire a consultant
  • sell the business.

None of these options are recommended. Instead they should partner with a highly experienced person (or even better, persons) who has years of experience in building a successful, profitable business. In the case of TIP: a team of former business owners.

Why is this a better option than a consultant? Mainly because whilst the consultant does gain an understanding of their client’s business they are not necessarily someone who has personal experience in growing a business. Moreover they are motivated to fix a specific problem, not partner with the business on a much longer journey. Whereas a person who steps in to the business…invests into it with their own finances…and applies their own “sweat and skill” will take a personal interest in making sure it grows regardless of the future opportunities or challenges.

Andrew is fully aware of why entrepreneurs resist bringing someone in to work alongside them. Fear. Fear of having to trust someone. Fear of spending money, of making decisions, of taking opportunities and fear of failure. When you’re on your own you are the only one who sees your mistakes. Invite someone to share the journey with you and you become visible to others.

In Andrew’s words “To grow you have to let go.”

TIP is a unique private equity firm that offers business owners a combination of private equity finance with a massive amount of expertise in business building. The company has more than 100 members who are former company founders and directors. They have a combined total of over 2,000 years of industry experience.

When TIP assess a business and decides to invest into an enterprise the instruction for the new partner board members is simple: do not offer any advice for six to nine months. The priority during that time is becoming familiar with all aspects of the business. Only then can the advice and discussions be of true value.

Andrew shared a few case studies to demonstrate the power of busting through the confidence ceiling. One of them is a company called DecoGlaze. Founder Jason Hedges said that since he partners with TIP two years ago the revenue had increased 20 percent and profits were up 45 percent. Jason said his three Board members were down to earth and very approachable. They could see things differently and helped him to make decisions. Their wisdom, experience and support gave Jason the confidence to invest in new technology which was a main contributor to their strong growth.

The second barrier confronting medium sized businesses is Transition Planning. This is centred around the options business owners have when they get to the ‘twilight’ of their career and are starting to look forward to the golf course or gardening. Typically, they have three options:

  • sell the business to a competitor (which you have spent your life trying to outperform!)
  • pass it on to a successor such as a family member (which can be fraught with danger when relatives don’t have the right skill sets)
  • wind it down and close the doors (often failing to realise value and usually emotionally draining).

The solution from TIP is a staggered transition which sees the business owner retaining a large equity stake in his business and partnering with investors who can, over time, help corporatize the business so that the founder can step back.

Over time this allows the owner to work less, retain their legacy and remain involved in a growing business as he steps out of the CEO role and becomes a member of the board – so he doesn’t lose touch with the entity that he originally created.

For more information about the Confidence Ceiling or Transition Planning contact the Cumberland Business Chamber and we will be able to put you in touch with Andrew.

M 0455 555 292

E manager@cbchamber.com.au