Investing In a Team to Fuel Success

For most people in the United States, investing in retirement accounts is how they build wealth for retirement.

But if you are a business owner, you have likely invested in your business rather than a retirement account. The early years of taking a small salary—or none at all—don’t leave much left over to invest in an IRA. And, if there was money left over, you likely put it back into the company.

If your business has become successful, these early sacrifices are a big reason why. And reinvestment is often why 80-90% of a business owner’s net worth is tied up in their business.

To harvest that wealth and reap the rewards of early sacrifices, you need to maximize the value of your business, making it attractive to potential owners when your exit comes.

What Makes a Business Attractive?

When selling your business, what is a buyer actually purchasing? 

Better yet, let’s start with what the not buying: you. Once it is sold, your expertise, relationships, vision– is gone. What is left of your business when you are no longer there? 

If that prospect scares you in terms of the future of the business, it’s time to start thinking about the four intangible capitals within every business, including your own. 

• Human capital: The strength of people—how they execute, adapt, and innovate, as well as how they can deploy themselves independent of you, the business owner. 

• Customer capital: The strength of relationships throughout the supply chain, including open communication and shared goals and benefits. 

• Structural capital: The strength of strategy, systems, processes, and financial structure—and how well those are documented, proven, scalable, and transferrable. 

• Social capital: The strength of culture, creating a rhythm that keeps going and elevates the company, even after you are gone. 
  

Let’s focus on the human capital, which is the foundation of every great company.

Human Capital: The Right Team To Fuel Success

Finding and retaining talented people is critical, not just to your business’s day-to-day success, but to its lasting significance. It’s also perhaps the hardest thing to do when running a business. 

Whether you have a planned exit, or  you are one of the 50% of owners who exit their business suddenly because of one of the 5Ds—death, divorce, disability, disagreement, or distress—cultivating your business’s human capital is key to building the value of your company. It’s that value, whether you can exit on a planned timeline, or you’re forced to exit, that allows you to harvest the wealth you’ve built, on your terms. 

Step 1: Recruit 

Owning a business requires empathy, and as you recruit employees, empathy is paramount. Top talent is out there, but you have to put yourself in their shoes. If you are consistently attracting the wrong talent, you should consider how you are demonstrating why your company is an attractive place to work. Are you able to show what competencies you need to hit your targets? How do you explain your culture? Can you identify the core values you’re looking for in employees? 

Step 2: Motivate 

At General Electric, iconic leader Jack Welch classified people into the Top 20, Vital 70, and Bottom 10. The Vital 70 want to show up, do their jobs, and go home. They are necessary but won’t elevate your culture or take your business to the next level, nor will they ever replace you upon exit. That’s why most of your energy needs to focus on the Top 20. The Top 20 are the top talent that will maximize your company’s value, leading to a significant company and exit, and they want more than a job. They are looking for passion and inspiration. To motivate these people, you need inspirational core values, rewards, and incentives. You should also have feedback systems that both reward the Top 20 and weed out the Bottom 10,with the hope that your Bottom 10 people can be replaced by another Top 20-style talent. 

Step 3: Retain 

You have already identified the people who can create value for your business, helping you harvest wealth upon exit. They are so integral to creating value that they likely deserve—and want—to experience that value in a personal way themselves. Consider vesting components that reward employees based on value gains, triggered by the sale of your business, and incentivize them to stay after your sale—so the value is retained for the next owner. 

Step 4: Evolve 

Driving value is an ongoing road  that will transform your business. Your people need to evolve alongside the business. Growth in value means growth in complexity, often by a factor of 12 according to author Verne Harnish. That complexity means that it is preferable to promote from within and find new roles to adapt to the changing business for existing employees . This evolution needs to be part of your culture as you drive value. 

Decentralize to Maximize

The best auto racing teams have persisted through changes in leadership and drivers because of their investment in the four intangible capitals, like human capital. When leadership changes—or owners exit,—having the right people in the right positions makes all the difference. Better yet, it increases value which helps you sell your business for multiples of what it is worth as potential owners notice strong human capital. 

But recruiting and helping the right people shine cannot start right before an exit. It is a process that needs to happen long before an exit is on the horizon. Decentralizing yourself from the business is a great way to test and hone your human capital over time. Identify the parts of the business critically dependent on you and then invest in people with the skills and values to take on that load.

Not sure where to start? A Certified Exit Planning Advisor (CEPA) can help you with a formal pre-transition value enhancement process. You will be educated on your business valuation, and determine if you will be able to reach your desired exit with post-exit personal and financial goals met.. You will assess your personal, financial, and business goals, and identify areas that you can build value to ensure your exit is a smooth ride. 

Interested in learning more about Value Acceleration? Visit Amazon to buy a copy of Walking To Destiny: 11 Actions An Owner Must Take To Rapidly Grow Value & Unlock Wealth by Christopher Snider. 

Related Resources 

• Why You Need a CEPA On Your Team 

• What is a CEPA? 

• Find a CEPA