In the past year, I’ve started two new business ventures. Currently, these are going pretty well. However, a recent article from the Telegraph which reports on the takeover of Britain’s oldest company got me thinking: if Marine & General Mutual was founded in 1852 and is still around today (163 years later), how do I build these businesses to withstand the test of time?
I came up with 5 key ways to build a business to last:
1. Make a plan for growth
Plan. That will probably be the most frequent word in this article.
The first plan a business looking to make it for the long-term should devise is a plan for steady, achievable and manageable growth.
Many businesses (even some of the largest businesses in the world) struggle because they grow too rapidly or, more commonly, because they don’t have a plan to achieve growth, the new ideas to generate sales and how to manage growth once it is achieved.
Therefore, if you want your business to survive in the long-run, you should plan for the future and write down, in detail, how you expect the business to develop over time and how this growth will be managed internally. This kind of forward thinking is always a challenge and it’s not going to be 100% accurate. However, having a 70% accurate plan is infinitely better than having no plan at all!
2. Work out your projected finances
I’m about to quote one of the most common and varied statistics known to man. Quoting our Dragon friend, Theo Paphitis, “50% of small businesses fail in the first two years”. Every page on the Google results for “how many businesses fail in the first two years” gives a different number, but it’s a lot!
Why is this the case? Well, most commonly it’s a problem with finances. Either the invested capital is not sufficient to sustain the business in the early days, or perhaps sources of funding have not been identified in advance of potential growth of the business. Both of these should be addressed if you are planning to stick around for a good few years.
Firstly, make projections for your first year, first two years and first five years of your new business. Make each based on different assumptions and record those in detail. Then, for each scenario, determine your sources and levels of funding. Will your own capital be enough? Do you need to borrow from the bank? Will you need capital from external sources? A kick-starter campaign perhaps?
Promotion is key to a successful long term business, but it’s important to consider the costs. Take trade shows or exhibitions, for example. Whilst there is a standard cost to get involved, you’ll also need to take into account the marketing costs, for example pop up banners and other items to make you stand out from the crowd.
Having all this planned well in advance will make sure that you don’t become part of the previous statistic – whatever that actual statistic might be…!
3. Understand your industry & plan for change
Obviously you need to understand your industry before you start a business in that industry. This goes from the local level, where you should be doing research on your intended customers and their desire to buy your product and service, and also on a macro level across the industry.
However, you shouldn’t only be looking at your industry today, but also into the future.
When Marine & General started their insurance practice in 1862, they probably had a very good idea that the industry was here to stay. The policies might change, the regulations may alter, but in the long run people will always want to protect themselves from the worst case scenarios through insurance.
What about your industry? Think about some failed businesses and how the changes in their industry caused the company to fail. Jessops failed to understand the changes in the photo printing industry (going from physical to digital) and suffered as a result. HMV and Virgin Megastore failed to deal with the change in music moving from CD and cassette to MP3.
Things change. And in certain industries (especially related to technology) they change quicker that you could have predicted. However, having a plan for change when it happens, and acting accordingly can ensure that your business survives (and even thrives) in these times of change.
4. Risk register
Change is not the only risk which causes businesses to fail. A risk register may seem like an extremely dull and governance based task. In reality, it could be the saviour of your business.
By physically recording, and discussing with your colleagues, staff, business investors, etc, the risks of your business (today and in the future) you can assign responsibility to individuals to address and mitigate these risks.
For each risk, in every area of your business, it is recommended that responsibility is assigned to specific people and actions are reported against the risks on a regular basis. Its also a good idea to “rank” these risks both from the likelihood of occurrence and the potential impact they would have on your business.
5. Succession planning
Finally, if you are building a business to last, it may even outlast you. And, when it does, you need a plan. Many people intend to pass their businesses on to future generations of their family, or internally within the business.
However, statistics show that people are generally pretty bad at this. This may be because the new incumbent to the business has little idea about the business and industry, or they lack the desire to succeed.
As Pete Matthew (CFP, Moneystepper Savings Challenge participant, Host of the Meaningful Money Podcast and all round good guy) recently highlighted in his “Planning Across Generations” episode:
“Only 30% of the businesses make it to generation two and only 3% are still profitable in generation three. When money is passed down, 60% of it is spent by the second generation, and by the end of the third generation, 90% of families have little or nothing of the grandparents’ money left.”
If you are looking to buck this trend, then you need to think about succession planning in the business from an early starting point. Get those potential leaders of the future involved with the running of the business whilst you are still active and leading your business. This way, you can work together on the future of the business and ensure that the next generation of leaders continue your legacy!
In fact, many business owners don’t actually want their business (at least under their control) to survive in the long run. And that is fine. However, if you are planning to build a business which you intend will be bought out or taken over one day (just as Marine & General was) you also need a well-defined exit strategy.
A business which is founded and grown with the objective of passing down to future generations will have a very different strategy to one which intends to attract potential buy-outs from larger companies.
Again, take your time and think about what you want from your business in the long run and, if it’s to make a few bucks selling it to a potential buyer, then make a written (private) plan for this outcome.
Well said Winston.
And, moreover, failing to plan for the long term success of your business is planning to fail in the short term. Less succinct, but equally true!
But, what happens if you go against Winston Churchill’s advice and you fail to plan? Well, if you’re company goes bust, then you’ll have to start looking at what happens, who gets paid first and what this means to you personally as an owner/director:
This post is written in collaboration with Scottish Friendly who recently completed the aforementioned takeover of Marine & General Mutual.