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Does your company understand growth? Our mission at Business Growth Partners, Inc. is to design, develop and
implement management systems for both short- and long-term growth.
Faced with the need to continually innovate products and services while improving
productivity with their existing lines, manufacturers face unique challenges to growing their business. The research and development time to get a product to market also creates the need for a high degree of market awareness to stay ahead of the innovations curve and not be blindsided by the competition. Business Growth Partners Inc. professionals know how manufacturing works and can help you meet those challenges. By identifying your particular strengths and weaknesses, exploiting emerging niche markets and creating a company-wide approach to your growth, we will help you implement the objectives to increase the value provided to your customers and ensure your future growth.
Retail
Retail growth probably has a wider array of strategic approaches than any other
industry sector, from market positioning and multi-channels to e-business and franchising. Retailers continue to face the challenge of offering improved customer service, managing channel complexity and introducing new technology, while reducing costs and prices. Knowing where and how to compete ensures that the most valuable markets are being targeted.
Service
The foundation for the growth of any service business is its people, upon which is built
the leveraging of talent to communicate, interact and deliver value to its customers. The challenges of competition are particularly daunting in a capitalist economy continually moving to services, where the technical barriers to entry have come down dramatically in cost, and where the internet affords incredible efficiencies for both startup and established businesses. Whatever operational, training and customer service solutions may be applied, the delivery of services is always challenged by the demands of a more sophisticated customer.
Many factors have an impact on your firms profitability and growth. To help you
make the best possible choices, our experience and in-depth knowledge offer a dynamic approach that focuses on the specific needs of companies anticipating or experiencing strong growth. We build a solution which takes into account your current stage of development, existing resources, and capacity for growth.
Background
The origins of Business Growth Partners, Inc. date back to 1984. At that time, the
companys founders, Dr. Jim M. Namaste and Thomas Grifasi, were each engaged in other endeavors but found a common interest in understanding how small businesses became larger ones. Having experienced both success and failure in their careers, they commenced a long-term investigation into the Research and Development of a small business success methodology. Seeking answers to Why do companies fail?, Why do companies succeed?, and What are the elements of management, marketing and money that make the critical difference?, has led to todays Business Growth Partners.
The BGP model has been built to meet both the demand and the conditions under
which small business owners need professional assistance: Deliver a high level of expertise in a timely fashion at an affordable price. As we have come to understand through exposure and interaction with a myriad of business types, executives of small growth companies who desire professional assistance the most are often the least able to afford it and yet need it immediately. Their human and financial resources are typically stretched to the limit getting to their current stage of development.
I have worked closely with BGP for nearly two years. Perhaps their greatest contributions
come in the form of assistance with strategy and planning. Theirs is a unique perspective about growing a business which is clearly derived from plenty of hands-on, in the field experience. I should also add that their integrity and business ethics are of the highest quality. I can recommend their work and ability to make a difference without hesitation. I. Gibson, CEO, Wintara, Inc., Washington, DC
wish I had run into you guys back in August or September. You are by far the most professional organization I have had contact with-keep in mind that I have had varying degrees of contact with the likes of Hummer Winblad, Kleiner Perkins and Idealabs. S. Minkus, President, DVG Ventures & Consulting
For
the last few years, we have been actively engaged in using the Internet to sell and market our products and even our common stock securities. We are very pleased with the modifications and strategies that were brought to us to implement and test. We have found the principals to be completely forthright and honest in their business dealings. E. Palmer, CEO, SolarAttic, Minneapolis, MN
I have been associated with the founders of BGP for over two years, first as a client and now
as a business partner in a separate business venture. The vision and organizational skills that they continue to bring together to help business people with all kinds of businesses is next to none. I am proud to be associated with them and look forward to a mutually prosperous future. Steve Erickson, CEO, Net Distributor Express, Inc., Grand Junction, CO
We have always been extremely satisfied with the services provided by BGP, and we would
be interested both in referring your services to our clients and in utilizing them for our own benefit. Your dedication and technical expertise you have brought to consulting assignments has had a substantial impact on building a strong foundation for our regional economy. H. Sicherman, CEO, H. Sicherman & Associates (for regional IDAs), Amherst, NY
Thanks to Business Growth Partners for all you have done! With your plan, guidance and
expertise we have now put our plan into action and we are starting to see the fruits of our labor. BGP knew just what we needed. Without Business Growth Partners we would probably
still be on the drawing board! B. Andrews, President, Fifty States Realty, Inc., Grand Island, NY
Management
Thomas Grifasi Co-Founder, President & CEO Specialty: Strategic Planning Experience: Strategic Planning; Entrepreneurism; Management Coaching; Operational Development Snapshot: Tom brings over 30 years business ownership and management experience with a unique ability to identify and analyze problems related to the interaction of management disciplines.
Dr. Jim M. Namaste Co-Founder Specialty: Strategic Planning Experience: Strategic Planning; Entrepreneurism; Marketing Communications; Internet Technology Snapshot: Jim brings 25 years business experience, with a particular emphasis on applying the principles of long-term development to SMEs.
Stephen Hussak Director of Marketing Specialty: Marketing Communications Experience: Marketing; Product Management; Six Sigma Snapshot: Stephen brings 17 years experience in marketing and sales management, with a particular emphasis on developing both meaningful and long-term customer relations.
Jeffrey R. Jones Business Development Manager Specialty: Business Development Experience: Sales and Territory Management; IT Consulting and Implementation Snapshot: Jeff brings over 10 years business-to-business development experience, Including development of channel programs and building sales teams.
Senior Strategists
Barry Bender Specialty: Strategic Planning; Finance & Accounting Experience: Strategic business analysis and planning; financial analysis Snapshot: Barry brings 25 years of varied experience to our clients, including managing and delivering training programs, managing technical documentation projects, investment analysis, and consulting experience.
Michael Damian Billy Specialty: Strategic Planning; Management & Operations Experience: Operations Management; Human Resources; Marketing Strategy Snapshot: Michael has over 30 years experience in multi-dimensional, cross-functional marketing and strategic planning, including concept and product development, team and culture building.
William T. Homan Specialty: Strategic Planning; Communications &Marketing Experience: Marketing strategy; technology integration; customer focus. Snapshot: Bill brings over 25 years business experience as a corporate executive, entrepreneur, and management consultant. He specializes in business performance improvement, with a focus on teaming with stakeholders to resolve mission-critical issues.
Richard D. Jones Specialty: Management & Operations Experience: Manufacturing & Distribution Operations and Marketing; ESOP Programs Snapshot: Rick brings 30 years experience in manufacturing and distribution management, including operations improvements, employee development programs, ESOPs, product development and marketing..
Rene Vishney Specialty: Strategic Planning; Management & Operations Experience: Strategic Planning; Industrial & Internet Marketing Strategies; International Business; Market Analysis & Strategy Snapshot: Renes 25 years experience emphasizes effective management and leadership, strategic planning, and policy and procedure development and includes the successful creation of sales and marketing organizations.
Consulting Managers
All of our Consulting Managers are multi-talented with years of exposure to the
complexities of business management. To see the full biography of each professional, click on his or her name.
Crean, Maureen R. Specialty: Business Technology & Methods Sectors: Service; Retail Experience: Executive Team Building & Coaching; Start-up Development; Internet Technology; Management Information Systems; Intellectual Property Snapshot: Maureen brings 22 years experience in Strategic Planning and has effectively led hundreds of individuals in creating teams that successfully implement management strategies and accomplish organizational goals.
Higgins, Kevin B. Specialty: Business Technology & Methods Sectors: Service; Retail Experience: Internet Technology; Management Information Systems; Intellectual Property; Process Engineering Snapshot: Kevin brings 27 years experience in technology management, creating and
Moore, Allen H. Specialty: Business Technology & Methods Sectors: Manufacturing & Assembly; Service Experience: IT, MIS, Knowledge Management Snapshot: With 32 years experience, Allens expertise lies in business process improvement, workflow automation, organizational workflow and dataflow design, system user interface design and change management.
Smith, Raymond W. Specialty: Business Technology & Methods Sectors: Retail; Service Experience: Internet, Computer & Management Information Systems; Integrating Business & Marketing Strategy with Technology & Operations; Product Management Snapshot: Raymond brings 30 years experience in marketing, product development, it
and strategic business development in a wide range of environments, from start-up to fortune 10 companies.
Westlake, Edwin Specialty: Business Technology & Methods Sectors: Service; Wholesale & Distribution Experience: Computer Information Systems; Internet Technology; Operations Management Snapshot: Edwin brings over 20 years technology and management experience to our clients including over seven years of e-commerce.
Wisniewski, Edward Specialty: Business Technology & Methods Sectors: Manufacturing & Assembly; Service Experience: Computer & Management Information Systems; Data Security & Disaster Recovery; Computer Facility Planning; IT Policy & Procedure Development Snapshot: Ed brings 40 years experience in data security design and management, systems development and analysis in banking, manufacturing, and health care.
Consulting Managers
All of our Consulting Managers are multi-talented with years of exposure to the
complexities of business management. To see the full biography of each professional, click on his or her name. Communications & Marketing Specialty
Akers, Dennis L. Specialty: Communications & Marketing Sectors: Manufacturing & Assembly; Service Experience: Industrial and International Marketing Strategy; International Business Snapshot: Dennis brings 32 years experience in marketing, product development, sales, engineering, quality and operations in entrepreneurial as well as Fortune 100 companies in the U.S., Europe, Asia and the Middle East.
Bartels, Mary E. Specialty: Communications & Marketing Sectors: Service; Retail Experience: Marketing Planning, Strategy, Modeling &Management; Operations
Management; Call Center Development & Management; Website Management; CRM& PR Management Snapshot: Mary has extensive experience managing sales, marketing, operations, and personnel for both start-up and industry-leading companies, and is proficient in systems design and implementation, new business development, and business process improvements.
Coman, Hilary C. Specialty: Communications & Marketing Sectors: Retail; Service Experience: Marketing Strategy; Models & Applications; International Marketing & Business Development; Market Entry & Maximization; Latin America Expertise Snapshot: Hilary brings over 14 years experience in designing and implementing marketing plans in the national and international arenas, covering the full spectrum from research to product planning and entry strategies.
Helmeke, Todd M. Specialty: Communications & Marketing Sectors: Manufacturing & Assembly; Wholesale &Distribution Experience: Industrial & International Marketing Strategies; International Business; Mergers &Acquisitions
Snapshot: With 37 years experience, Todd brings a broad domestic and international perspective to Mergers & Acquisitions, market, competitor and financial analysis skills, with extensive senior management marketing, sales, business development, and acquisitions experience.
Hensel, Rodney C. Specialty: Communications & Marketing Sectors: Manufacturing & Assembly; Service Experience: Internal and External Communication, Public Relations, Government Affairs, Community Relations, Market Analysis, Crisis Communications Snapshot: Rod has worked for over 27 years helping small and large companies manage government and community relations during growth periods and in helping companies achieve crisp, clear communications with clients, vendors, and employees.
McMann, Carey E. Specialty: Communications & Marketing Sectors: Service; Wholesale & Distribution Experience: Marketing Strategy; Advertising & Marketing Communications; International/Cross Cultural Communications Snapshot: Carey has over 22 years experience as an international strategic marketer with emphasis on consumer behavior in changing and emerging markets, including segmentation, targeting, positioning, and forecasting.
Patricia, Linda J. Specialty: Communications & Marketing Sectors: Service; Manufacturing & Assembly Experience: Public Relations; International Business Development; Advertising and Marketing Strategy Snapshot: Linda brings 22 years experience in strategic marketing, sales and operations, media production and building partnerships into productive, working relationships. Consulting Managers
All of our Consulting Managers are multi-talented with years of exposure to the
complexities of business management. To see the full biography of each professional, click on his or her name. Finance & Accounting Specialty
Hardy, John R. Specialty: Finance & Accounting Sectors: Service; Manufacturing & Assembly Experience: Banking; International Finance and Exchange; Stock Markets and Trading; Financial Writing Snapshot: John brings more than 32 years experience in domestic and international banking, foreign exchange analysis and trading, real estate and equipment leasing, and international business.
Schneider, Eric M. Specialty: Finance & Accounting Sectors: Service; Retail Experience: Financial Analysis; Operations; Systems Development Risk Management Snapshot: Erics background consists of 22 years of progressive responsibility and achievement in consulting and executive positions with financial services firm.
Squire Jr, Don T. Specialty: Finance & Accounting Sectors: Service; Wholesale & Distribution Experience: Certified Public Accountant; Managerial Accounting; Profit Improvement; Reengineering & Process Streamlining; Accounting Software; Budget & Financial Analysis Snapshot: Don brings 22 years experience in advising Business Owners and CEOs of start-up, fast-growth companies as well as experience as Controller and CFO in larger, established businesses.
Open Book Management is a way of running a company that gets everyone to focus
on helping the business make money. Nothing more, nothing less.
It takes those trendy new management ideas empowerment, TQM, teams, and so
on and gives them a business logic. In an Open Book company, employees understand why theyre being called upon to solve problems, cut costs, reduce defects, and give the customer better service. And they have a reason to do so.
If you could tear apart an Open Book company and compare it with a conventional
business, youd see three essential differences: 1. Every employee sees and learns to understand the companys financials, along with all the other numbers that are critical to tracking the business performance. Thats why its called open book. The numbers are up on the wall, in the handouts, on the computer network. Training courses and regular meetings teach everybody what they mean. So employees know whether theyre making money. They know how much. They know why.
2. Employees learn that, whatever else they do, part of their job is to move those numbers in the right direction. They may be salespeople or software designers, machine operators or telephone operators, engineers or stock assistants. They are also part of the business and are accountable to one another for their units performance. 3. Employees have a direct stake in the companys success. If the business is profitable, they get a cut of the action. If its not, they dont.
Sharing the income statement and balance sheet with most employees; Sharing other data with employees (such as productivity and plant utilization/quality data); Encouraging employees to use the information in their daily work; Training employees to understand financial numbers; and Sharing the financial results through a gain sharing program.
Change Management
These are further defined as managing Internal and External changes. Internally, the
aim is to more effectively implement new methods and systems in an ongoing organization. The changes to be managed lie within and are controlled by the organization. However, these internal changes might have been triggered by events originating outside the organization, in what is usually termed the environment. Therefore, managing External change is the response to changes over which the organization exercises little or no control (e.g., legislation, social and political upheaval, the actions of competitors, shifting economic tides and currents, etc.).
Services Execution
Design a strategy and action plan to implement a nearly self-funded growth process with very low operating costs. Assist in the execution of a funded, take-off growth stage. Assist in implementing high growth operations through Open Book Management principles.
Description
Business Growth Partners believes every business is unique to its industry, in its
managements philosophy and structure, its culture, employees, and potential for growth. Our challenge is to ascertain a large set of variables for each client through an efficient and affordable process. To do this, we have developed our Action Plan Profile to understand your unique needs and objectives. Objective
With a view to your companys intentions and capacity for growth over the next 2 to
5 years, our objective is to determine which areas of your companys infrastructure are strong, to be exploited, and which are weak, to be improved.
The analysis portion is comprehensive and customized for each client. Some of these
questions may be obvious, others may seem vague. However, our research and those of others along with our experience indicates that these are some of the elements that make companies grow. The following will provide some perspective on the nature and depth of the investigation. Strategic & Tactical Planning
Is the company building a strategy around a clear value proposition for the customer? Are strategies built on the perspectives of customers and investors? Are there mechanisms in place to monitor and adjust tactical plans as needed over time? Are strategies and tactics being effectively communicated within the organization and among customers and other external stakeholders? Is the strategy focused on the core business? Operations & Execution
Are front lines empowered to respond to customer needs Constantly strive to improve productivity and eliminate all forms of excess and waste Infrastructure & Communications
Are the personnel sufficiently inspired to do their best? It the organization consistently challenged to achieve higher standards Are specific guidelines and goals set and understood by all? Is the work environment challenging, satisfying, and fun? Has the company established, and does everyone abide by, clear company values?
Is the organization stifled by redundant organizational layers and bureaucratic structures and behaviors? Is there an efficient and cooperative exchange of information across the whole company? Are there incentive performance programs in place? Management Structure & Management Team
Are there policies and systems in place to fill mid- and high-level jobs with internal talent? Does the company create and maintain top-of-the-line training and educational programs? What systems are in place to intrigue and challenge the best performers in all discipline areas? Governance & Directors/Advisors
What is managements relationship with people at all levels of the company? What is managements capacity to spot opportunities and problems early? Does the board of directors have a financial stake in the company? Innovations & Competition
Are systems and incentives in place to continually introduce new technologies and business models? How effectively does the company exploit new and old technologies to design products and enhance operations? How are product introductions and life cycles measured? Partnerships & Mergers/Acquisitions
Is there an appropriate strategy to acquire new businesses that leverage existing customer relationships? Does the company enter new businesses that complement existing strengths? What is the history and capacity for partnering relationships? How successful is the capability to identify, screen, and close deals?
Methodology
A detailed Agenda will be provided to the company in advance to organize the onsite visit for maximum efficiency in the time spent with management and staff. Duration
Depending on the size of the organization and travel logistics for Phase Two, the time
frame to complete the Action Plan Profile is expected to take 2 to 3 weeks. Preliminary and Full Report
Before departure from the site visit, the Senior Strategist will present management
with a Preliminary summary of the analysis and recommendations, which will include highlights of the key areas in need of development, change, restructuring, etc. A comprehensive, Full Report will then be produced and transmitted within seven to ten days of completion of the onsite visit. It will include: 1. recommendations regarding priority of actions needed 2. estimate of time frame to achieve short-term and long-term objectives 3. our proposal for a phased implementation of the recommendations in line with managements available human resources, budget and anticipated rate of growth Cost
The professional fee to complete the Action Plan Profile will range from $1,500 to
$7,500, depending on duration and complexity. Out-of-pocket expenses, such as travel and accommodations, will be estimated and agreed to in advance.
Companies that will benefit most from our expertise are those in some form of
emergence and growth. If your company is similar in any way to these examples, contact us for an introductory conversation. Examples of Emerging and Growth Companies
Experiencing flat or declining growth Launching a new product or service Facing bankruptcy or re-organization Dealing with extraordinary and/or rapid changes in their market Experiencing cash flow or profitability problems Growing too fast without an adequate infrastructure Restructuring or re-engineering itself for planned expansion Planning a product or service roll out An entrepreneurial start-up with some financing in hand Building a distributor, dealer or sales rep network Seeking partners or partnering relationships Establishing an electronic communications network Reorganizing or expanding its marketing program Expanding its business via electronic marketing Repositioning itself to advantage equity or new growth markets Positioning itself for a public offering Seeking funding or selling its stock in an offering
The companys founders have been accumulating significant knowledge and insight
into the emergence and growth of small and medium enterprises. Our business R&D approach, in conjunction with hands-on work with a broad range of business types, is the foundation of our ability to develop, orchestrate and implement systems and methods that will grow your business.
Our Consulting Managers have been carefully chosen based on their years of
experience, expertise in key areas of growth management, and particularly on their ability to both analyze and execute within their specialty areas. Moreover, they have all worked in scenarios involving rapid change and growth management. Consulting Managers
All of our Consulting Managers are multi-talented with years of exposure to the
complexities of business management.
The two business growth factors that enhance a companys value are revenues and
profits (see our discussion on Business Value).
We work with our clients to implement systems that optimize the likelihood that
specified growth targets will be achieved. The growth targets we have identified are based on statistics generated from the Inc. 500 and the American Business Conference lists. These statistics form the basis for our targets for venture growth companies, as follows:
$250,000 - $1MM
250%
$1MM - $5MM
150%
$5MM - $10MM
100%
$10MM - $25MM
50%
Above $25MM
30%
These targets will stretch a companys objectives, which is the intent. Our research shows that they are achievable as profitability numbers improve.
High revenue growth rates are possible and desirable 1. The biggest mistake entrepreneurs make is not to think big enough in terms of creating value. 2. The E-Myth: The second biggest mistake most business owners and managers make is to work in their business, not on their business. 3. The third biggest mistake many business owners and managers make is not to take more advantage of the power of partnering and networking.
The main keys to business growth are: 1. Customer service and satisfaction are top priorities. 2. Quality is the name of the business game and always will be. 3. Creating value is what owners and shareholders come to understand and want. Continuous innovation makes business both rewarding and valuable.
The core processes that are the mark of top-notch leadership and management, and will result in business success are: 1. Basing decisions on knowledge and facts rather than opinions. 2. Balancing short-term with long-term considerations. 3. Seeking and implementing the right balance in business values and operations.
4. Being systematic, focusing on results and working to improve continuously. 5. Getting things done on time.
If you are looking for a simple business growth recipe, give it up. There is no simple
way to grow a company fast. That is not the same thing as saying that it is impossibly difficult, or that there are no principles and factors that foster business growth.
The paradox of business growth is that it is at the same time easy and complex. In an
effort to demonstrate this paradox, we will list the basic dimensions and many factors that affect business growth. Individually, each is simple and reasonable. All of them together, however, are very complex to implement. Our job at Business Growth Partners is to assist clients to reduce the complexity in their businesses and make things easier to achieve both immediate and sustained growth.
At Business Growth Partners we believe that just about anyone can grow a
business quickly and profitably. Few do because it takes hard thinking and hard work.
From its inception, the company focused much of its efforts on research and
development activity to:
determine the facts about business growth and how it can be fostered, and design comprehensive systems that can more effectively generate business growth.
Our main focus is to work with growth-oriented companies to analyze and implement
what has been learned from years of unique exposure to business success and failure. In addition to management and innovation, Business Growth Partners also focuses on the use of information technology, the Internet and partnering relationships as effective means to promote rapid business growth. The Mindset Dimension
Do you have the right attitude toward business growth? What do you know about business growth? What are you willing to do to grow your company rapidly? Do you really know what you dont know?
Is management trustworthy? How strong is corporate governance? Is there a good plan? Is management quality-oriented? Is management innovative? Are business activities tracked and and related to results? Are personnel focused and are things done on a prioritized basis? How productive is everyone?
Good managers balance long-term goals with short term requirements and are able to
get the most from people. There are very few independently superior managers, which is why a management team is usually necessary to grow a company successfully. The Marketing-Sales Dimension
Is the market for your product or service large enough? Are you customer-oriented? Does your company have at least 3-4 competitive advantages? Is your company sales-driven?
Business growth requires a sufficiently large market and at least several edges to gain
market share. The Financial Dimension
Does the business focus on increasing the valuation of the company? Does the business emphasize revenues and profitability? Is spending tightly controlled and related to sales and profits? Is the financing plan clearly related to growth requirements? The Operations-Execution Dimension
Is there a system for interrelating results with respect to quality, profitability, activities and employee-management accountability? Is the system clearly communicated throughout the business? Are incentives related to performance?
The five dimensions and related questions outlined here offer our perspective on the
major components of rapid and sustained business growth. To pull all these together requires in-depth understanding, broad experience and a systematic approach.
What does rapid growth mean? In our work we take the following for granted: At a
minimum, rapid business growth means bootstrapping from $0 to $25 million valuation in three years or less; or, if financed with at least $10 million, to $100 million valuation in three years or less. For more a more detailed analysis of rapid business growth and what we know about it, read the briefing paper on this topic, here.
There are a number of factors that make it possible to grow a company quickly.
Perhaps the most important one is management. Usually management is much more important than the business concept or idea. Their relative significance is expressed by the old venture capitalist saying: It is better to have a mediocre idea and good management, than a good idea and mediocre management.
Business Value
Business growth is one of the best ways to build wealth because of the value that gets
added when profits are made and are rapidly increased. Business valuation is the way the growth of business is best measured. That is where things start and end.
Many entrepreneurs get into business for a variety of reasons. Most of these reasons
have little to do with business valuation. Presumably, entrepreneurs are in business to make money. Those who are in in business for reasons other than making money are not entrepreneurs but hobbyists.
If you can make more money instead of less, why would you not want to do that?
Unfortunately, the majority of entrepreneurs and business owners make less money than they could because they do not understand business valuation.
The valuation of a business is where everyones interests coincide. When the value of
a business increases it can benefit the entrepreneur(s), investors, managers and employees. That is the basis for Business Growth Partners approach. To understand what lies at the core of business value is The Value of Enterprise and the Power of the Earnings Multiple.
The Value of Enterprise and the Power of the Earnings Multiple by Dr. Jim M. Namaste
When we sell or exchange our time or ideas we are involved in enterprise. Everybody
quickly understands that their time and ideas are worth something (tell a ten-year old to mow the lawn for you or shovel snow), but very few people actually understand how the value of time and ideas relates to enterprise.
For example, there is a big difference between earning money in a business and
building wealth with a business. The difference, which is much larger than most people realize, has to do with something I call the magic of the number 7, or the power of the earnings multiple.
Start by asking yourself what an enterprise is worth if you want to buy or sell it. It
turns out that most people havent thought very deeply about the value of enterprise, or why and how enterprise is important and what makes it valuable.
Think about this. The annual sales for one business might be $100,000 and the owner
earns $50,000, but the business is worth nothing. The annual sales of another business is $50,000 and the owner doesnt earn any wages, but the business is worth $24,500. Figure out how this works and you know the secret of building wealth with a business.
If you really want to understand how enterprise creates wealth, start by studying the
example below.
Most people simply think in terms of making money to survive; making money to be
financially independent; making money to prove that they are great; or, whatever. Not that many people think of an enterprise or business as an independent entity/organism that is built or created to generate wealth.
In an introductory talk that I give to people who are looking to go into business for
themselves I tell them about the secret, powerful, magic number 7 as the key to wealth building in business. This number is a multiple of earnings that on average can be used to calculate the value of a good business.
Then I make the point that when you own a business and you take $1 out of the
business and stick it in your personal account you get a $1 value. However, when you keep that $1 in the business (as long as you pay yourself a justifiable management salary), that $1 magically is worth $7.
There are very few ways on earth that you can turn $1 into $7. That is why most
wealth is created by entrepreneurs and by investors who back those entrepreneurs.
In my introductory talk I use a hot dog stand or food cart as an example. Lets say you
buy a little stand and start working it eight hours per day, six days per week, 313 days per year, by yourself.
Assume that the business yields $50,000 in sales per year. Lets say that after all
costs, including taxes, but not including wages, what is left is $20,000.
You decide to pay yourself a total salary of $20,000. That means that the business has
no net earnings or profits! Although you are making money to survive, the business is
not making a profit. A BUSINESS THAT HAS NO PROFIT HAS NO VALUE FROM AN INVESTMENT POINT OF VIEW!!
If you want to understand how wealth is built in a business you need to really know
what is going on in this example. Lets work it a little more.
Instead of paying yourself $20,000, you get total wages of $16,500, leaving $3,500.
You multiply that by 7 and you have a business with a value of $24,500. Add that to the $16,500 and you build a TOTAL value of $41,000 for yourself!
The problem is that your time may be worth more than $16,500, in which case you
may have artificially inflated the value of the business. That wont work. A savvy business buyer will quickly tell you that something is wrong. If your time is worth more than $20,000 you are actually subsidizing your business with your own sweat equity. A lot of small business owners actually do this.
If it takes more than $20,000 in wages to run a business and the business can never
generate that amount it will never be worth anything! But suppose that it takes less, but you dont work the business yourself!
Lets go further. Suppose you live in a town with very reliable teenagers who can
participate in a work-release program from their high school and will work at a total wage cost of $6 per hour. You hire two and they are so trustworthy you can turn all responsibility for running the food stand over to them.
Now the wages in the business are a total of 313 x 8 x 6 = $15,024 dollars per year.
The business is making a profit of $4,976 per year. Lets say after taxes the profit is $3,500.
See whats happening? Lets go back to that magic number 7. When we multiply
$3,500 x 7 we get $24,500 as the value of the business.
This is pretty amazing and is absolutely correct. In one case you work hard, pay
yourself and have a business worth nothing. In the other case you dont work at all (but you dont put any money in your pockets either, unless you have another job), and end up with a business worth more than what you would have paid yourself.
The lesson here is NOT just that you should hire other people and pay them less. The
lesson is that if you work the food stand yourself, you should value your labor at the going rate. If you pay yourself more than the going rate the business profits will not demonstrate its real value. If you pay yourself more, the business wont survive.
Suppose you keep the food stand open an extra two hours per day by hiring a third
part-time teenager and you get some extra sales so the business has total annual revenues of $70,000. Non-wage costs now are $42,000, leaving $28,000. Total wages are $18,780 leaving $9,220.
Lets say earnings after taxes are now $6,500. Guess what? Apply the 7x earnings
multiple and you get a business valuation of $45,500, an increase of $21,000 by adding 2 hours of work per day!!
Of course, there is a lot more to business valuation, but this example demonstrates
what is at the core of creating business wealth.
If you or someone else has a business opportunity that can generate a profit
(EARNINGS), other than just making money for you, then you are truly involved in wealth building. That is why profitable business opportunities attract investors, can cost a lot of money and make a lot of money.
The main and final point of the examples and the calculations is this: In business there
are many legitimate things that can be done to grow earnings. When earnings are increased the effects are multiplied, more than in any other human activity. That is the secret of wealth building in business.