When people talk about the continuity of construction businesses, the focus is typically on the technical elements, such as who the buyer will be, how the purchase will be funded, tax ramifications and how to maintain bonding and banking credit. However, successfully transitioning a business starts years before these decisions need to be made by creating what I like to call a “culture of continuity.”
I define culture of continuity as one in which the long-term success and viability of the organization takes precedence over any individual’s desires, including that of the owner(s). This focus on creating something larger than oneself doesn’t happen overnight and takes time to shape.
Creating a culture of continuity takes three things.
An unwavering commitment to creating a sustainable organization.
There are times when running a business for the maximum benefit of an owner is a completely different path than creating a business that will perpetuate long after the owner is gone.
For example, it can mean making investments in the business a priority over personal purchases or investments. Investments in the business can include things like technology or equipment that could reduce your short-term profit and where the benefits might not be recognized until after you retire.
Another example isn’t hiring friends or family members that aren’t qualified for the positions. While business owners technically have the “right” to hire anyone they want, owner’s focused on continuity only hire the most qualified, which may or may not be relatives, because the priority is the success of the business.
Choosing and investing heavily in the right people.
Jim Collins, author of Good to Great, emphasizes the importance of getting the right people on the bus in the right seats and the wrong people off the bus before deciding where to drive it. He doesn’t believe in settling for marginal players if that’s all that’s available and says it’s better to wait until the right person is found.
Taking that a step further, how different would it be to not only try to find the right person that fits the organization as it exists now, but hiring with the idea that this person will be there to help the organization excel when you’re no longer a part of it? That’s a high standard. Do your people meet it?
This concept also means training people to succeed and help the organization thrive. Some business owners have a fear that if they train certain employees too well, they’ll leave for other opportunities or, worse, become competitors. As Zig Ziglar eloquently put it, “It’s better to train a person and have them leave, then not train them and have them stay.”
This encompasses a few areas. One is the idea that the sale of your business will make you rich or fund your retirement. There are some businesses that can be sold for gobs of money, but sadly, construction isn’t typically one of them.
While there are some exceptions, most construction companies are sold for modest amounts, because so much depends on the owner/management and there isn’t a consistent ongoing stream of predictable revenue.
In my opinion, the time to accumulate wealth from your business is while you own it, and the sale should be viewed as a bonus. Plus, maximizing the profitability is what will ultimately increase the value when you do decide to sell.
The other area business owners need to let go of is being important and irreplaceable. It’s a hard thing to do, because many people place their identity in what they build. It’s understandable given the incredible commitment and sacrifice it takes to build a successful business. Something Ray Dalio talks about in his book, Principles, is that he believes the highest form of success a business owner can have is to become the conductor of the orchestra where the music can ultimately be played without you.
Creating a sustainable company isn’t for everyone, and there’s nothing wrong with that. What is important is deciding what you really want for yourself and your company, being realistic about what it will take to achieve that goal and structuring your company to work towards it.
Dan Huckabay can be reached at (714) 516-3603 or Dan@commercialsurety.com.
By Dan Huckabay, President, Commercial Surety Bond Agency