By Jim Biehl, CPA, MST
Have you ever wondered how some companies last for generations while others fade into obsolescence? In Clayton & McKervey’s history of working with closely held businesses, several shared traits among companies reaching the 50-year mark and beyond have proven to be a success time and again.
Observing established companies functioning as finely tuned machines, while welcoming change, it’s clear that these principles foster the longevity of industry leaders.
- Proactive vs. reactive: Longstanding businesses are forward-thinking and employ some form of strategic planning that allows the team to “aim for the same tree on the horizon.” Decision making is aligned, and a shared mission is embraced and clearly communicated. An overarching consistency to these companies is that they are nimble enough to adapt to change and they embrace innovation.
- Customer obsessed: They have intimate knowledge of what their customers need and want, especially innovative customers who are at the most risk of leaving. They anticipate customer needs and pay attention to business and societal trends.
- Believe that structure = discipline: They implement simple processes, procedures and policies that are extremely effective in forcing the business to maintain the daily, weekly, monthly and annual discipline required to execute their plans.
- Value outside input: Leadership seeks input from those outside the organization, including customers, suppliers, business and legal advisors, and other stakeholders. In addition, management looks specifically for advisors who will hold them accountable to their plans. Leaders also take on individual self-improvement and knowledge enhancement, for example, participating in CEO roundtables or engaging a business coach.
- Cultivate talent: The organizations make a significant investment in recruiting and retaining the right talent, including a consistent investment in the professional education and advancement of the team.
- Build a culture of trust: They understand and live their core values and are committed to — and even obsessed with — only adding team members who fit their culture.
- Fiscally focused/consistently re-invest in the business: Despite its obviousness, these businesses clearly understand where and how they make money. They monitor leading indicators and metrics to ensure a path to profitability. They know their financial position and maintain fiscal awareness and responsibility. They subscribe to the mantra: Cash is king; don’t ever run out of it.
- Maintain and communicate a business succession plan: No one is left to wonder where the business is going. Companies with a strong history use strategies such as a redemption or buy-sell agreements with life insurance to ease the transition should a traumatic event occur. Partners and owners agree to a buy-out price or valuation methodology, such as a third-party valuation report, rather than leaving it up to chance.
- Family businesses that make the difficult decision: It’s especially true in successful family-owned businesses that there is an understanding and discussion of which family member will lead the next generation. Management by committee is difficult to execute, especially with family dynamics.
One of the most gratifying aspects of serving seasoned companies is to advise and watch the trajectory of their success. It’s like having a front row seat to business history, and it never gets old.
Jim Biehl CPA, MST, is a shareholder with Clayton & McKervey, a global tax and accounting firm in Southfield, Michigan. For more information, contact Tim Finerty, who is also a shareholder, at tfinerty@claytonmckervey.com.