The One Way to Tell If You’re a Successful Entrepreneur
(This post originally appeared on the Huffington Post)
I’m not a very successful entrepreneur. Are you?
You may think so because your business is doing well financially. Or you’ve managed to stick a lot of money in the bank. Or you’re on the cover of Inc. Magazine. But these are not the true indicators of success. The most successful entrepreneurs I know are the ones that are building value and creating assets. And do you know how they do that? They take vacations. Yes… vacations! And for a long time too. Whenever they want. Unfortunately, I’m unable to do this. Which is why I’m not truly successful. And, apparently, I’m not alone.
According to data released last week from Office Depot, a whopping one-third of small business owners in the U.S. are unable to break away for vacation this summer. Sixty percent of them cited financial hardship as the reason. The rest had excuses ranging from “it’s my busy season” to “I don’t have enough staff.” These are not successful business owners either.
Sure, I take vacation. But it has to be planned well in advance. I can never take more than a week at a time. I have to be somewhere accessible. During my vacation I’m always checking in with the office. I’m answering questions when away. I’m sending emails, taking a few calls, talking to my staff. I’m that guy who’s watching “Old Faithful” while responding to text messages at the same time or talking on the phone while his family is going on that Disney ride without him. This is not success. This is the madness of keeping a business running while I’m trying to spend time with my family. I’m earning a living. But I’m not creating value. A valuable company is the true sign of an entrepreneur’s success.
A valuable company doesn’t just have a strong balance sheet. Or strong earnings. Or a healthy cash flow. Those are all good things. But a truly valuable company has intangible value. It can run on its own. There is infrastructure. There is organization. There is a chain of command. It’s a ship that will keep sailing on course regardless if the captain is there for a reasonable period of time. It has processes and procedures and protocols. There are set ways of doing things, documentation, manuals and rules. A McDonald’s franchise is valuable because everything is so regimented that the owner can slot in a different manager every week who can then run with the ball after just a little training. This is not my business.
If a potential buyer were to look at my business, he’d find a 10 person company that’s completely reliant on me. I sign all the checks. I make all the deals. I approve all the transactions. I hire all the workers. I make all the decisions. I have the primary relationship with our clients. I micro-manage every project. A buyer would need to keep me on as an employee or consultant to keep the business going so that it can gradually, someday be transitioned over to a company that can run without me. If I were hit by a bus then my company would ultimately fold in on itself after just a few short weeks. This is not success. This is not value. This is just a glorified job. I haven’t been creating an asset. I’ve just created work for myself and nine others.
Is it a good time to sell your business? Definitely, absolutely, yes. According to aBizBuySell.com report issued this week, second quarter small business transactions reached their pre-recession activity, up 11 percent over Q2 2013 and transactions were just 3 percent short of the record mark set in Q2 2008. The 2,029 reported transactions in Q2 2014 represented the second highest total recorded since BizBuySell.com began tracking insights data in 2007.
Why all the activity? Interest rates are low, so getting financing is attractive. Inflation is low which means alternative investments are fewer. Capital gains taxes are still at a relatively low-level while the general population of business owners are getting older and looking to retire, which creates more supply of available companies. “If you’re an experienced entrepreneur then now’s a great time to buy a company,” Curtis Kroeker, President of Marketplace Verticals at BizBuySell, told me recently.
Unfortunately, if you’re like me, your selling price may not be as high as you hoped. And that’s because your business can’t run on its own, even when you’re on vacation. A buyer will need to buy you along with the business. And that really impacts your company’s value. And your value too. So maybe you think you’re a successful entrepreneur. But if your situation is like mine then really… you’re not.