Aug 17, 2022
Leadership teams that recognize that “it takes a village” to build a sustainable, well governed business – are increasing the probabilities to be successful. In my experience, there are three core indicators of a sustainable business led by a high performing leadership team:
1. Revenue
2. Governance
3. Time Management
transcript:
01:19
Hello, it's Brenda at Next Act Advisors. I'm here to read the third
and final of my evergreen posts that you can find at my
website, www.nextactadvisors. um My consulting firm is
um dedicated to entrepreneurs.
01:46
and entrepreneurs and my mission is simple. I want to assist
them to build scalable, well-governed and resilient businesses. And
I want to help to commercialize business ideas that are coming out
of the bench, the sandbox, oh and to bring them to uh
enterprise companies to make a better world.
02:16
This last um post is actually quite short, which I think some of
you listeners will be thankful for. It's titled Poised for Growth
from the Sandbox to It Takes a Village. In my work with over 20
companies in the last 12 years, I found
02:43
that leadership teams that recognize that it takes a village to
build a sustainable, well-governed business are increasing the
probabilities to be successful. Success could be that exit.
03:01
to the capital markets through an IPO could be a sale to
another large enterprise. And it could be actually, the
surprise of some founders, a failure in the decision to dismantle
the company and start again.
03:20
In my experience, there are three core indicators of a sustainable
business led by a high performing leadership team. And by the way,
from NextAct advisors, these leadership teams are the ones that I
work with.
03:39
The first core indicator is that there are revenues. The revenues
don't have to be in the millions. The enterprise must have some
paying customers. These customers are willing to pay something in
exchange for a product or a service that meets an unmet need or
sometimes creates an entirely new product or a category.
04:08
like blockchain or services wrapped around a product. The
paying customer sends a signal to investors that there is an
inkling of a product that will evolve over time.
04:25
A paying customer is the surest sign that there is an initial
product market fit. Traction is the ability to sell it again and
again, and there is a revenue flow. The top line for enterprise
value, because you're not a lifestyle business, can be expressed in
recurring revenues, customer retention, repeat business.
04:54
upselling to new features and cross selling to actually different
business units. One of the other things I try to work with
founders is the addressable market, a large market, because the
road to success as a startup founder is long,
it's arduous, and the larger the market,
05:24
the higher probability for success. So that's the first core
indicator and probably the most important. The second is around
good governance. And I'm all about increasing the enterprise
value while retaining as long as possible the ownership among the
founding team and the early investors, family and friends, angel
funds, before you go to VCs.
05:54
Governance documentation from GitGo is very important. It can be
adapted to the business model as the business grows. It is largely
around protecting core assets like your IP and the team that
you're going to be bringing on board. That is in the product
development and the sales.
06:22
These often annoying back office contractual elements,
because it does come down to good contracts, enable the team
to scale in a really fast paced environment. It shows early on
business acumen to those investors that are writing large checks.
And it provides safety assurance around the moat, protecting the
enterprise's assets, including
06:52
intellectual property, the talent, who would you like to retain to
grow the business? Who's really critical? Your cap table is
probably the most important asset. The clients that you have that
come back and produce recurring revenue, those partners that you've
brought along the journey.
07:16
And these policies that are kind of the cornerstones behind good
governance include everything from non-disclosure agreements,
proprietary information.
07:32
employment agreements.
07:36
your information and security policies, your terms and conditions,
and the employee stock option plan, among many others. The third
and last core indicator of a sustainable business is kind of soft,
but it's becoming ever more important in the times that we
live where we're constantly pressed for time. And it's ruthless
time.
08:06
management. Scarcity is part of early stage companies and time is
the scarcest resource of them all. bet you thought I thought I
would say money. It's actually time and how you spend it. Ruthless
time management can be managed when measured and when observed.
Track it on your outlook calendar on your Google calendar.
08:36
Use tools. There's many applications out there. Know where
you spend your time. At the end of your work day, just
go back and think about what you've done and just hardwired
into your digital calendar.
08:54
Track it, know where you spend your time. Put it into buckets
around customer discovery. Ultimately, your customer is tied to
your revenues. How much time do you actually spend doing customer
discovery? That's with new business development as well as
your current customers. Recruiting. How much time, CEO, do you
spend on recruiting?
09:22
I oftentimes ask founders, let's develop the organizational chart,
what it's going to look like in five years. You've already told me
what company you try to emulate or that you truly admire. Let's
work backwards. And oftentimes you might not have the money
to bring on a chief revenue officer, but have that bucket
within the organizational chart. And as you meet people during the
first years of your business.
09:52
you have those people in mind and keep engaged. So recruiting is
second very important element of your time. Product development, of
course, is important because without products, you're not going to
have customers and you're not going have revenues.
10:10
Because I work in clean tech, enterprise software, digital health,
and med tech, I oftentimes work with founders that are very
technical or scientific. And they're very enamored by their
product. But as you are growing in enterprise, the softer elements,
sales, marketing, and building a team
10:39
are as important as the product development.
10:44
Every quarter, do inventory of where you're spending your time. Are
you spending it in the right areas? Talk to your C-suite. Ask them
where they spend their time. The good thing is you can always
course correct if you hold yourself accountable.
11:10
And also priorities may change. You might have an early offer to
purchase a company. How does that work into your schedule? All
right?
11:22
Those three core skills or indicators around a sustainable
business, revenue, governance, and ruthless time management will
drive the outcome, ultimately, of enterprise value. The
definition of enterprise value is a measure of a company's total
value.
11:52
It's often used as a more comprehensive alternative to equity
market capitalization. Enterprise value includes in its calculation
the market capitalization of a company, but also short-term and
long-term debt, as well as any cash on the company's balance sheet.
Enterprise value is a popular metric used to value a company for a
potential takeover.
12:20
With my work with founders, I always ask them which companies do
they consider their competitors. Those are called your comp
comparables. There are lots of metrics out there in the public
markets. While you're still an early stage company, you can start
modeling what ultimately your enterprise value could or should look
like for that potential takeover or that potential.
12:50
In my work at Next Act Advisors, I have had the privilege of
working with founding teams that are unafraid to say that they are
not knowledgeable about a certain matter. They are willing to
learn. They are also willing to unlearn. They are willing to bring
in the expertise, either through talent hire, fractional hires,
13:20
the use of advisory boards before you create your former board of
directors, and ultimately at a later stage, your board of directors
that will take a seat at the table and will ultimately have voting
rights.
13:36
The high-performing leadership team is better positioned to realize
the enterprise value of the company when adopting a mindset that it
takes a village to be poised for rapid growth to create a large
enterprise.
13:54
There is a follow-up blog post that walks you through
different paths to revenue discovery. It's called 15
Questions That Lead to Revenue Discovery. And I look forward to
reading to you this additional blog post. But stay tuned. And thank
you for joining me in the Founder's Sandbox. If you are authentic,
willing to learn and experiment, I would absolutely be honored.
14:23
to serve you. Thank you, signing off.