- How to create frameworks to measure the intangible aspects of a business.
- How to determine whether your employees feel fulfilled and empowered.
- How to define your company’s purpose and look beyond tangible results.
- How to create processes to make your business more efficient.
- How to apply each of these frameworks to create a business that is both sustainable and helpful to your stakeholders.
There are a number of ways to determine the health of a company. Financial reports are valid measures of the bottom line, but they can’t reveal potential.
A business could be relatively successful, with good revenue and strong cash flow, without actually reaching its full potential. That’s because we often overlook certain aspects of a business that truly make it tick.
Creating frameworks that allow us to measure the less tangible aspects of a company’s operations is an effective tool for finding a path to success.
We like to think of these frameworks as the Three P’s: People, Process, and Purpose.
After all, a company can’t exist without people. And happy, fulfilled people do better work. Nor can it exist without effective processes for getting work done. Perhaps most importantly, a company without purpose has very little chance of longevity.
Using the Three P’s is an effective way to determine how healthy a company is before acquiring it.
Using the Three P’s is an effective way to determine how healthy a company is before acquiring it. After all, if you’re going to buy a business, it’s important that you have some idea of how to improve it.
By using the Three P’s, an owner can take a relatively successful company and transform it into a powerhouse.
Happy employees do good work. That means it’s important to determine whether or not your employees feel fulfilled and content at their jobs.
At its essence, the “People” framework looks at whether a company has a system for developing leaders and establishing cultural practices.
Are company meetings hours-long ordeals that have people daydreaming about visiting the dentist? Or are they fun, engaging, and efficient uses of time that leave people feeling energized?
Are your employee outings held in windowless rooms to discuss the intricacies of your quarterly earnings reports? Or do they offer a fun chance for people to blow off steam and reenergize themselves?
Are birthdays celebrated with a quick and unspirited acknowledgment of the date and a cheap store-bought cake? Or are they an event that makes the birthday girl or boy feel respected and recognized?
Meetings, company trips, birthdays – all of these tie into what type of company you are in. Just think of it as creating an employee brand proposition that fosters a strong workforce.
You should be able to say definitively why an employee would choose to work at your company rather than for your competition. You should also strive to foster an environment of mutual support, where workers feel empowered to improve their situation through education or training. Ask your workers what their goals are, where they see themselves in ten years, and how you can help them achieve those goals.
As we’ve said before, a company without a culture is like a turtle on Ambien – it moves slowly. Culture provides a rulebook for how to make decisions, and companies that lack that framework are less efficient – both in terms of the time it takes to arrive at a decision and the amount of time worked.
If someone is working at a company they don’t believe in, they’ll spend more time commenting on their Aunt Tilda’s needlepoint social media pictures than on their actual jobs. Conversely, if a company inspires its employees it can be assured that those workers will have a vested interest in seeing the company prosper.
Unless a company is able to hold on to its employees and ensure their happiness, it’s always going to deal with turnover. And turnover is incredibly expensive.
During the due diligence process [or before], you should try and determine how happy people are. Here’s a short list of questions to get you started:
- Does the company conduct performance reviews?
- Does the company have an org [organization] chart?
- When did the employee start?
- When did they last receive a raise?
- What was their previous position?
- What benefits/health insurance do they receive?
Questions like these can help you analyze turnover and measure how happy the workers are. If people aren’t advancing in their careers, they may feel stagnant. If everyone at the company is new, that could be a red flag. The benefits and health insurance packages are a great measure of how much the owner cares about their people, which will be reflected in the employees’ relationship with the company.
If you don’t have a large goal, you’re condemned to mediocrity. That’s why purpose is so important. It’s something to strive toward.
Another way to look at this is Mission, Vision, and Values [or MVV]. Mission and Vision are both related to a business’ purpose. They’re typically communicated in a written form like a mission statement. They answer questions about who the organization is, what it values, and where it’s going.
Sometimes, a mission statement contains a summary of the company’s values. Values are a company’s guiding principles.
I like to think of Purpose as a long-term goal that can be broken down into smaller goals. It’s something that everyone in an organization can understand and stand behind. It’s meant to excite and energize people in a way that mission statements and quarterly reports simply cannot achieve.
Management expert Bernd Geropp explains purpose well in this video:
A company should be able to say what its larger goal is while creating a culture that supports that goal. The company should constantly be trying to implement those smaller goals that support its larger vision.
In our experience, you almost never find a company with a well-defined purpose.
At its core, MVV helps ensure that every stakeholder of an organization can understand and support a unified vision. By articulating a purpose, you’re able to energize and motivate the people working for your business, your customers, investors, and partners.
Process is the least esoteric of these metrics. It’s more about operations and efficiency, which are relatively easy to measure and implement.
Think of Process as having a framework of SOPs [Standard Operating Procedures]. These SOPs can be used to create an operating checklist for different aspects of the business including marketing, sales, product and service fulfillment, recruiting, training, accounting, and corporate hygiene.
Effective SOPs should be put in place to ensure that no single person in the organization is the only one who can carry out a task. Essentially, these SOPs diversify responsibility. This is also helpful in creating efficiency because the organization won’t need to rely on a single person to complete a task, avoiding disorganized bottlenecks.
These inefficiencies can often be found in marketing, sales, product, or service fulfillment; as well as cash and accounting. In avoiding these inefficiencies, we are creating what we call “depth.”
Depth is another important aspect of Process. How many people can fill in for each other? If only one person is capable of doing a specific task, and they’re on vacation for a week, that task can’t be done. It’s inefficient and costly. An organization lacks depth when there’s someone who can do something that no one else can do. Creating depth means diversifying responsibilities so that more than one person can complete a task if necessary.
Look into whether there’s a training program in place to move people along the org chart. If not, you should implement one. Ask whether the company has created any training manuals that might be able to help in a pinch. You should also take a look at how organized the workers are during a site visit. A disorganized office or messy trucks are a great indicator for a lack of systems.
Prioritizing The Three P’s
Odds are, you’ll never see a company that has effectively implemented all of these frameworks. But by knowing what to look for, you’ll be able to see what’s lacking. Constantly improving upon these areas will help you improve your business’ efficiency and profitability.
It’s similar to the final step of the Personal Flywheel. By refining and improving as you go, you’re able to move more efficiently toward success.
In the end, whether something is an attractive acquisition prospect usually comes down to the price and how much work needs to be put into the business in order to turn it around. A small deal that requires a lot of work is less enticing than a big deal that needs improvement in each of these areas.
If you’re taking over one of these deals, you should begin by prioritizing People. Keeping your workforce happy and fulfilled will ensure they stick around for the long term, limiting turnover and increasing stability.
After that, work on Purpose. The purpose should serve as an extension of People. Having something to strive for creates forward momentum. Make your vision easy to communicate but big enough to scare yourself.
Finally, work on Process. Once your people are happy and your purpose is well-defined, start making sure your processes are efficient and easy to understand, and they are constantly reinforcing your purpose
By balancing these three metrics, you’ll be able to ensure your business is sustainable and helpful, both for the people who work there and the community that surrounds it. Using these frameworks is a form of Empowered Stewardship, a concept that we believe in deeply at Acquira. They allow you to be proactive and solutions-oriented in your decision-making, which can only help the business and those who work there.
- Determine whether your employees actually like their jobs and feel fulfilled.
- Have something to strive toward.
- Avoid and curtail disorganized bottlenecks.
- Prioritize people, then purpose, and finally process.
Can you think of any other intangible ideas or elements that dictate whether a business is successful or not? Let us know in the comments below.
If you’re interested in buying a business yourself, you can begin with our Acceleration Program.
Acquira specializes in seamless business succession and acquisition. We guide entrepreneurs in acquiring businesses and investing in their growth and success. Our focus is on creating a lasting, positive impact for owners, employees, and the community through each transition.