How to Create Blue Sky
I’ve been in business and a student thereof for thirty-five years. The only job I ever had was working for my dad in his welding shop where I learned how to build with steel and wood but not much about how to build business assets. This was no one’s fault, most small business owners actually own a job; some pay well but most don’t. The latter was my experience for the first fourteen years, lots of failure including five bankruptcies.
I studied accounting at the University of Texas in the mid 70’s thinking such knowledge was the missing element to success only to drop out three semesters short of a degree realizing I couldn’t work in an office all my life. I loved design and construction of any kind including, equipment for my dad’s furniture company, my first and second car, an oil well service rig, steam generating machines for paraffin control in oil wells, trailers of all kinds, my first and second home, frames for metal buildings and now commercial and residential income properties. I also love business.
A business is an organization, to repeat it is organized by and for people with a common purpose. The things organized are a collection of systems, product or service development, marketing, management, accounting, etc. with the intent to accomplish the purpose. People who know this can build an entity that will be worth more than the sum of the parts and it will have a life of its own. It will give freedom to the owners who know the company itself is their product and they develop it constantly.
I have learned I am a creator of “blue sky”; this is an old accounting term for what an entity is worth over and above the book value of the company assets, equipment and real estate, usually an intangible asset on the balance sheet named Goodwill. The information needed to own and manage a company is largely the same and we will discuss those but the element I was missing was a mindset, or an attitude. Unfortunately, I almost never find anyone with the experience created perspective to stay focused on what is central to being successful as a business owner moreover, an asset creator.
Most persons who have the talent for their job and eventually start a company to offer that product or service will fail. The statistic is eighty percent of all new businesses will fail within the first five years. There is another lesser known statistic about well organized franchises; only twenty percent of those will fail in the same time period. One of the many books I’ve read on the subject was written about McDonald’s. The person who created the business system that finally worked for them was the accountant, not Ray Kroc, and it is the same structure in operation today. He said he didn’t care if McDonald’s sold tee shirts or hamburgers, the system would work. To illustrate the mindset I mentioned is this, when I walk into any company, a franchise is a good example though, I don’t just see only a building, people and equipment, I see the system by which they operate.
They have an operations manual explaining every detail including how to put pickles on a McDonald’s hamburger so they don’t fall out when you eat it. This accomplishes one of the highest priorities employees need and want, to know what their job is and how it’s done, better yet they want to know how to achieve. This is why eighty percent of such franchises thrive; every person knows how the company does business thereby producing a predictable outcome for the customer every single time.
Why? Ask this of yourself about everything. You better know the answer before you do another thing, whether you have a company now or you intend to start one. It’s called an exit strategy. I know all the other reasons to do a startup and they are great, in the beginning while you are excited. What will sustain you mentally if you can’t meet a payroll or two? Uh oh, even to yourself! About fifteen years ago we decided to build a home for my mother. She lives alone and we thought to save time and money she only needed a one bedroom and one bath house. One day she asked me what would sell best on the market, that was easy, a three bedroom and two bath house. Well, we changed plans and built a three/two. Why? Because of the exit strategy! We built it with the buyer in mind. Your profitable company should be sold some day. The buyer should be able to pay top dollar. Most investors with that kind of money are not looking for a job, they buy income streams which are predictable and will pay them without their direct involvement. If your company can not survive without you, it will be worth the value of the hard assets and that’s about it and only to someone else looking to buy a job, someone to take your place.
Every company will need to raise money at one time or another. You will be the person who gets to present the plan to people who have cash and want to loan it or invest. Both parties will want you to speak their language. Passion for your plan is only one element, having the insight to organize and execute the plan with personnel who are taught to operate the system will give access to needed resources. Lenders want opportunities to work with knowledgeable people; it might as well be you.
The above is for information only and not professional advice. Seek council from those who know your individual situation and financial condition before you risk any money.