The following is reposted from the Boardroom Metrics CEO blog. It was written based on the interesting discussions we’ve been having over the past few weeks with private company business owners. In that presentation, posted here, there is one chart that EVERYONE responds to. It reads like this:
Value = Profit that is Sustainable and Transferable.
It makes a simple point – private (and public) company value is not just a function of how profitable a business is. To be valuable, a corporation’s profits must be sustainable. So you had a good quarter? Congratulations. Let’s see you do it again next quarter.
Furthermore, what happens if you get hit by a bus? No you, no profits? Hmmm. Not really very valuable.
Here’s the rest of the post:
Ask any private business owner what they want from their business and almost every one of them will tell you: “I want to maximize value.”. Then watch what they do on a day to day business.
Fight fires. Run the day to day.
In the value equation above, the business owner is the one responsible for the V – Value side of the equation. The CEO is responsible for the Pst side – profits that are sustainable and transferable.
The first is a strategic role. The second is a tactical, operating role.
So what happens when the owner and the CEO is the same person – something that is very common in private businesses?
What I see almost every time is that the value side gets forgotten over and over and over. Firefighting is envigorating, challenging, important. It overwhelms everything else.
When times are good, being the CEO is being the hero.
When times are bad being the CEO means being too busy manning the liferafts and avoding ice bergs.
“Naw. That’s something to think about when times get better.”
To create sustainable, transferable value the Owner/CEO must be an owner first – and a CEO second.
Being an owner first means having a clear picture of what drives sustainable, transferable value and getting a plan in place to build it, maintain it, and ultimately monetize it.
Being an owner first means being held accountable as the CEO to execute the value building plan – or to get out of the way and let someone better suited do the job.
The Boardroom Metrics Chairman’s View system makes it simpler for owners to be owners. First, it provides a snapshot on a company’s value. Second, it highlights the gaps/opportunities – in a dashboard fashion – where value creating work is required. Third, it introduces a professional chairman – someone who spends a few hours a month holding the owner, and the CEO accountable for doing their roles properly.
Most owners want to maximize the value of their business. Too many are spending their time as CEO’s. The Boardroom Metrics Chairman’s View System can help turn that around.