by Bill McBean
Level 1: Ownership and Opportunity
Leadership is, of course, usually thought of as one individual providing guidance and/or direction to a group of other individuals. At Level 1, though, because there is no business yet, and there are no employees, there are no individuals other than you. That does not mean, however, that leadership doesn’t play an important role at this level. In fact, it plays a critical role, because if you do not exercise leadership, there will never be a business. It’s leadership, in the form of what I refer to as ownership and opportunity, that ultimately leads to the creation of a business.
As the name of this level suggests, it is somewhat different than the other four in the business life cycle because it essentially consists of two parts. The first of these, ownership, is the part during which you must decide whether being an owner is right for you. This also applies to current owners who are considering expanding their businesses or buying new companies. The second, opportunity, takes place only if and when you decide that ownership is right for you and is when you determine exactly where your best opportunity lies and how you can best exploit it. Both parts, however, rely on the leadership skill of analysis; that is, the ability to analyze yourself as well as a variety of opportunities, and then choose the one that’s best for you. Unfortunately, although these analyses are an important first step, many owners don’t take the time to do them because they underestimate the advantages of conducting them.
The Benefits of Leadership at Level 1
Being a leader enables you to determine whether ownership is really for you.
Being a leader helps you develop a vision of “what could be,” that is, what success will look like.
Being a leader provides you with fact-based information on the market and on your own needs.
Being a leader requires you to collect and analyze information, which contributes to your being more confident in your ability to lead, manage, and grow a business.
Being a leader keeps you from underestimating the challenges you must face in starting or expanding a business.
Being a leader enables you to understand more clearly the kinds of opportunities that would be most beneficial for you.
Being a leader provides you with an understanding of the key personal characteristics you need, such as competitiveness, discipline, and commitment.
Leadership keeps you focused on what success means.
Nothing worthwhile happens without leadership. That’s a bold statement, but one that’s easy to defend, particularly in regard to Level 1. Without leadership there is no vision or success destination. Without leadership there is no assessment of your current reality, such as what obstacles or opportunities may lie ahead in the marketplace, how much working capital you will need to get started, and how you will hire and train employees, among many others. And without leadership there is no one pointing the company in the right direction. Leadership means action, and action means results. And for the business owner, leadership has to begin at Level 1 because if you get this level wrong, chances are that very little will work out the way you’d like it to.
There are three key leadership qualities that are particularly necessary at Level 1: (1) the ability to analyze yourself and to be realistic about your strengths and weaknesses, (2) the experience necessary to intelligently evaluate an opportunity, and (3) the strength to remove assumptions and emotions from the decision-making process and rely entirely on facts. Level 1 is not, however, the only place where these leadership qualities are needed. In fact, they are important qualities that an owner will use throughout his or her ownership career, and owners have to demonstrate these qualities beginning at the Ownership and Opportunity level of a company’s life cycle.
Achieving the Objective or Goal at Level 1
Since this level of the business life cycle has two parts, it requires you to meet two different objectives or goals. The first, as I mentioned earlier, is determining whether ownership is right for you. In order to accomplish this, it is necessary for you to answer three key questions:
1. Do I have the talent and skills to be a great owner and leader?
2. Am I experienced enough to evaluate, or create, an opportunity?
3. Do I have the leadership courage to bet on myself?
These are important questions, and answering them honestly takes a prospective owner—or, for that matter, an experienced one—a lot of soul searching. It requires a kind of self-analysis that you may have never conducted before, but it is a critical part of the process. In fact, if you don’t answer these questions honestly, and decide mistakenly that ownership is what you want, regardless of how promising an opportunity may appear, you will lack the passion needed to drive a business toward success, meaning, at best, the business and you will struggle. However, if after careful self-analysis you correctly decide ownership is for you, this self-analysis will help you visualize the kind of opportunity that would be best for you.
Once the ownership issue is decided, the goal is to decide what opportunities may be available to you and which you may have to create. You should bear in mind, though, that opportunity seldom falls in your lap. In most cases you have to create it. This is an important point, and one that new owners as well as owners looking to expand their businesses must take into account. For everyone who chooses ownership as a career, selecting the right opportunity is one of the most challenging aspects of the process, primarily because there are some opportunities that are questionable at best, and some that are certain to fail. The challenge is separating the good from the bad and the legitimate from the phony. This is why the focus on leadership and analysis at this level is so important—you want to get this right because there is little room for error.
Although it is important to review Level 1 for all the Facts of Business Life before you make an ownership or opportunity decision, as far as leadership is concerned there are essentially two questions you must ask yourself: (1) does the product or service I am considering have a long life span or life cycle, and(2) can a business selling this product or service make continuously sufficient profits? That is, is the reward worth the risk? There will be other questions that have to be answered before you make a final decision, but if you can’t answer “yes” to both of these in regard to any particular opportunity; there is no point in pursuing it.
“Sufficient profits” is an important phrase, and one that is open to interpretation. Whether profits are considered to be sufficient is usually based on how much is needed to pay off the initial debt and to keep the business running for an extended period of time. But when you are answering this question, it’s also important to take your personal concerns into account. If all you want is a business that will enable you to pay your bills and go out to dinner once a month, it would probably be relatively easy to find one. But you probably want more than that out of your own company, including the fun of owning and operating a continually successful business, and the ability to enjoy the freedoms that a significantly profitable business can provide. And if that’s what you’re looking for in becoming an owner, it is essential that you do the kind of thoughtful research and analysis at this level that will enable you to achieve it.
Finding the Right Opportunity
I knew even before I started a business that ownership was what I wanted—all I needed was the opportunity and some experience. My reality, though, was that I didn’t have very much money. Recognizing, once I had gotten enough experience, that I would have to create an opportunity myself, I approached a number of business owners and offered to make a small investment in their companies, run the companies for them, and buy them out over time. To my surprise, several of the owners I approached offered me another option: to open a new business, or buy an existing one outside of their market area under a partnership arrangement.
This wasn’t my ideal, but I recognized that since I had such limited funds, this option might be my best chance at ownership, and that eventually I might be able to get enough “meat on my b
ones,” that is, enough capital, to either buy my partner out or enable my partner and me to purchase a larger business with even more potential. I investigated each offer and studied each market, and continued to gain industry experience. As I was preparing to make my decision, seemingly out of the blue another possibility opened up. One of the owners I was interested in partnering with called an equity lender on my behalf and suggested they approach me to partner, operate, and eventually take full ownership of a business they would buy or open. I knew from the self-analysis I’d done that this was exactly what I was looking for.
What I’d done was create an opportunity for myself by going out and talking to owners, telling them what I was looking for, and asking if they could help or guide me. As a result, I created several options for myself, and eventually got lucky with one I hadn’t even considered. Sometimes this is how it works, but the point is that most ownership opportunities have to be created because if they were obvious, owners in the market would jump on them even before you knew they were there.
Building and Maintaining a Team at Level 1
Since at Level 1 your business is still in the preparation stage and doesn’t actually exist yet, you obviously won’t have a staff to work with. But that doesn’t mean you don’t have to put together a good team of mentors and advisers. You will need a group to help you determine whether you want to become an owner and, if so, which opportunity you should pursue. Since, again, there are two aspects of Level 1, the team you put together to help you achieve the first objective may not be the same as the one you build to attain the second.
Among the people who can help you make the ownership decision—or an expansion decision—are current business owners in your market or owners of similar businesses in different markets, as well as bankers and accountants who know the specifics of your industry. Once you’ve decided you do want to be an owner—or to expand your business—you begin analyzing the opportunities available to you. You can gather information from local business associations; owners outside your market area; people who are experienced in buying and selling businesses; owners who have already been involved in expanding businesses; suppliers within your industry, who know the cost of products and sales histories; and members of state, provincial, or national industry associations.
Regardless of which objective you are trying to attain, in selecting the people you ask to provide assistance, you should be looking for those who have certain characteristics, including experience in doing what you want to do, the ability to assess markets, knowledge of your specific industry, a history of success in their fields, an understanding of the important role owners play in a business’s success, and a willingness to help you when your business becomes “live.”
Developing the Individual at Level 1
At this level, the only employee you are likely to have is yourself. However, developing individuals starts with developing yourself. And if ownership is your goal, there are a number of abilities and/or skills that you should master in order to get your company up and running, and to keep it going in the future. Among these are:
Understanding what being a leader entails.
Becoming a great communicator, in both speaking and listening.
Understanding your own core values and never compromising on them.
Being able to clearly state, and stand by, your vision for the company as well as its operating goals and ethics.
Understanding that setting a good example is the most valuable gift a leader/owner can give his or her company.
Recognizing that at some point in the future you will have to switch from being a student of leadership to a teacher of leadership.
Level 2: Creating Your Company’s DNA
For the new owner, Level 2 is the point at which the business stops being purely theoretical and starts becoming real. Having made the decision to become an owner or expand your business, and chosen an opportunity, the owner begins to create the company’s DNA. That is, he or she begins developing how the business will operate on a day-to-day basis, guided by the sales and profits forecasts and other information gathered at Level 1. This is an extraordinarily important step in the life of a business, not only because the preparation the owner does will be a major factor in how the company responds to his or her leadership, but also because it will be reflected in how successful the business will be, both in the beginning and in the long term.
Like Level 1, Level 2 begins with a mental image rather than a physical action, that is, in the mind’s eye. As with anything an individual wants to accomplish, the dream comes before he or she actually goes out and does it. For example, people who decide they want to lose weight start by visualizing how much healthier they will be and how much better they will look and feel. Then they define their reality—that is, they recognize that they are, say, 30 pounds overweight, and decide this will be their weight-loss goal. Next, they determine how long it will take to achieve this goal, set up intermediate objectives and goals, and develop exercise and eating programs to fit the timetable. It’s only then that they begin to take physical action.
Creating a company’s DNA is a lot like choosing to lose weight. Owners also start with a mental image—in this case, one of how they want their companies to operate on a day-to-day basis, how their employees and customers will be treated, how their employees will treat each other, their performance expectations, what the company’s objectives and goals will be, and who will be responsible for them. That is, they visualize what they want their companies to be, create the steps to get there, assign accountability, and determine oversight and controls. This is a key point for ownership success, because the result of leading in the mind’s eye—thinking through how they want their company and all its moving parts to work, separately and in unison—enables owners to create their own destiny.
Of course, unless you have a one-man or one-woman operation, you can’t operate a business entirely on your own. And that means you and your employees must operate as a team. There, however, is the rub. Most people believe teamwork and success go hand in hand, but that’s not necessarily correct. In fact, a lot of teamwork isn’t productive at all. Teamwork is productive only when there is a strong leader who establishes clear goals, orchestrates behavior, demands performance with accountability, and can put a little fear into his or her employees so they will consistently do what they need to do. This, ultimately, is how to establish a successful company—a business that operates as a team and is led by an owner/leader who isn’t afraid to make the tough decisions, and who knows the goal is not popularity but winning the market war and being a long-term success.
It is important to note, however, that while creating a company’s DNA is an essential part of getting a company up and running, there are also times when the owner of an existing company might find it necessary to come back to this level. This happens when he or she feels it is necessary to change the company’s operating systems for any one of several reasons. It may be because the existing systems are not operating as they should, or because the owner is planning to grow the company, and recognizes that its current systems have to change to accommodate that growth. It may also be because there have been changes in the market that must be addressed, or because the owner wants to lead a change in the market. In other words, while DNA creation is something that must be done early on in a company’s life, it’s also something that may occur many times over the course of the business’s existence.
The Benefits of Leadership at Level 2
Being a leader enables you to determine the company’s DNA, that is, how things get done.
Being a leader helps you define why things are done this way.
Being a leader forces you to determine the company’s goals and objectives and when and how they are to be met.
Being a leader enables you to make sure the company’s rules are applied equally to everyone regardless of title or position.
Being a leader helps you make individuals accountable for their actions
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Being a leader creates and promotes teamwork.
Being a leader enables you to easily see when something is going wrong and eliminate unpleasant surprises.
Being a leader helps you define what is considered acceptable and unacceptable behavior toward customers and other employees.
Being a leader helps you determine the types of employees you should hire and, as a result, reduces employee turnover.
Being a leader enables you to demand that scorekeeping and personal responsibility be part of the company’s culture, and puts a little fear into employees who are not doing their jobs appropriately.
Achieving the Objective or Goal at Level 2
The main leadership priority at Level 2 is creating the business’s DNA by defining how all the moving parts of the company will work, both independently and together. DNA also defines what success will look like, the ethics under which the company will operate, and what is expected from employees in terms of their performance, attitude, and professionalism in dealing with each other and with customers. Creating a business’s DNA—as well as re-creating it—requires the owner to exhibit certain leadership skills, that is, brains, resolve, and tenacity, if everything is going to be done the way it should be.