One of the first things I will ask a new or potential client relates to the primary financial goal they have for their company.
For a startup or a growth company the two options are typically:
- To create an “ATM Machine” that generates a certain amount of cash annually
- To create inherent value in the company in order to achieve a certain exit at a certain valuation
The answer to this question will guide many aspects of a business plan from capital investments to marketing strategies and more. The problem comes when a company’s leader want one thing but are only equipped or inclined towards the other. For the purposes of this writing we’ll describe these two leaders as the “CEO” and the “Owner/Operator” (OO to save some typing).
Experience has taught me to try and recognize who I’m working with as early as possible, as the guidance I (or any advisor) provides needs to be framed, otherwise we end up working at cross purposes. In general there are a few obvious clues delineating the CEO from the OO.
Top-Line or Bottom-Line Focus – ask either leader how the business is doing financially:
- The CEO will typically cite revenue level and growth rate
- The OO will typically cite net profit or cash position
Cash – the view of cash, even the concept of money is vastly different.
- The CEO sees cash as another asset, a tool to sustain operations and maximize growth. They typically measure cash not in pure dollars, but as relative numbers of zeros and metrics…for example:
- How many months of operating cost will it sustain?
- How does it compare to other assets and/or liabilities?
- What surplus is available for investment in growth?
The OO sees cash as the purpose of the business. They measure cash in absolute dollars and seldom cite other financial metrics beyond net profit. A few other signs:
- $5,000 is viewed as “a lot of money”, regardless of the scale profitability or cash position of the business
- Always looking to cut expenses or save money
- Highly resistant to investments, particularly those that are intangible (marketing, organizational development, etc.)
Debt – the view of debt is typically as different between CEOs and OOs as it is with cash, although for the most part, it is easier to understand with debt.
- The CEO also sees debt as a tool to fund future growth and to maintain a healthy cash position, typically considering the following factors:
- What is the ratio of debt to assets/liquid assets?
- Is the debt serviceable from projected cash flows?
- Will the debt enable increased revenue?
- The OO sees debt as a major source of stress, which is understandable when personal guarantees are involved. A few other thought patterns:
- If I need to borrow money to do it I probably shouldn’t do it.
- Will I lose my house if something happens and I’m unable to repay this out of the business?
Organizational Structure & Development – the org chart and the nature of the talent pool and their development is perhaps one of the most telling signs who you are dealing with. For example:
- The CEO builds tiers of management and typically has 3-6 direct reports
- Everyone reports to the OO, even if they also report to someone else
- The CEO teaches people how to do things regardless of how long it takes
- The OO ultimately does everything himself because “nobody can do it better”
- The CEO identifies roles and fills them with the best person for the position
- The OO identifies people (often friends and relatives) and finds something for them to do
- The CEO identifies people with potential and ensures they are mentored and/or trained
- The OO see growing people as creating an opportunity for them to leave for “greener pastures”
None of this is to say that the CEO will serve a company better than an OO. It all depends on the ultimate goal for a company. A CEO may employ more aggressive strategies that can more quickly bring about greater levels of success or failure. An OO may, by treating every dollar as if it comes from or belongs in their own wallet, “step over dollars to get to dimes”, forgoing opportunity for the safety of “all that money in the bank”.
For those of us that work for or with CEOs AND OOs, this can serve as a guide or a caution. Either way I hope it helps you identify some of those you may partner with or serve in order to better align your expectations, strategies and tactics.