Brendan Anderson, co-founder and managing partner, presented this webinar with Axial on the 5 strategies and pillars for business growth. I'm very excited to be here today to talk about the 5 Pillars of Business Growth. I wish I could say that I'm extremely smart and that I've been implementing these pillars since I started on my own in 1995 but that sure wouldn't be true. The fact is I've always wanted to be an entrepreneur and I will do my best to show you that the 5 Pillars of Business Growth were learned from many different mistakes on companies with which I was actively involved. Full disclosure, when I originally heard people talk about implementing some of these actions, I was the guy in the back of the room rolling my eyes as part of the entrepreneurial groups at some of the learning seminars and so forth. Well today, I talk about them because I know they work and if you take the time to implement them, it will, in fact, transform your business. The Background I figured the best way to talk about the 5 Pillars is really to go through my background and how I learned them. I'll tell you, it really was the hard way. I started by career in banking in 1998 and was struck by how often business owners were not able to provide the necessary information that I needed to process their requests. More importantly, I often felt that the owners didn't fully understand the request or impact that the debt would cause on their business. Most interesting, though, is that I did have a group of customers, Polish tradesmen, that really enjoyed sitting around, drinking warm vodka, and planning out the new businesses. It was really in watching this group that the 5 Pillars of Business Growth were introduced to me. Of course, they didn't have a name for it. It was just something that they enjoyed doing. So in 1995, I ventured out to get into business. The good news is that my wife was working and we had no kids. That was, of course, until 1997 when I had twins and I guess that was my "yikes" moment when I realized that, "O my god, I gotta turn this into something that can actually cash flow." I had been working on several companies that knew I needed to get something going or get back into banking. The first thing was a real estate deal in 1997 with the help of some of my Polish banking customers. I purchased a bankrupt industrial park in Illinois. The park had 12 banks. It had leans and bonds that had been issued to finance the infrastructure. This was my first experience with a detailed plan. When I tell you a detailed plan, I think the biggest value that my Polish advisers, the guys who helped me finance the project, was really forcing me to create and live by a plan. It sounds so simple and easy but it really was my first exposure to it. Really this project, this weird industrial project, about 110 acres and we ended up with ownership of most of it, was the entity, the event that kept me independent. It was pretty quickly after that, in 1998, I had been working on a company for quite a period of time, myself and a partner purchased Stam Inc. Stam is a manufacturer of air intake exhaust for large diesel engines and other large diameter uses, so air conditioners, anything that moves a lot of air. Stam was originally based in 28,000 square feet. It had grown to the point where we were storing all of our inventory that wouldn't rust outside. It was a mess. It was ours and it was very un-glamorous , but it was the base of the business. In 2007, we moved to a 70,000 square foot building in Mentor. I point out that Stam is a neat niche business. It proves that the 5 Pillars in any business can form into a life-changing event. While still running Heartland and Stam, we started an Illinois state charter bank. I love to show the roots of these companies, how small they were. They really were about the passion for possibilities and what they could become. The bank was originally started in a double-wide trailer. It was ultimately moved to the lot next door when the building was finished. My lessons learned here were really the incredible pressure the banks are under not to take entrepreneurial risk. Having said that, the bank executed a plan and grew from $5.2 million of equity capital to over $125 million in assets in six years. Evolution Capital Partners is Formed It was at this time that I really realized there was a better way. I felt that I had learned a great deal and strongly believed that we could create a great process to grow small businesses. So in 2006, I partnered with Jeff Kadlic to form Evolution Capital Partners to grow small businesses. I think it's important for entrepreneurs to step back and realize that it really is about people and really focusing on what sort of people you're going to need to be successful. I was a an ADD entrepreneur and Jeff had come out of the professional fund world and really was that person that forced us to put in the infrastructure that will hopefully make Evolution successful for a long time to come. In the first fund, Evolution backed five companies . There's so many lessons learned here, it would take five or six webinars. But quickly, the first company was Interpac which was a manufacturer of corrugated shipment partitions across the country. It ultimately grew to over $40 million in revenue and over 400 employees. Learning Horizons, which is a designer and marketer of children's workbooks, this is the deal that was the worst in the portfolio and so probably the most lessons learned. Turf Ventures is a distributor of golf course chemicals in Illinois. It's an Inc 5000 business a couple times over and has grown from $7 million in revenue to about $19 million. The Accurate Group, which is a real estate transactional service business, is an Inc 5000 business at least three or four times and has gone from $6 million to little over $50 million and they are about to do $70 million this year. American Eagle Mortgage was also an Inc 5000 business and is a first time home lender. They grew from $5 million to over $20 million. We have invested in three companies with the Fund 2. Lewellyn Technologies is a leader in safety with electric arc and combustible dust and other safety services. Budco Financial Services is a leader in the car warranty payment processing and finance industry. Axiom Sales Solutions is a leader in sales force training. We feel like these companies have great growth plans and we would be happy to address questions about this when we get to Lessons Learned. The Emotional Roller Coaster In reflecting back and trying to prepare for the pillars, I wanted to share with you my emotional timeline of being an entrepreneur, but I also feel it’s a pretty fair assessment of many of the entrepreneurs that I’ve talked to. I started out when I was 28 years old buying these little businesses and I think there’s a period of time when most entrepreneurs think that they can conquer the world, and so they’re not necessarily out there looking for help. It just so happened that when I was 35 years old I joined the Entrepreneurs Organization and started realizing that I needed to find some help. A lot of that is because you’re on a weird treadmill, you’ve taken on all these fundamental business functions and have very little time to look up. When you’re on this treadmill, entrepreneurs have this decision to make, whether the treadmill’s fine, they’re making good money, they’re providing for their families and their employees, it really is about whether you’re happy on the treadmill or you want to transition into something else. It just so happened that when I was 45, two/three years ago, we decided to scale Evolution and really start focusing on these pillars. Jeff and I, we’re thrilled that we made that decision. It just so happened that when we were graphing the life of a small business, what we consider second stage companies is that they’re profitable established businesses, these companies are typically transforming from 20 employees towards 100 employees, generally have revenue between $4 and $10 million, profits are free cash flow of at least $500,000 and they’re really faced with this fixed cost investment. So the company is still very dependent on the founder/COO of the business. So it just so happened that it kind of struck me that the expense curve of a small business perfectly reflects the phenomenon that I experienced as an entrepreneur. As you can see, many businesses are profitable because of the fact that the entrepreneur has taken on these 8 core functions. But for the business to move forward, the entrepreneur needs to invest in people and processes. These expenses often make the company much less profitable, and quite frankly, most entrepreneurs, around 95%, just decide they don’t want to take the risk and stay in this state. I’ve taken the liberty of kind of overlaying the two graphs and what we hope to be able to show here is that it’s fine to be able to stay in that spot where you are the center of the business because it’s a good living, but there is also an alternative which is what we call the 5 Pillars or Evolutionary Capital. The 5 Pillars Fundamentally, the first pillar is great financial statements. I can’t stress enough how important this is, and how few people have great financials. You should have a daily dashboard that reports your daily happenings and those dashboards should roll up to your monthly financial statements so there shouldn’t be any surprises. And believe it or not it’s not that hard to get. It just really takes commitment. You got to know your costs and what we put here by customers and products and so forth, but it really is continuing to dig into those things. You can continuously develop your key metrics and KPI’s and never stop looking for better numbers and numbers that tells you what’s going on in your business, see your project and what next month and quarter is going to look like. Something that gets hard for entrepreneurs to share is their information. You got to review at least quarterly, how things are looking and by that I mean the metrics and financials. We can talk a little more later and get into the questions about where you can go to get help here because a lot of time we find the financial statements are very foreign to entrepreneurs who do not put much value on them and there are people out there who are good at this and we would encourage you to reach out to them. So now you’ve got great financial statements and creating a plan and again, I cannot tell you how often we talk to entrepreneurs and they know they want to grow, they know they want to make money, they know they want to add employees, to make an impact on their community and to the lives of the employees in their businesses, but they really don’t have a plan. So what we argue is creating a plan to go somewhere. It may be to profitability, it may be to be debt free, it may be to some mark, but really the goal is to get going towards the pressing thing that's never done. It’s just exciting. If you’re starting simple, it’s fine. What should next week look like, what should next month look like. Always dig to determine what will drive some of those decisions. When you work on a plan, they will determine your KPI’s. What drives revenue, what drives your balance sheet, how cash is working. It will drive these indicators, which obviously come up later when it comes to accountability. Almost every entrepreneur we talk to come up with a plan on their own and haven’t listened to their team or their advisors. I can’t stress enough how important it is to share your plan, question your plan, and ask for input. Again, a plan is a great road map but you have to revisit at least quarterly. If you decide initially that you want to be debt free and you embark on this plan, you will have to change course a couple of times, so revising it is just part of the gig. Then ultimately, once you have gotten into the habit of creating this plan to somewhere, you’ll feel the confidence. You got enough of the framework that you can create the bridge to where you want to be, what you want this company to look like or what you want personally and ultimately that plan to get where you want to be. For every person, that is different. Maybe you want to pass this business to one of the kids. You may want to sell the business for a big number. It really is thinking through that stuff and, unless you get started, you’ll never get there and very few people do it. The next one is probably the funnest one. If you have great financial statements and if you have a detailed plan, you will be able to attract the people that can help you get there. I can tell you, one of my favorite stories – a true story. When I was with some high schoolers in Brooklyn this summer, I was the only person who knew where we were going. I thought I knew how to get there, we were on the subway and I got down from the train and pulled up and I was confused whether to get on the one going north or south. One of the high schoolers trying to help out looked at a New Yorker and said “We’re trying to get to Brooklyn” and the woman said, “which way do you want to go?” My high school of course said she didn’t know and the New Yorker said “Well any train will get you there.” Business is no different. Not only do you need to know your plan, all your people need to know it. So it’s about being creative and resourceful in how to find these people and reaching out to others. It's hiring using core values – another whole subject that can take a whole webinar but I encourage you look into it - hiring based on what the company is all about. Find people that have been there before. It’s about finding people that you don’t have to recreate the wheel with and finding a partner. At the end of the day, you’re a small business and may not be able to afford the person you want to hire. I’m sure Jeff, my partner, can tell you some wonderful stories of leaving a paying job and joining Evolution, but it really is about getting the people that you need to get going and sharing the vision – what’s in it for them. An advisory board has also been very valuable to us and we also use re-joint venture, share costs. Ultimately it’s about, once you get great financials, a great plan, it’s about the people, getting the right people on board that you need to get there. The fourth pillar is transparency. And everybody is part of the process We put the words ‘listen’ and ‘share the data – do others find it useful?’ and the point is that by generating and sharing the data, people can actually react to it and make their jobs more efficient. Again, share vision, purpose, values. In the transparency world you start small and you grow from there as you start sharing little bits of information. You start explaining with that information. You answer the questions so that the people can fully understand how they can affect that piece of data. I can promise you is the results will be fantastic. I encourage everyone out there to read the book ‘The Great Game of Business’ by Jack Stack. This transparency piece is proven and always works when the entrepreneur is committed to doing it. For those familiar with this book, Jack Stack is a person who has taken this transparency issue to a whole new level. If you had invested a thousand dollars in Springfield Remanufacturing Corporation (SRC) in Springfield, Missouri in the mid 80’s, it would be worth over 4 million dollars today, and all they do is remanufacture diesel engines. That was their core business and it would take a tough business to grow that way but transparency is really their leading core value. Fundamentally, we believe that that piece can transform any area, business, industry, and geography into a business that is at least growing and transforming. The last piece, and again you got great financial statements, a great plan; you’ve been able to hire people that normally wouldn’t be attracted to a small business. You’re being transparent so everyone is seeing what’s going on in the business. This last piece is Accountability. It’s probably the hardest piece and, believe it or not, it’s probably the most difficult piece for entrepreneurs to really embrace because if you think about an entrepreneurial business, they’ve only been accountable to themselves so far and by implementing the 5 Pillars, the hardest piece for them to stomach is the fact that they now are accountable to other people also. So there’s lots of ways to attack this accountability piece. If you know the key drivers, the KPI’s, it enlightens everybody. Hold yourself accountable because if you don’t, all of this is wasted. Tie all of these accountability actions to your plan. Have somebody else keep the scorecard. It’s more important to have an independent person- it could be an office manager, it could be anybody in the organization that keeps the scorecard, and again this is something that you can share with everybody. It is absolutely imperative that everybody knows what’s going on in the business and the metrics which they and their peers are going to be helped towards. Resources I mentioned earlier about resources. There are lots of great resources. We get made fun of here at Evolution about the books that er read and the new concepts we throw around and new ways to phrase old concepts but there are wonderful process books, "Attraction" written by Gina Whitman, Rockerfeller Habits and their websites – results.com and Map Consulting. These people are really wonderful at laying out the process by which you start holding people accountable or transparent to and so forth. We’ve had good success with outsiders to help us with the core financial information gathering. If you’re looking to sell your business in the next 3-5 years, B2B CFO Service is a wonderful group. In Ohio here, Focus CFO and there’s a guy down in Alabama, Greg Crabtree who has a process called Seeing Beyond the Numbers and if you’re in a small business it is a wonderful process and his book is called ‘Simple Numbers Straight Talk’ by Craig Crabtree. Tatum CFO was started by a guy who is passionate about this evolutionary business side and he’s got a group that can also help with this stuff. What I can promise you is if you go out and try this, it really is a framework for transparency and accountability. It’s a freedom to break away from your business and the ability to look round the corners. Obviously our goal is to get the entrepreneur up out of the business, working on the business and we find that these 5 steps or 5 pillars are really the foundation for it. Keep working until you have that “AHA” moment, take action, and then start again - but you just really have to get started. At this stage of the game I probably boosted a little faster than I was planning on.
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