This week we’ve talked about evaluating the performance of our team and having difficult conversations when needed.
Now its time for the hardest evaluation question…
Who has difficult conversations with YOU?
Business owners wear a lot of hats!
First and foremost, you are the CEO! You set direction, manage performance, and guide the business toward profitability.
But you’re also the owner of the business, which is classically different from the CEO. It’s your money invested here so it is your job to evaluate the CEO and leadership team. Have they earned a good return on the money and talent invested with them?
Think of it this way…
If you owned stock or had another type of investment you’d evaluate your results from time to time. You’d ask, “Is this the best way I can use my money right now? Am I earning a good risk-adjusted return?” If so, great! Continue on! But if not, you sell that investment and put your money somewhere else.
This is also what you need to do for our businesses. you need to ask ourselves important questions about our investment. If your company was a stock that someone else pitched to you, would you buy it right now?
And when I say “you” here, I mean me too! This is exactly the process I go through when I evaluate my own business. I usually get another business owner to help me have perspective and then sit down with them and ask some hard questions.
How to (objectively) evaluate your business when you’re the Owner and CEO
To do a proper performance review evaluation, we need to look at two separate entities – the business and its management team.
Honestly answer the following questions about your business. Be critical and deliberate about your answers. This should take you some time!
In fact, I highly recommend you WRITE DOWN, with pen and paper, the answers to these questions. Don’t just do a mental check. Really put yourself through the work – you may be surprised at what you uncover!
First answer the questions about the business, then move on to the ones about the management team.
Business Performance Review Questions
- Is your business in a growing market niche with distinct advantages over the completion? What evidence do you have of that?
- Does it have sustainable relationships with clients/prospects, suppliers, collaborators, and talent? Who are they? Are they good sources or just the folks you have to deal with?
- Is it earning a solid return? What figures specifically? The last couple of years have seen good economies – you should be making good money in times like these (getting by is not good enough)!
- Is there some unique intellectual property that’s being developed? It doesn’t have to be amazing technology — but some proprietary research or insider knowledge that you are growing.
- What kind of capital will it need as it grows? Is there growth capital available? Is the current model one that can scale?
- Why is this the enterprise that’s attracting your capital? Why don’t you just cash out and invest in something else? 1
If you go through these questions and realize your business is not a smart investment for any reason – this is serious and it needs to be addressed asap. Certainly reply back to me and let me know if this is the case. We can chat about what’s going on.
For now, let’s assume you’ve gone through all of the business questions and feel your business is still an attractive use of capital. Excellent! Next, we need to evaluate the management team. Be as deliberate as you were with the business entity questions.
Leadership Team Performance Review Questions
- Is the CEO getting all they can out of this opportunity? If not, why not? What is stopping them?
- Is the company well-positioned vis-a-vie it’s competitors?
- Is the CEO growing the talent on the team? Do we have rising stars that can serve the company as it grows?
- Does the management team regularly set goals? Do they achieve or exceed those goals? If not, why not? What is stopping them?
- Does your CEO and leadership team have a point of view about where the market is going and what needs to be done to succeed in that market? What is that vision?
If things are still in a positive direction – congratulations! Keep doing what you’re doing! If not, do you need a different CEO for that investment? Do you need to invest in improving your CEO’s performance (e.g. look for coaching/consulting help, and/or make some tough decisions)?
Reply back and let me know what came of the exercise.
Final Thoughts on The Value of This Type of Evaluation
I realize that there’s more involved here for you. This exercise is hard, especially if you’re honest answers aren’t what you hoped they’d be.
Your business isn’t as easy to sell as a stock. It is also your job, so that complicates things.
Still, it’s worth asking, why would you continue to invest your hard work and effort into a business that’s a bad investment? 1 Why would you put your life’s savings in the hand of a management team that never hits their numbers?
This a tough situation and, believe me, you do NOT have to face it alone. There may be things to do to change the trajectory of your investment
Who could you sit down and have this conversation with? Do you see it as useful? Hit reply and let me know the outcome of YOUR performance evaluation …
1 A word here about sunk costs. When I ask business owners why they don’t just cash out, I frequently hear a long story about how much work has put into this, how much money they’ve spent, etc. While that is true and valuable, it’s not relevant to this conversation. What we want to know is if you should continue to invest. You may have spent money and time on something that’s just not producing an acceptable return anymore. The wise thing to do at that juncture is to stop investing further and evaluate why it’s not earning a good return! Just because you put time and money into something in the past, doesn’t mean you should keep putting money into it.