Storytelling – How Does the Story of Your Business Read?
Every founder that has built a viable business has created their own entrepreneurial story. It is the story that provides credibility to customers, to team members and to your market overall. One of the things frequently talked about in our firm is the critical question, “does the entrepreneurial story match the financial one?”. Many times, the answer is no. Too often, the narrative is far more impressive than the financial story, or there is just a very material disconnect. Have you really scrutinized that within your own business? Here is why it matters and what you should do about it.
So many business owners have incredible passion, vision and a unique ability to make something out of nothing, to literally advance things on ingenuity, drive, skill and dynamism. This however can create a false sense of security. I recall a conversation years ago with the owner of a 5-year old business that seemed to be a rocket ship, with incredible year over year growth, increasing profitability and new customers buying left and right. The founder had an arsenal of achievements. That same business nearly went bankrupt running out of cash a year later due to excessive marketing spending, stretched receivables and a bank that was not willing to stretch further. Worst of all, the financial story was there to read clear as day, the sad demise was foreseeable had the CEO looked.You may say that is an extreme example. So why is this so critical? There are two primary factors 1) external scrutiny and 2) sustainability of the business.
External Scrutiny
At some point, as a business evolves and/or grows, outside potential or future stakeholders will scrutinize the business.
Business Sales – The obvious scenario for this is the sale of a business, where a buyer will do extensive due diligence to verify that the numbers, and the numbers behind the numbers support the “seller’s pitch”. In this case it is about lending credibility to future potential and having the financial foundation to do so.Strategic Partnerships and Joint Ventures – In the same vein, strategic partnerships will require the same credibility to be gained. Not long ago, I had a conversation with a CEO who was presented with an amazing opportunity to create a joint venture with a vastly larger company. He sold the other party on his business initially, but when the potential partner studied his numbers, they saw issues with margins, spending controls, and balance sheet strength. Unfortunately, the deal fizzled.
Lending – Any business that needs financing from a lender will also have to match up its stories. Lenders exist to provide capital and manage risk. If they don’t understand where the business is and where it is going with cold, hard facts, terms will be affected, if not the deal altogether. will have far more success if the stories match.
Other Parties – Depending on the industry and size of business, key customers, key vendors, insurance companies, just to name a few, may all need to delve deeper into your business to assess risk as well. Will they like what they read?
Internal Sustainability
Equally important is the internal benefits of matching stories. Do the numbers in your business really support the narrative that you are convinced of? Why not? Does your narrative or knowledge of the underlying business tell you that you should you be generating more cash than you are? Does it tell you that you are running too lean to support that next level of growth? Does it tell you that despite all the promise on paper, that division/territory/product just isn’t generating enough of an ROI? Or sometimes trickiest of all, does it tell you that a manager or leader’s real performance is not up to par?
Most business owners I come across will tell you their business is successful. It is so easy to get caught up in the excitement of growth and new horizons. Fewer can easily defend that statement with financial facts. Your son or daughter could tell you they are doing well in school. Maybe their report card has some really high marks and a couple low ones. Wouldn’t you ask more about each subject? What is working in some and not in others? Why the grades are where they are? Your business should be the best non-fiction book you and your audience can read, based on facts. Does your business story need a bit of a re-write? Ask questions and start today
