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Introducing The 5th Discipline

July 11, 2018

 

For the last few years I have been writing and talking about a 4 Disciplines approach to making a business outstanding. Those four disciplines are:

  • Clarity: the business and the people in it being really clear on what the business is about and where it is going;
  • Focus: again the business and the people in it being very focussed on what needs to be done for the future and avoiding distractions;
  • Discipline: everybody in the business knows who does what and how things get done. Having just enough standardisation to leave space for creativity;
  • Engagement: the leaders in the business creating a culture of employee engagement that lets the workforce do the first 3 disciplines.

These disciplines were developed by a leading US business improvement guru called Karen Martin. She has a very strong background in Lean and Continuous Improvement. Please check out her website.

There are a bunch of best practices that lie beneath these disciplines.  I have found that clients warm to the concepts and practical actions to make them happen.  Improving the operation of a business is an obvious truth, “Motherhood and Apple Pie” stuff. We all know that being more efficient will increase profitability, make us stand out from the crowd and give us that competitive advantage we crave for.

Yet, the Accountant in me was aching for an easy and clear link from the disciplines back to the financial accounts: P&L, balance sheet, cash flow and financial ratios.

I have found it….

Call it my 5th discipline!

Again I haven’t reinvented the wheel. The system already exists. It’s called the Value Builder System and is based on a best-selling book called Built to Sell by a guy called John Warrillow.

Having some similarities with The E-Myth, John’s book uses a narrative to tell the story of a business owner who works on improving the value of his business right up to the point of successfully selling it. John weaves into the narrative his views on the 8 main drivers of company value and includes loads of useful advice for readers to take away. Many of the components of those 8 drivers overlap with the 4 disciplines.

Bingo, I have a link between doing great improvement work and the ultimate aim of increasing the value of the business, be it monetary or other value!

valuebuilder

John has since developed an on-line assessment (which I will be sharing with you in the near future) that scores businesses against those 8 value drivers.  With well over 30,000 completed assessments, including the results of business sales and offers, plus input from the Mergers and Acquisition profession, the Value Builder Assessment has statistically proven that:

Businesses that score 80 or more will on average get 71% more for their business when they sell than the average business that scores 59.

Putting that in multiples of pre-tax profit, average scoring businesses get an average of  a 3.55 multiple, a business scoring 80 or more gets an average of a 6.1 multiple. To put some Pound signs to that…assume your pre-tax profit is around £250k, then the Value Builder premium is worth about £640k. So you could actually get another 2.5 time pre-tax profit when you sell.

How does that sound?

If those numbers excite you or get you interested, it doesn’t come without some Clarity, Focus, Discipline and Engagement. And, it doesn’t happen overnight. To get you started click the following link to get your complimentary copy of the key chapter in John’s book – How To Create A Business That Can Thrive Without You.