My friend Serge owns a local bistro. He’s a talented chef, creating delicious plates of food and he has a regular and loyal clientele, which has taken 3 years to build. His business provides him, his wife and two girls with a comfortable lifestyle, although he has to work long hours. He’s closed on Mondays and Tuesdays so he can take the girls to school, and collect them later, and so he can spend time with his wife and prepare the menu for the week ahead.
Serge owns a ‘lifestyle’ business, and its value to his family is in the bricks & mortar, the goodwill from his loyal customers and the freedom of being self-employed. His income comes from the profits he makes. If he sold it he’d basically get the value of the building, on which he has a mortgage. The goodwill would evaporate, because the business has little intrinsic value. It’s him and his food that his customers are coming to experience.
The new owner, who runs it as a kebab shop, would generate her own goodwill from a different clientele.
Serge could grow his business by opening another bistro in the next town, and then another and then another – with each bistro offering the same delicious menu. He’d need to find some capital to convert premises in each location, and he’d need a chef and waiting staff in each bistro to service customers. He’d pay them a salary. He’d certainly spend more of his time recruiting and monitoring performance, than cooking. But now he’s got a business that is growing. That business does have intrinsic value because he has a formula that transitions well from one bistro to the next, and he has the staff to do the work. He could sell the whole business to someone as a going-concern and they could retain the loyal customers. They could even keep his name above the door, as if he was still there.
I’ve seen many entrepreneurs who start out thinking they want to grow a big business. They start as a one-man band with a particular skill and they grow as fast as money and time will allow. Some of those same entrepreneurs reach a point where the very skills they used to get the business started have been lost as they've spent more time on people, money, strategy, marketing, you name it, rather than on their core competence and love. What seemed an attractive proposition to become the next big growth story is, in fact, not what they really wanted. They prefer doing the cooking, and chatting with their diners.
When you’re starting your business it’s helpful to ask two questions:
Do I want to grow this so big that I spend less time doing my thing and more time managing others doing my thing?
Am I happy that one day I will sell my business and it will operate without me?
If the answer is No, you might consider a lifestyle business, which will still deliver the thrills of being your own boss but will have very different investment, growth and management requirements.
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