BACKUP Don’t Bank On It

Welcome to the age of the disposable company. Just about everything is throwaway these days but new line in banking services has me worried.

Banks are exhorting their business-owner clients, particularly the ones that don’t make handsome profits, to cash-up and check out. The Bank of New Zealand, for instance, is encouraging its SME clients to join $9000 Auckland University Icehouse incubator programme called “moving on”. The Icehouse tutors, some experienced cashed-up executives themselves, argue that entrepreneurs and business owners should plan their business life from beginning to end. “Start planning your exit strategy the day you launch your new enterprise,” they say.

The message the bank sends to its clients by backing this programme has been rather more negatively construed by some of its clients. “They are giving me the message,” some complained.

And Westpac is currently researching the marketplace to launch new “sell-up your business” advisory service, presumably because they see it as either an attractive new income stream or, service to satisfy latent customer demand.

Most business builders reach quitting point, but should they be anticipating it right from the start? Shouldn’t companies be built to last? Few of them do of course, but it seems to me that if you don’t see structure as permanent it is tempting to take shortcuts with the construction materials. Approaching the establishment of, and then subsequently managing, business with an ever watchful eye to “flicking it on” is hardly in sync with best practice or world-class management processes.

What is the purpose of business? Management philosophers like Charles Handy have already asked whether business is simply process for making money. It is unquestionably way of making money, but is that its only purpose? For many individuals, their enterprise is also way of doing something useful for more people than just themselves. They don’t see trading in businesses as their core competency, so to speak. These people are often the creators of very important commercial and social enterprises. The notion that company is purely an economic unit is losing ground.

Handy argues that businesses are communities of people and simply maximising returns to shareholders by disposing of them at will to satisfy shareholder needs might not be so acceptable in tomorrow’s world – but that’s little way off. The point he makes is that CEOs should be encouraged to build “great communities” not disposable ones.

When enterprising individuals decide to quit, professional advice should be available to help them on their way, time for the banks to lend hand perhaps. But should they be hustled into the process? It seems to me that “state of mind” is important to building successful enterprise. And while successful traders can move in and out of companies creating and extracting shareholder wealth as they go, for most SME owners sense of permanence, commitment and pride is an important motivating ingredient.

The world’s most successful business investors, Warren Buffet and Charlie Munger, the septuagenerian leaders of US investment giant, Berkshire Hathaway, have no personal exit strategies. Buffet thinks exit strategies are “bad for business”. Owners should never look to sell, he says, only to grow and succeed for the benefit of the shareholders and the employees that depend on them. There isn’t any reason why most business owners shouldn’t think and act like this. To do otherwise is compromise that sends dangerous signals to employees and undermines leadership. And if attracting and keeping people is increasingly important to the success of an enterprise, they won’t be thrilled by the prospect of being treated as disposable.

Money is never top of the list of factors that motivate people to work and enjoy it. The same is probably true of the great majority of individuals who set themselves up in business. Except for small driven minority, there is another dimension to work than the cash reward.

Thinking of business in disposable terms is not good for the economy, or for the individuals who will see opportunities and practices quite differently if the only option is to plan for “moving on”.

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