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“If you don’t know where you’re going, any road will take you there.”

From Alice’s conversation with Cheshire Cat from Lewis Carroll’s Alice in Wonderland

For business owners intently focused on growing their private companies, it may seem like a waste of time for them to answer how they define success. They may even view it as an unhelpful distraction. But, from my own experience working with business owners, they will benefit from taking the time to respond to this question. In fact, owners who decline to consider their answer to the success question may be in for an unwelcome surprise.

Responding to the success question with off-the-cuff answers like “I just want to grow the business,” “I want to cash out for a large payday some time in the future,” or “I want to hit $50 million (or more) in revenues” fall short. If business owners want to experience satisfaction, a sense of accomplishment, and contentment, let alone happiness, answering the “what defines success” question is a great place to start. This post breaks down the success question into three elements — purpose, relationships and community — that build toward the ultimate answer.  

What Is My Purpose?

The two most important days in your life are the day you are born and the day you find out why.

— Mark Twain

Let’s start with the elephant in the room – money. When we ask how to define success, many (perhaps most?) business owners equate success in business with money. In other words, money equals happiness, and therefore, making more money equals more happiness. There is research that bears this out… but only to a certain extent and also with an important warning. A recent article in Forbes magazine by John Jennings described this as the “money and happiness” paradox. In his article, Jennings discussed an important psychological study from 2003, which determined that although having more money is associated with happiness, seeking more money dampens life satisfaction and impairs happiness:  

[T]he study found that “the greater your goal for financial success, the lower your satisfaction with family life, regardless of household income.” This paradox teaches that money boosts happiness when it is a result, not when it is a primary goal, or as Ed Diener noted in his book Happiness, “It is generally good for your happiness to have money, but toxic to your happiness to want money too much.”

Thus, the potential surprise for business owners is that pursuing success at their company with the primary goal of making a great deal of money is not just unlikely to lead to happiness, it may actually prevent it. That is the paradox noted in the Forbes article. If achieving satisfaction and some level of contentment matters, then making money needs to be the byproduct rather than the primary goal. But if making money is not the main objective, what purpose is more important?

To answer that question, renowned business author Simon Sinek would say, “Start with the why.” That is the title of his best-selling book and his TED Talk that has more than 55 million views. Sinek’s website describes the book this way: 

Sinek presents a simple yet powerful idea: the most successful and influential companies and leaders start with the “why” of their business, rather than focusing solely on the “what” and “how.” By starting with purpose and beliefs, companies can create a clear and compelling message that resonates with their customers and employees.

This is the first question for the business owner to answer: Why am I doing this? Having a clear purpose means that the owner will not shy away from challenges arising in the business. The owner’s purpose is the lodestar that keeps both the owner and the company on track and able to surmount these challenges. A business owner who knows the why has purpose that drives the business, and fulfilling the owner’s purpose will help define success.

What Is the Quality of My Relationships?

This question about relationships may be less obvious than deciding on one’s purpose, but it is no less important. We are human beings. We exist in relation to other humans, which is especially true in the business world. People do not succeed or experience success in business in a vacuum. There are two types of relationships for the business owner to consider: those within the company and those that the owner has with family and friends outside the business. Both of these are important and help the business owner to define and experience success.

Inside the business, successful business owners stress the importance of building solid, meaningful relationships. Sam Kaufman, an entrepreneur and a member of the Forbes business council, expressed this powerfully in a recent editorial:

Relationships must be prioritized over results. I know, I know – this is surprising coming from a businessman and entrepreneur, but hear me out. I am not saying results do not matter. Results do matter, and they are crucial to your business’s success and growth.

That being said, do you know what else is crucial to your business’s long-term success and growth? Do you want to know how to drive results? Do you understand why some companies build great teams and others can’t keep a good employee? The answer is relationships.

. . .

Building relationships is possibly the most important skill an entrepreneur can acquire if they’re looking to grow a real company. You need to have the ability to acquire, maintain, nurture and grow relationships. Soft skills are so important and so undervalued. Soft skills like empathy, compassion, accountability and honesty are what drive a team from OK to good and on to great.

As Kaufman notes, developing internal relationships at a company is what grows a team from good to great in achieving results. In my own view, external relationships that exist outside the company are no less important to the business owner. We ask if a falling tree makes a noise in the forest if there is no one there to hear it. I would ask, is success possible for the business owner if he or she has no one with whom to share that success?  

Business owners should ask themselves – for whom am I seeking to achieve success? Most owners are self-motivated and want personal satisfaction. But when the owner reaches milestones, receives accolades and wins industry recognition, with whom will the owner share these achievements? From birth, we have a basic human need to be seen and heard. We all want supporters, if not avid cheerleaders. For that support to remain present requires business owners (and everyone else) to nurture relationships outside the business. Thus, in answering the question about purpose, business owners should take stock of whether they have maintained meaningful connections with family and friends who are not working with them in the business.  

What Is My Impact on My Community?

The third component touches on purpose but goes beyond it to ask the business owner whether fulfilling his or her purpose is positively impacting the company’s community. Does that matter? If the company is profitable, providing good products or services to its customers, and paying good wages to its employees, does a positive community impact have any role to play in defining purpose? I would answer emphatically that yes, community impact matters to one’s sense of success, and there does not have to be a tradeoff between achieving profits while also generating a positive community impact.

This post will not take sides in the debate regarding the ESG movement, which seeks to promote positive business policies for the environment, society and company governance. The focus here is on whether the business owner believes the company is having a positive impact in the community. A simple way to look at this is to ask whether the business owner is proud of the company and the ways that it conducts its business.

The connection between profitability and community impact is not a theoretical one. Dave Young, a senior partner with Boston Consulting Group, leads his firm’s social impact and sustainability work globally. In an interview in 2021, he said:

“Younger employees consistently rank corporate responsibility at or near the top of their criteria for working at a particular company. This means community actions are key, but not just from a talent perspective.”

When asked why companies should compare about community impact, he stated:

“It’s the connection between community and long-run company performance. That shows up in everything from what kind of brand do I build over time, to the knock-on effects of that brand, to the way my employees feel about the company, with respect to how I am engaging in community.”

Dave Young, a senior partner with Boston Consulting Group

The point is not to suggest that business owners have to become “corporate do-gooders” to find success. But, if owners choose to disregard the impacts their companies are having on the communities in which they do business, they may find success to be an elusive goal.  

Conclusion

Defining success is an individual process for business owners, who will reach different conclusions, but the process is a vital exercise to undertake. Owners who eschew the need to consider their path to success may find themselves lost or overwhelmed on an uncharted road. By undertaking the deliberative process required to define success, business owners will develop a clear sense of purpose, appreciate the important relationships in their lives and fully grasp how their company impacts the community in which it operates.

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After devoting long hours and years of hard work in building their companies, majority owners of private businesses may reach a point where they consider whether it is time for them to sell. This large question – Is now the time for you to sell your business? – will depend on the answers to some important, underlying questions, which are reviewed in this post. The answers to these questions may confirm that the owner is ready to move forward with a sale, but even if that is the case, the answers to these preliminary questions may reveal that there is still quite a bit of work that still remains to be done before the sale process should begin. 

Why do you want to sell?

The first question majority owners need to answer is this: Why are you selling the business? All potential buyers will want to know the owner’s answer to this question, but even more importantly, owners need to understand their own motivations about why the time is now right for the sale to take place. In addition, and just as importantly, owners also need to be able to answer this question: What comes next? Is there a clear plan for the owner — both mentally and emotionally — as to what the years are going to look like after the closing? Without a next stage plan in place, owners may find themselves lacking in purpose, which is not healthy or productive for them, or for their family members.  

Owners may have many different motivations for the sale and simply need to be able to sincerely express the key driver for their sale to the potential buyer. Most buyers will want the owner to continue to help for some period of time with the transition process after the sale takes place. The owner will therefore need to be on board with the fact that the new buyer will likely want to make changes over time in operations, personnel and/or direction of the business. While the buyer is unlikely to suddenly embark on wholesale changes, the buyer will tend to see new opportunities and have new approaches in the way that the business is conducted. 

This new path is the buyer’s prerogative to take, and a former owner who is resistant to any and all changes will not fare well or be very helpful to the buyer in the transition process. This may be a major problem if there is any further compensation owed to the former owner based on the company’s performance after the sale. In fact, a majority owner may diminish the total return received from the sale of the business if the owner will not support the changes the buyer wants to make to the business after the sale. This adverse result may be due to a shortened consulting agreement if the owner is let go sooner than expected or receives a smaller share of future returns from the company if the owner has any type of carried interest.  This does not mean the owner should decline to provide constructive input to the buyer, but the owner needs to accept the fact that this changing of the guard at the company will likely involve some meaningful changes to the way that things have been done in the past.

What is your company worth?

Before considering a sale, the majority owner should have some idea of the potential sale price the company would realize in the marketplace. Fortunately, determining the likely range of the potential purchase price does not require the business to be listed for sale. Instead, the owner can obtain a reliable estimate of the purchase price by retaining a business valuation expert. This expert will be able to provide the owner with a range of value for the business upon sale based on its financial performance, recent transactions that have taken place in the market, and in view of the owner’s anticipated growth expectations for the next few years.

This valuation report may be heartening if it squares with the owner’s understanding of the current value of the business, or it may be a reality check if the owner has an inflated view regarding the anticipated price for the sale of the company. But if the value of the company as determined by the valuation report falls below the owner’s view regarding the value of the business, the report will still be helpful. In this case, the report will provide the owner with specific revenue and earnings targets (and growth rates) the business will need to achieve for the owner to obtain the desired purchase price when the company is sold.

This question focuses on the value of the business, but it also raises the issue of whether the company has maintained its financial books in good order. If the current financial condition of the business cannot be readily determined by a potential buyer from the company’s financial reports because they are confusing, unreliable and/or incomplete, this raises a significant concern that must be addressed before the business can be brought to market. Potential buyers confronted with financial records that are in poor condition are unlikely to pay top dollar for the business. Buyers may even choose to walk away from the purchase  entirely if the financial records are in such bad shape that they cast doubt over the company’s operations and the performance of the business as a whole.     

Is your house in order?

Answering this question may be the one that is most eye opening for the majority owner.  The question here is what will the potential buyer find when the due diligence process starts?  

One good way for an owner to know if the sale process will go well is to take a look at the business from the perspective of the potential buyer. The company’s business counsel can provide the owner with a sample of a due diligence checklist that will be part of the sale process. The majority owner should consider these questions: What will a potential buyer think about the company after it has the chance to review the information produced in response to this checklist? What will it show? If there are skeletons lurking in the company’s closet, the response to this due diligence checklist is likely to reveal them. Any troubling issues will need to be resolved before they are disclosed to potential buyers. 

 In addition, all stakeholders in the business need to be ready for a sale to take place. Most businesses have significant stakeholders who are involved in the company and helped to make it successful. These can include other minority owners, key employees, lenders and large customers. If one or more of these stakeholder groups are not aligned with a sale of the business taking place, that resistance can create major impediments to a sale. For example, does the majority owner have the right to make the unilateral decision to sell the business, or does a sale of the business require a unanimous vote? If unanimous consent is required, does the owner have the other owners on board with the sale taking place at any price, or are they open to a sale only if a certain price target is achieved? The owner in this situation needs to consider whether the other minority owners will support or be an impediment to a potential sale.

Similarly, while employees who have no ownership interest in the company may not have the right to block a sale of the business, if they oppose a sale of the company to a third party, their sudden departure before a sale could derail an attempted transaction. The owner will therefore need to make sure that key employees will support a sale under the right conditions to ensure there will be a smooth transition to a new ownership group.  

Conclusion

The sale of a private business is an achievement that can be an exhilarating experience, but getting there takes a lot of careful planning and will be the result of a team effort. Before the sale process even starts, the majority owner will want to consider several key questions to decide whether both the owner and the business are truly ready for a sale of the business to take place. The owner needs to consider whether the explanation that is provided for the sale will resonate with potential buyers and also whether the owner is ready to move on after the sale to pursue other interests. In addition, the owner will want to check on the value proposition to make sure the potential sale price for the business fully aligns with the owner’s expectations. Finally, the owner will need to evaluate the business from the perspective of a potential buyer to ensure there are no glaring surprises that will emerge during the due diligence phase, which will create hurdles in completing the sale. 

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Private company owners strive for success but getting there is not an easy or straight path. I have been working closely with business owners now for more than 40 years, and I have been reflecting on the key character traits shared by successful entrepreneurs. These views are not based on peer-reviewed research but are gleaned from my vantage point as outside counsel.  The most significant traits that I believe help to determine success in business amount to CRAP: courage, resilience, adaptability and persistence. There is one more important letter – F – and I will share thoughts at the end about that one, as well. 

Courage Is Not Fearlessness, It’s Taking Action Despite the Potential for Failure

We all fail at times. There are no exceptions. Some failures are bigger than others. But what distinguishes successful business owners from those who fall short is their willingness to keep trying despite the risk of failure. The mindset of remaining unbowed when failure results is critical in seeking success. Many have given voice to this view. 

Thomas Edison: Negative results are just what I want. They’re just as valuable to me as positive results. I can never find the thing that does the job best until I find the ones that don’t.

J.K. Rowling: It is impossible to live without failing at something unless you live so cautiously that you might as well not have lived at all, in which case you have failed by default.

Michael Jordan: I can accept failure. Everyone fails at something. But I can’t accept not trying.

In sports, two of my favorite facts are that players miss all the shots they don’t take, and a major league hitter who fails seven out of 10 times has a batting average of at least .300, which is often good enough for him to be installed in the Hall of Fame.   

Given the inevitability of failure at some point, successful business owners do two things.  First, they don’t shy away from pursuing challenges even though they know their business efforts may not succeed. Second, and just as importantly, they learn from their mistakes so that they are able to improve as they move forward in the business. It is human nature to dwell more on our mistakes than our successes, but business owners who succeed don’t let their failures stop them from taking another shot, which is how they keep pushing ahead to achieve lasting success.

Resilience – Failure Is Common, but Far from Fatal

Fortunately, failure in business is almost never fatal. In fact, failure can have some positive consequences. When viewed from a more objective lens, failure can spur motivation, provide enlightenment about what was not working, and open the door to new possibilities that had not previously been explored or adopted. Failure leads to change, which may be what is required for the business to succeed. 

NYU Stern School of Business Prof. Scott Galloway is a highly successful, serial entrepreneur and author, who has started eight to nine businesses, but at least one of which was a failure. In his book, The Algebra of Happiness: Notes on the Pursuit of Success, Love, and Meaning, he notes that “Success is a function of your resilience over failure.” He has counseled business owners on his podcast that:

You will know failure. The key is to learn from it, be upset, that’s natural. But +then get up, dust your pants off and move on.

It’s your ability to process things and then move on and not anchor off of disappointment that is key to success. In other words, you need to keep on keeping on. Failure and barriers are part of it.

The owner’s ability to demonstrate resilience is important not only for the owner, but for the entire management team, who look to the owner to set the tone for the company. If the owner shows resilience when confronted by failure, that will also motivate others. Leaders who show resilience in response to failure inspire their teams, create greater levels of commitment, and build powerful momentum toward a common goal. 

Adaptability – Be Strong Like the Oak, but Bend Like the Willow

Our paths in life are rarely straight, which is one of the reasons that life is so rewarding. Changing course can make a huge, positive difference, whether that is by changing schools, academic majors, careers, locations or business goals. We are all familiar with businesses that became more successful when they changed their focus. These include:

  • Apple was a computer maker, but achieved unprecedented global success when it pivoted its focus to the creation and sale of the iPhone.
  • Uber started out as a black car private service only to become the behemoth it is today when it changed its business model to providing drivers for everyone.
  • Amazon began as an online bookseller before morphing into a globally dominant online retailer of innumerable products.

Where a business starts is often not where it needs to go to realize its full potential, and the willingness to pivot to pursue a more profitable opportunity is what sets successful business owners apart. They are flexible, they are adaptable, and they are not afraid to make the changes that may be necessary to transition to a different business model, product or service that allows them to achieve a much greater level of success.  

Persistence – If It Was Easy, Everyone Would Do It

This may be the most obvious trait. It is no surprise to learn that hard work and grit are essential to success. Two more quotes from Thomas Edison sum this up well: 

Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.

Success is 10% inspiration and 90% perspiration.

The rewards of achieving success in business are likely worth the devotion required, but they cannot be obtained without a tremendous amount of effort and dedication.    

Forgiveness – The Antidote to Harmful Self-Criticism

The final addition to the four CRAP attributes is the ability to forgive oneself. In my experience, business owners are some of the most self-critical people on the planet. They have a tendency to accept all of the blame when things don’t go well but find it hard to take credit when their companies achieve success. The “imposter syndrome” is both real and debilitating.

Those owners who can both achieve and enjoy their success engage in self-forgiveness. They do not shrug off their mistakes, but they do not continue to berate themselves over any of the errors they made. As Prof. Galloway has said, they move on.  

Harboring on one’s own mistakes is not just counterproductive, it is self-destructive. The research bears this out. The Scope blog, published by the Stanford Medical School, reports:

Research has shown that those who practice self-forgiveness have better mental and emotional well-being, more positive attitudes and healthier relationships. A related outcome ties self-compassion with higher levels of success, productivity and concentration.

According to Carole Pertofsky, MEd director emerita of student wellness services, “Self-forgiving people recognize that a lack of self-forgiveness leads to suffering. They are kind to themselves, which reduces their anxiety and related depression.” In comparison, those who are highly critical of themselves are more likely to experience significant negativity, stress and pessimism.

Conclusion

Business owners face daunting challenges. They will undoubtedly confront failure, and success is often elusive. If they have the traits discussed here that amount to CRAP, however, and if they are able to forgive themselves for all of the errors they make along the way, they may find the success that awaits them was worth all of their struggle to achieve it.