Earlier this year, I heard a presentation by a reputable German entrepreneur at Munich Technical University. Of course, I wrote about it at the time in the IF blog. Among other things, said speaker is a functionary in the employer association, where he also frequently gives presentations. His one-time family enterprise is now mostly in the hands of strangers. This was the only way for him to preserve it.
Some of the things he said during his presentation gave me pause. Among other things he said during his presentation on “Innovative Leadership – Strengths and Weaknesses of a Family Enterprise” was a warning against the habit of some family enterprises that are not sufficiently profit-oriented. Owners of medium-sized enterprises very often adhere to the detrimental motto: “You can eat but one steak each day”. In his opinion, this is “the wrong attitude and it ruined quite a few enterprises”.
This is a statement that made me thoughtful. In my opinion, it is too narrow-minded. I think that many more companies went bankrupt because they “were never satisfied”.
For my own life, I formulated the following maxims – and I presume they meet with the consensus of most owners of medium-sized companies:
- Profit is as important for an enterprise as “enough water under the keel” is for a ship. Basically, it is all about being capable of surviving a possible decline of the business situation.
- Growth is enjoyable, yet it should never become an end of its own.
:-)The highest value of growth lies in the fact that you have something to fall back on when there is a crisis.
Let me expand on the first point: it goes without saying that an enterprise needs a good turnover. It is essential as a buffer in times of crisis. And, of course, if you do not have a nice profit to fall back on, you cannot build up reserves. And enjoying profit, too, makes sense.
Still, especially owners of medium-sized enterprises know that there is a limit to decent profits. For example, it is not a good sign if the EBIT is a third of the entire business value. I also get jumpy when I hear that an enterprise has more profits than personnel costs. Especially if said enterprise keeps being stingy in this sector in order to improve its margin.
With growth, the situation is similar. An organic growth means improvement of business life. You win more employees and grow stronger. That is a good thing. “Un-organic” growth, too, if you prudently buy another firm or take over a nice team and enterprise, can be fun.
It is, however, not a good idea to acquire companies at phantasm prices and then, a few years later, have to re-finance said acquisition by the EBIT of the very enterprise you bought. This kind of thing often ends in Harakiri.
But it is probably the only way you can build up an empire from zero to a hundred in a few years. It is how the rich climb and fall.
RMD
(Translated by EG)
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