Posts Tagged ‘goal’

Slow and Steady Growth Is The Key To Success

Tuesday, March 4th, 2014

My last post introduced Inc. magazine’s study of over 100,000 U.S.-based, mid-size companies.The key to success is slow and steady growth

Their goal was to find “sustained growth champions”, which they defined as companies that added head count each year from 2007 – 2012.

Less than 1.5% of the companies qualified.

The magazine selected a sub-sample of those to help them find the managerial DNA of success, and called it The Build 100.

According to Inc., companies grow in different ways. They might, for example:

  • Have several years of expansion before their growth rate slows and then declines.
  • Grow sporadically either with the economy or industry, or as a result of the business owner taking, or missing, opportunities.
  • Grow quickly and then plateau.

The Build 100 companies didn’t, however, do any of those things. They grew slowly and steadily.

The conclusion being that incremental growth, repeated over time, achieves better results than short – or long – bursts of growth.

And that finding corresponds closely with what Jim Collins and Morten Hansen found when they were researching “Great By Choice”.

Collins and Morten describe how John Brown, the CEO of Stryker, set a goal of 20% growth in net income – no more, no less – every year.

Was he successful?

A $ invested in Stryker from its IPO in 1979 until 2002, multiplied more than 350 times. The return on a $ invested in a comparable competitor fell well below that.

Let’s go back to the Inc. project. They studied companies over a 20-year period and found 3 very interesting things.

  • The faster a company grew in one period the less likely it was to grow again – and the more likely it was to fail. (Why? Perhaps because they stretched their processes, resources and everything else too far and either ‘broke’ them or had to do some serious repair work.
  • Growth over several periods had no influence on the odds of future survival or growth.
  • The more frequently a company added people (head count) year over year, the more likely it was to grow again.

I find that last point particularly interesting. Remember 3 of the 5 things the Build 100 have in common are related to employees. Is the timely addition of people who “fit” a key to fuelling steady growth?

What do you think?

If you enjoyed this post you’ll also enjoy It Starts With A “Corny” Story

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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Top Ten In 2012……

Tuesday, January 15th, 2013

The votes (page views) have been counted, the results can be announced!

Our top 10 blog posts in 2012 were:

1.    Do You Know What You Don’t Know? was the winner by far. It talks about how consultants and business owners are doing the same thing wrong, with the same outcome.

2.    Why Would Anyone Hire A Management Consultant? is a question put to business owners whose businesses have stopped growing.

3.    6 Ways a Business Owner Can Influence Culture outlines how a business owner can influence the culture in his/her company.

4.    10 Tips To Improve Your Public Speaking Body Language, written by Mark Bowden of TruthPlane, is the first of our guest posts to make the list.

5.    Things Really Good Consultants Say outlines what consultants who get results and deliver a great service say while pitching for business.

6.    Strategy, Culture and Leadership deals with how these 3 things affect the development and the execution of strategy.

7.    3 Times When You May Need To Change Your Strategy explains when a company should review its strategy and what makes that review and any subsequent actions necessary.

8.    6 Challenges Fast Growing Companies Face discusses the 6 challenges of execution which, if not dealt with, could prove fatal.

9.    Why You Need A Consultant With Hands-On Experience is one of several posts we wrote during the year about how to work with consultants.

10.    So Tell Me, What Is Strategy? In some cases strategy and strategic are being imbued with mystique and complexity in order to create a need for “expertise”.  Here are 2 reasons why should we care.

If you haven’t seen them before, here’s your opportunity!

Focus, Simplicity and Common Sense…..

Tuesday, November 13th, 2012

I’m not a big fan of business journalists.

That’s because many of them talk at length and opine about how to run a company without ever having had a single day’s practical experience as an entrepreneur or business owner.

(Hmm, I guess that makes them like many consultants ………..)

But there are exceptions –Jason Fried and Norm Brodsky in Inc. magazine are 2 great examples. And this week I stumbled across 2 posts by Randall Litchfield on the Profitguide.com site that caught my attention.

Litchfield was a journalist when corporate strategy was the focus of business schools, executives and strategy gurus. During that time he interviewed companies; spoke to academics and management consultants; and read every new strategy book published.

He made the switch to entrepreneur in 1990 and, since then, has made the PROFIT 200 ranking of Canada’s Fastest-Growing Companies 4 times.

Both posts reflect his somewhat unique experience, a product of this combination of careers.

In the first post Litchfield praises Richard Rumelt’s book “Good Strategy, Bad Strategy” as the best business book he’s read. Why does that push my opinion of him way up there? Because I agree and, if you follow this blog, you’ll remember I wrote 3 pieces from the book last year.

The first point he makes in the second post was that he realized that the really important stuff – how to achieve the goal—was getting lost as the strategic process became increasingly complex.

As a result he turned to examples of military strategy because “Corporations can hide a bad strategy (or no strategy) for years while ………military battles……tend to be over more quickly and the superior strategy revealed.” Nicely put!

Litchfield’s third point is that a military strategy can usually be articulated in a phrase or sentence of crystal clarity (e.g. Hannibal’s “envelopment” of the Romans or “Stormin’ Norman” Schwarzkopf’s “left hook”). However, in my opinion, it also suggests that some concepts are ageless and can be adapted to wildly different environments.

The final thing he says that I really like is that a good strategy boils down to a simple rule – bring relative strength to bear against relative weakness. This is the “indirect approach”, used by great commanders like Alexander the Great, Cromwell and Napoleon, who chose the line of least expectation and struck at the point of least resistance.

So for any company that has to take on larger competitors with resources that are much greater than their own, success will come by finding the competitor’s relative weakness and concentrating their relative strength(s) precisely there.

And that covers every company either in startup mode or which is a “small to medium sized enterprise”.

Here’s someone successful who has both theoretical knowledge and practical experience confirming that focusing on execution (the how to) is important; that things work better when they’re simple, not complicated; and that common sense delivers results.

You can read Litchfield’s 2 posts here and here.

 

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Cop Out Or Common Sense?

Wednesday, July 18th, 2012

“How can you be sure that you’re not just taking the easy way out?”

“If you let yourself off the hook once, won’t it be easy to do it again?”

Last week’s post clearly touched a few nerves. I understand that some business owners feel strongly that a sales budget shouldn’t be cut mid-year. But I have an answer for those 2 (and the other) questions which were fired at me this week.

You’re not taking the easy way out if……….

1. At the beginning of the year you applied your execution “know-how”¹  to the setting of the goal. You do that by inviting the key people responsible for achieving the goal to participate in setting it. Before giving the goal the “go ahead” you persist in asking probing questions until you understand how the goal will be reached. Questions such as:

• Which products will generate the sales? (e.g. old or new)
• Who will buy them? (e.g. existing customers or new ones)
• What compelling reason will they have for buying them, now?
• Who is responsible for getting the sales and making, delivering and supporting the products?
• How will they need to work together and why will they do that?
• Are our reward systems strong enough to make them want to work together?
• How will our competitors react?
• What are the milestones along the path to reaching the goal?
• Who is accountable for reaching the milestones – and do they know that they are?

2. By doing this you ensure that:

• The goal is linked to the company’s capability for delivering the results.
• There is strict accountability for reaching each and every milestone.
• There are contingency plans to deal with the unexpected things that life consistently throws in the path of even the best laid plans.

3. Even if, despite all of that, unexpected circumstances force you to consider lowering the goal, you:

• Relentlessly seek out and focus only on the facts – not opinions, emotions, feelings or anything else – which have caused the situation to change since the goal was set.
• Evaluate the alternative responses to those facts using logic and experience.
• Conclude that the only alternative that makes business sense, in the long term, is to lower the goal.

You’re not letting yourself “off the hook” because………..

Lowering the sales goal is not the result of an emotional reaction. Nor is it a step which is taken lightly.

The decision is based on facts (about circumstances which might not even have existed at the time the goal was set). It’s a rational, well thought out response to the situation.

To act in any other way is not a logical approach to business and so flies in the face of common sense.

¹ “Execution: The Discipline of Getting Things Done”, Bossidy and Charan, Random House, 2009, pages 32 and 38

If you enjoyed this post you’ll also enjoy Bad Strategy – How To Spot It

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Can You Lower Your Sales Goal During The Year?

Tuesday, July 10th, 2012

The meeting was moving along well until the topic of the annual sales target came up.

The leadership team wanted to lower it to a point significantly below the previous year’s actual results. They believed that the arguments for doing so were logical and made good business sense.

• Actual performance at the end of the first quarter was well behind target.

• Research, admittedly informal, revealed that sales producers made a limited contribution in their first year with the organization. Things improved in the second year. But it took 3 years for them to produce sales at a rate which would keep the organization at the level of the previous year.

• Because of growth, almost half of those responsible for producing the sales were in their first year with the organization.

• There had been a number of large non-recurring sales in the previous 2 years. And while it was reasonable to hope there might be some this year, it seemed unwise to plan on them.

Some of those at the meeting were shocked. After all, this was only the end of the first quarter.

The target was set a few short months ago. The leadership team believed it was possible then. How could they argue it was impossible now!

Then the view was expressed that companies couldn’t (or didn’t) change their budgets once the year started.

We hear this quite often and my response is usually “Who says they can’t”? There’s no external authority that says it’s not allowed.

Publicly traded companies regularly revise their budgets during the year (ask any RIM shareholder). They call the new set of estimates a forecast.

Why can’t privately owned companies do the same? What happens if, for example, it becomes apparent that the company can or will exceed its budget? There isn’t a leadership team I know that won’t revise upwards.

The challenge is when it comes to a downward revision. Our first response is that it’s giving up, quitting, losing. But that’s an emotional reaction.

What happens, for example, if the economy tanks; or a competitor introduces a new technology; or people with needed skills can’t be found; or financing for additional resources couldn’t be obtained?

All of these events can be demonstrated to have happened. They’re not a matter of opinion, they’re facts. To cling to a budget that was developed either before any of those things occurred or which assumed their impact would not be as great as it was seems illogical.

I mentioned some of the facts in this case earlier. Here are some others.

• Every member of the current leadership team was new to their role when the budget was developed.

• No analysis of the drivers of the organization’s previous results had been done in recent times. So none was available to help or inform the new team. 

• The previous leadership team had been in place for only a year and had other challenges to deal with.

• The handover period between the teams from was relatively short.

After some heated discussion the budget was lowered.

If you enjoyed this post you’ll also enjoy Where Do The People Fit?

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I’m Not Alone………

Thursday, December 15th, 2011

It started last year.

It continued to bother me this year but I didn’t say anything to anyone. I couldn’t, I wasn’t sure how to put it.

Then I found out that someone else felt the same way. He has a much higher, more public profile than me. And he wasn’t afraid to speak out.

That tipped me over the edge.

Just as I took my first couple of tentative steps, I discovered there’s someone else, also with a higher profile than mine, who is talking about it too.

I feel so much better. So I’ll say it out loud……..

The words strategy and strategic are being overused and misused. And it’s wrong because it’s causing confusion and doing harm.

It first became clear to me………….

…..when I read Richard Rumelt’s book “Good Strategy: Bad Strategy, The Difference and Why It Matters”.  I believe 3 of Rumelt’s 4 major hallmarks of bad strategy involve misuse of the words strategy or strategic.

He describes “Fluff” as a superficial restatement of the obvious combined with a generous sprinkling of buzzwords.

Rumelt’s example of fluff is a major bank stating “Our fundamental strategy is one of customer-centric intermediation.” Intermediation, accepting deposits and lending them to others, is what all banks do. And this one’s processes didn’t make it any more customer friendly than its competitors. The statement is fluff not strategy.

Then there’s “Mistaking goals for strategy”. For example he talks about a document labeled “Our Key Strategies” which was no more than a list of goals with no reference to a key strength the company could leverage to achieve the goals.

The third one is “Bad strategic objectives”. Rumelt talks about “dog’s dinner objectives”, a list of things to do with the label strategies or objectives, where 1 of the “to do’s” is to create a strategic plan. There are also “blue sky objectives”, which are simply a restatement of the desired state of affairs.

And now there’s someone else……………….

…..who is making a similar point. This week Harvard Business Review published a blog post by Joan Magretta called “5 Common Strategy Mistakes”. I think 3 of them also involve confusing strategy with something else.
First is confusing marketing with strategy. Doing that, she argues, means overlooking the point that a strategy not only requires a value proposition, it also requires a unique configuration of (companywide) activities that best delivers the value.

Next is confusing competitive advantage with what you’re good at. Companies often look inward, see a strength – and overestimate it. But to form the basis for a strategy a strength has to be something the company does better than its rivals. And that judgment can only be made by the market.

Finally there’s thinking that growth or reaching a revenue goal is a strategy. Sound familiar? Mistaking goals for strategy is on Rumelt’s list too. It’s not the goal (e.g., reach $50 million in revenue), nor is it a specific action (e.g., launch a new product, enter a new market, make acquisitions). Strategy is the set of integrated choices that define how you will achieve the goal; the actions are the path you take to execute or realize the strategy.

Now that I feel better, that I’m not alone…………

…..I’m going to continue speaking about it.

Because it will only get better if we get it into the open, get people, business owners, talking about it.

We have to stop overusing and misusing strategy and strategic. It’s causing confusion and doing harm to the most important part of a company – its business strategy.

By the way, you can see my first couple of tentative steps here and here

So Tell Me, What Is Strategy?

Thursday, November 17th, 2011

Look anywhere and you’ll see tweets, posts and articles containing the word strategy. Marketing strategy, social media strategy, sales strategy, financial strategy, meeting strategy – in fact every kind of strategy you can think of.

Strategy – and strategic – are becoming greatly over used words. And in some cases they’re being imbued with mystique and complexity in order to create a need for “expertise”.

Why should we care? I can think of 2 reasons.

1. Strategy should be simple.

A strategy shouldn’t be an ethereal concept or a complex by design – in fact quite the opposite. Look at the Wikipedia definition – “a plan of action designed to achieve a particular goal.”

What could be more straightforward? A strategy has 2 parts. Part 1 – designing the plan and part 2 – translating it into action which achieves a specific goal.

It sounds simple – but the mystique and complexity can start with the words and phrases that are used to describe the design part of business strategy. I’m thinking of environmental scans, key competencies, scenario planning, strategic options etc.

To be fair there are some companies and clients with whom it is essential to use these buzz words in order to be considered credible.

But for everyone else – particularly for companies which haven’t worked with consultants before – the strategy design process should be kept clear and simple.

Another thing I’ve never been comfortable with is the point of view that a strategy must be perfect, a thing of great beauty. Making things of great beauty is the job of artists and plastic surgeons. Business people need to be pragmatic.

Anyway, many strategies which were judged imperfect or impossible – e.g. Steve Job’s strategy for Apple in 1987 and Herb Kelleher or Richard Branson’s entry to the airline industry – resulted in great successes.

And if a strategy isn’t made to work, to deliver results, what does it matter how nice it looks or sounds – which brings me to the second reason we should care.

2. The focus should be on the translating into action, achieving the goal part.

Research has shown, fairly consistently, that the majority (around 70% by some estimates) of strategies aren’t implemented or they fail.

Assuming that at least some of them were practical and simple, and yet still were never turned into action, what chance do complex strategies stand?

And here’s something that has always struck me as ironic.

Some of the reasons for designing a new strategy or changing/adapting an existing one are outside the control of the business owner and his/her team – e.g. competitive action, changes in the industry.

But all aspects of translating a strategy into action are totally under their control.

Makes you think, doesn’t it?

3. Final thoughts.

A business strategy is the means by which owners achieve their vision for their company. To do that it can’t be shrouded in mystique or only be a thing of ethereal beauty. And it can’t be complicated.

A good strategy informs all parts of the company about what they must do and how they must work together. It translates into the specific actions that must be completed to achieve clear goals which lead to the realization of the vision.

It turns the vision into results.

And don’t forget – a weak strategy implemented strongly will always beat a strong strategy implemented weakly.

 If you enjoyed this you’ll also enjoy 3 Things Which Shape A Good Strategy and 6 Tips For Getting Better Results in 2011 and Why You Want A Consultant With Hands-On Experience

Selling Price of Your Company – Goal or Output

Thursday, December 2nd, 2010

A statement early in Larry Bossidy and Ram Charan’s book (see 5 Reasons I Love Execution) caught my attention. They say that “increasing shareholder value is an output, not a goal”. I’ve always said that increasing the value of your company is 1 of only 2 rewards for being a business owner i.e. it is a goal.

But, when I thought about it, I realized the logic really runs like this.

• The income a company generates from its operations, on an ongoing basis, represents the real value of the business to a purchaser.
• Which is why the value of an owner managed businesses is determined – most frequently – using a multiple of operating income.
• So, if management find the right strategy and execute it well, operating income will increase.
• As a result of that, all other things being equal, the value of the business will increase.
• The goal, therefore, is to find – and execute – the right strategy. Do that and owner/shareholder value takes care of itself and is, in fact, an output.

This is true regardless of whether the shareholders are a small group of family members or the public at large.

Around the time that I read Bossidy and Charan’s statement I attended an excellent seminar at the accounting firm SB Partners LLP called “Preparing Your Business for Sale”. One of the partners, Trevor Hood, a CA and CBV, explained clearly and thoroughly how businesses are valued. He finished by listing 2 sets of variables, 1 of which is under the control of management, which affect a valuation.

When I looked at the controllable variables later I realized that all of them related – directly or indirectly – to strategy. For example, markets, customers, competitive superiority, technological innovation, human resources, production and operating systems are all components of strategy.

Many of the other variables under management control – e.g. documenting policies and procedures, financial reporting, managing gross margins and costs/expenses, building an effective management team – are fundamental to successfully executing a strategy.

Even the variables Trevor correctly described as uncontrollable – economic conditions, industry trends, legislation etc. – all have to be considered during strategy development and/or business planning.

At about this point all of this thinking became very satisfying. Trevor’s variables are amongst the areas we focus business owners on when we work with them to build value in their companies. And since our whole purpose in life is strategy development and implementation – strategy made practical – it was all very reassuring………..

Then I saw an article, “Sell the Business, Sail into Retirement,” on the Globe and Mail web site. It talks about the number of businesses that will change hands in the next few years as the baby boomers retire. The article quotes a survey, which says that selling will be the most popular exit strategy.

But, the author goes on; activity is down, not up. Why, because although valuations have gone down because of the recession, owners’ still expect to get the prices that applied 3 years ago. (We encounter this “expectations gap” quite regularly.) But the good news is that low interest rates and easier lending conditions are pushing valuations back up.

We’re not sure that we buy into the comment about easier lending conditions – yet. But it is possible that it will happen in time for, or to coincide with, the boomers’ retirement.

So, what does all of this mean?

If it’s time to sell; and if valuations are going up; and if value is an output, or result, of a good strategy effectively executed then business owners need to demonstrate that they can execute better than ever before.

All of which reinforces the point that execution is, at the very least, a big issue for businesses today; it is the major job of the business owner/leader and it is a discipline which, if mastered, will give a business competitive advantage.

I’m glad we’re in the strategy business!

4 Laws of Effective Implementation

Tuesday, April 27th, 2010

When we want something – for example more revenue, bigger profits, a new home, or a dream vacation we’re told that we have to do 3 things. They are set a goal; make a plan to reach the goal and implement the plan. But which is the most important – the goal, the plan or the execution?

There’s no doubt in my mind that the third thing – implementation or execution – is the most important of the 3. Many years ago someone told me that “A weak plan strongly executed is better than a strong plan weakly executed”. Just last week someone told me about a promotional piece that had been written for them some time ago. They didn’t think it was great but, having spent time and money on it, they decided to use it and much to their surprise it worked. Not perfectly, but sales did go up and they did attract new customers.

So, how do we make sure we tackle this key activity – implementation – effectively? Here are 4 aspects of execution that are so important that they could be laws. Follow them and dramatically increase the odds of achieving your goals.

Law # 1. The first law of implementation is that 80% of something is better than 100% of nothing. Don’t wait for the perfect opportunity, try to develop the perfect product, try to find a “breakthrough” strategy or write the perfect plan. You must take what you have and make a start – now, today. Because if you don’t then there will also be some reason not to start tomorrow and before you know it the month or the quarter or the year have gone – and you’ll have accomplished nothing.

Law # 2. Persist. There’s an old adage about 10 salesmen who hear about the same deal. In the early stages, it’s hard to get an appointment, the prospect is demanding but slow to return calls, and 4 of the salespeople become so frustrated they just give up. Four more drop out when the prospect begins to bring up objections and does price/benefit comparisons and asks for references. The moral is that the 2 salesmen who stay at it improve their odds of getting the deal from 1 in 10 to 1 in 2 – simply by persisting.

Law # 3. Be prepared to adapt. There has never been a plan developed that worked precisely as conceived and exactly on time. All plans are based on assumptions which, even if they are logical and include the most detailed information available at the time, are just that – assumptions. Effective owners and managers review their plans regularly, for example quarterly, and compare what actually happened to their assumptions. Then they adapt their strategy and action plans for the rest of the year.

Law # 4 is all about commitment. Once you’ve decided to implement a plan then support it by allocating sufficient resources to it. No half-hearted measures – buy high quality raw materials, train everyone thoroughly, make the right equipment available and put enough people on the job. Because anything less than total commitment will jeopardize the goal.

The odds are that none of the 4 laws are a revelation. But in the face of day to day pressures we all lose sight of lessons that we’ve learned, things that are common sense. Remember these 4 laws and you’ll achieve more.

Don’t Destroy the Long Term Value of Your Company……

Friday, February 26th, 2010

The economists are still trying to figure out how long and how deep this downturn will be. As a business owner I think they’re missing the point. The point is that this downturn or recession will come to an end as every one before it has done. That, and the fact that this one is different from any other, are the only things we can say with certainty.

There are 2 types of financial reward for being a business owner and, while it is still with us, the recession will almost certainly affect 1 – annual profits. For some companies they (and the bonuses and dividends that result from them) will be smaller than in previous years. But the recession should not affect the second reward – the ability to obtain a premium price for your business when you sell it – unless you allow it to. 

How do you avoid the danger of letting current events erode the value of your company? The first step is to ensure the (strategic) awareness that the recession will end influences every short term (tactical) decision you make. Keep your long term goals firmly in mind as you make the changes that are required in the short term. The second step is to continue positioning the business for its eventual sale.

The value in a company lies in it’s future as a going concern – independent of current ownership. The same things that guarantee that a company has a future – Plan, People, Process and Peformance in my language – make it independent of any specific owner. All potential buyers will look at historical financial results in arriving at a valuation for a company. But there’s more to a going concern than the strength of its past, normalized EBITDA. Informed buyers will look for the things that will continue to produce great financial results in the future.

Consistent, superior Performance is perhaps the most visible way of demonstrating your company’s potential as a going concern. While the performance during next year and perhaps even 2011 may not be what you anticipated only 18 months ago, remember that success is relative. Outperforming your competitors, and growing more quickly than the industry, for example, are tremendous accomplishments in a recession. Successful companies perform well in any market conditions.

If your business Plan for 2010 and the following 2 years has not been modified yet, this is a good time to do it. Modifying your existing strategies to, for example, put more emphasis on customer retention may be an option. Considering how to finance growth opportunities – resulting, for example, from weakness in a competitor – might be wise if cash flow is likely to tighten and external financing remains tight. But these steps are about changing how you will achieve your vision and goals, not about changing the vision/goals themselves.

Having a planning Process involving the management team – large or small – is one way to show the company is independent of the owner. Most companies have financial, operational and human resource processes in place. But some key processes, for example, a disciplined approach to developing and launching new products or selecting and entering new markets are less common and present owners with opportunities to increase the value of the company. There are also fewer companies with a well mapped sales process, which would give them everything from better forecasting to higher close ratios, than you might imagine.

Despite the fact that cutting headcount is a quick way to cut costs, this is not the time to let good People leave your company. My definition of “good” prioritizes those who, because of their experience in other growing companies, know what has to be done to add value to yours. A strong culture will drive a company forward regardless of who is at the top and is based on never losing sight of the values and beliefs on which the company was founded. The current situation is also an opportunity to implant strong change management skills and get every employee engaged by asking them to contribute their ideas for implementing the company’s strategies.

A flexible plan, wide spread use of well thought out, documented processes and people who can implement both of them will drive great performance – which will lead to great Profits. So, make the decisions required to meet today’s challenges in the context of building the company’s value over the long term. In that way you’ll reap both sets of rewards for the long hours, financial risks and strained relationships that come with the title of business owner.

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