Getting the best out of your business with a highly-effective board
Even with the greatest ideas from the greatest minds, businesses face a startlingly high risk of failure to survive for more than three years.
“Locally, the Department of Trade and Industry records that currently only two out of every seven new businesses survive their first year of trading and only one out of five make it past year three,” says Tim Holmes, Managing Director and Governance Manager of Sirdar South Africa.
“Often people think their great idea is enough on its own merit, and fail to seek sound advice from the experts that complements their business strategy and enables them to implement a robust process and structure from the word go.”
The stats do not bode well for prospective new business owners. Holmes iterates that if the vast majority of failed start-ups in South Africa had started life on day one with a board meeting, either they wouldn’t have started at all, or they would have survived for a lot longer.
Most businesses, in fact, start out with an individual who is the sole shareholder, sole director and the manager; who is often supported by a relative or significant other. The major problem with this kind of set up, Holmes explains, is that the company is therefore entirely reliant on the skill, the ability, and the good health of that individual.
“This makes the business very susceptible to shocks, and therefore potential failure. A business that isn’t reliant on an individual is much more robust,” explains Holmes.
If you have survived despite lack of structure, and want to ensure the longevity of your business for many more years to come, now is the perfect time to learn more about what it really means to be a director and how best to reduce reliance on the founder.
Sirdar South Africa are experts in the practical implementation of enterprise governance. They implement, train and support boards of directors to improve revenue and profitability for medium-sized privately-held companies, and to crack through the annual turnover barrier whether it be from R10 million to R20 million, from R50 million to R100 million, or from R1 billion to R2 billion.
Having a formal board with non-executive directors who are paid directors’ fees is overkill for some small businesses. However, they still need to think like directors and run the process properly by distinguishing roles: when they are a shareholder, when they are a director, and when they are a manager.
Sirdar trains directors and helps companies to set up highly-effective boards to tackle any number of challenges head on and to put training, strategies, and processes in place to better the business.
Boards which use a defined process and methodology are better equipped to manage strategic business decisions that integrate a variety of areas of expertise.
One way to determine the effectiveness of a company’s board is by determining each member’s natural abilities. The Sirdar Contribution Compass, for example, is a profiling tool which can do just that. It assesses answers to a series of questions about how you think and react in various scenarios.
“Some people are naturally innovative and intuitively drive concepts, projects and activity forward, despite all odds. Other people wait for the right time to make a decision or take action based on their sense of the market, team or clients,” says Sirdar’s group chief executive Carl Bates.
“Some people will always be focused on who is affected by a decision and who they can connect with, whereas others will naturally think of the process or the system first and how that should operate. The concept of natural energy acknowledges that different people will naturally be more effective at different aspects of a business’ activities.”
When it comes to business with family members involved, emotions can come into play in the boardroom.
One of the biggest problems with family boards is that the family hierarchy isn’t left at the door, which leads to power struggles and high emotions in the board’s decision-making process.
“There is a natural hierarchy in families which transfers into the boardroom where roles might be completely different. The dynamics of a family, where egos and emotions come into play, don’t work in a boardroom scenario,” shares Holmes. “You can’t let brother and sister struggles inform business decisions!”
The distinguishing factor between a successful family business and an unsuccessful one is the process of thinking as a professional. Holmes’ advice is to implement independent directors and operate from a high level of emotional maturity.
Holmes concludes: “We enable companies to ensure they will still be around in five or ten years and far beyond. When there is a balance of natural energy around a boardroom table, when a proper process is followed and when a defined methodology is implemented there is a much more effective flow, and in turn better results, for the directors and the business as a whole.”