'50 years ago, you started a business as your livelihood - now everyone just wants to sell out'

I’VE BEEN WORKING on Phorest for 15 years and the question I get asked more often than not when I’m introduced to someone is , ”So what’s the plan, when are you selling out?”

It is funny – or rather, a shame – how the narrative of creating a business nowadays has become when are you going cash everything in.

People look really perplexed when I explain we want to grow it for as long as possible.

Some 50 years ago if you started a business, it was to create a livelihood. There was something really satisfying in that.

Now it seems the allure of being an entrepreneur is how much money you can make and how quickly you can buy the villa in the Bahamas.

A better way of describing the type of company we want to build is an ‘evergreen company’, one being built to last as long as possible.

Evergreen businesses can often be bootstrapped because that means the ultimate decisions on the business are being made by founders rather than the shorter seven- to 10-year life cycle of most investors. But there are investors out there who will invest for long-term minority stakes.

The characteristics of this type of business are very eloquently put in this article on the defining characteristics of evergreen companies. Three P’s really jump out for me:

1. People First: If you are building a business to last a very long time, then you need to really value the people who are building it, mainly because you need them to stay a really long time.

There is no point burning the candle for months on end because all that accumulated and vital experience will consistently chip away as people leave.

2. Profitable: An evergreen company has to be profitable most of the time. Sure you can make a loss every now and then, but only if it comes out of your own resources.

If you are not profitable then you aren’t in control of your own destiny. The company is then really controlled by the people funding those losses, be it banks or investors, and whose incentives may not be the same as yours.

3. Purpose: In order for a group of people to work together for a long time, they need to be aligned behind an exciting and noble vision. Phorest’s vision is to be the champion of the independent salon by providing marketing tools that are normally only accessible to large chains.

The biggest thing for me though is that being evergreen means taking lots of decisions for the long-term.

A constant recurring theme in your thoughts must be, “Is this decision I make now going to create problems for the company, employees or customers in the long term?”

As author Nir Eyal put it, most companies suck in the beginning. It takes at least 20 years to become a great company: 20 to 30 years is a life’s work.

If you are going to build a company that has a shot of getting into that ballpark, then you have to make a lot of decisions for the long-term.

If an action you take now to get ahead slows you down in three years time, are you sure you want to take it? If you plan on leaving it to the next guy to fix then sure take the short-term decision, boost your valuation, sell-out and hit the beach.

These type of short-term decisions already have a term in tech parlance; building technical debt. Software development teams who want the product they are working on to stay relevant commit to doing a percentage of their time each sprint, on writing down the accumulated technical debt.

But the concept of technical debt applies to far more than just software development. I believe it applies to everything involved in company building.

‘HR debt’

We have this term in Phorest called ‘HR debt’. Examples of this would be where back in the day, a new hire was given extra benefits – like extra annual leave days – to join the team, but her performance is now sub par.

This could make other members of her team resentful as she gets more benefits than them but puts less effort in. Every company accrues this type of HR debt as it grows, and it is very important to constantly be trying to write it down over time, usually in the form of hard conversations that have to be had with those employees.

Obviously without intentionally trying to remove HR debt, most managers would try to avoid those conversations.

Once you start thinking of the world around you in this way, you will quickly start to apply it to other elements of your business, be it the finance department, or how you strategise your brand position.

Over time you will start to enjoy coming to work more and more, as the benefits of those long-term decisions start to pay off. Jim Collins refers to this as the flywheel spinning faster and faster.

I’m not saying it is always easy. Or that we don’t often make short-term decisions, because we do. But if you intentionally set out to plan for the long-term, you will find yourself making better decisions as time goes on.

Ronan Perceval is CEO of Phorest. A version of this article was originally published on his blog, nothingventured.rocks.

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