Episode 069: The Entrepreneurial Journey and the Cycle of Business Growth

(00:00:00) Commentators: You’re listening to The Wrap, a Warren Averett podcast for business leaders designed to help you access vital business information and trends when you need it. So, you can listen, learn, and then get on with your day. Now, let’s get down to business.

(00:00:17) Kim Hartsock: Hello, everybody, and welcome back to another episode of The Wrap.

(00:00:20) Paul Perry: We are happy to have you with our new season this year. Hey, Kim, welcome back to another episode.

(00:00:26) Kim Hartsock: Yeah, I’m excited for the new 2024 season.

(00:00:30) Paul Perry: It’s going to be a fun one. Why don’t you tell everybody about it?

(00:00:32) Kim Hartsock: Yeah, so we’re going to start a new series. This is the first episode in this new series that’s going to be focused on the business owner lifecycle.

And really what we hope that it does is that it really encompasses the entire cycle from a business owner’s perspective of how they should consider things for their business, but also personally based on what stage their company is in. In this series, we hope that we’ll be able to take you through every stage of the business life cycle and help you broaden your overall knowledge of business owner needs and to help you grow, thrive and succeed.

So, we’re excited to kick that off today.

(00:01:11) Paul Perry: And with us to kick that off—this is going to be a fun discussion. I’ve been looking forward to this one—we have Sandy Coaker, our Office Managing Member from the Montgomery office. Sandy, welcome to the podcast.

(00:01:22) Sandy Coaker: Thank you, Paul.

(00:01:23) Paul Perry: We also have Daniel Hughes, who’s the Chairman and Chief Executive Officer of Envolve Communities.

Daniel, welcome to the podcast.

(00:01:30) Daniel Hughes: Hey, thank you for having me. I’m really, really honored to be here.

(00:01:34) Paul Perry: Well, thank you. We’re glad to have you. Sandy, why don’t you give a quick introduction of yourself and why you wanted to bring this podcast to the listeners.

(00:01:42) Sandy Coaker: I’m happy to do that. You know, I’ve had a long career, and most of that career has been focused on working with privately held—many family-owned—companies and businesses.

As part of that, I have consulted over the years—not just with the businesses but with the owners of those businesses—as they have transitioned from an initial investment to a startup to all the way through a sale on the backside and transitioning into life after business. So, I have seen many of the challenges and complexities that go along with the changes that occur over a 30 or 40 year “career” or business ownership.

(00:02:30) Paul Perry: Daniel, if you could just give our listeners of The Wrap a little introduction of yourself and what you bring to the conversation.

(00:02:36) Daniel Hughes: Gosh, I hope I bring something, but I want to thank you all again for having me. I started a company with three people and one property and over the course of time, we were able to take a division of it public as BSR REIT.

Then, I was asked to take the private portion of that company that we didn’t take public, which is now called Envolve Communities and be the CEO. Today, our interest is in both a publicly traded company, BSR REIT, as well as a large, privately held company with institutional capital—that’s called Envolve.

(00:03:17) Kim Hartsock: That’s awesome, Daniel, and we’re excited to dig into that a little bit more as we get into this episode. So, Sandy, let’s start with just what is the overview of a business owner life cycle, and what does that look like in each phase? Just briefly as an overview.

(00:03:33) Sandy Coaker: Well, I think if you were to Google that, you’d find most people would say there are four or five segments to the overall life cycle of a business.

They might call those four or five segments different things, but what I refer to them as is, you know, the first one would be investment. That would be the stage in which you are aligning personally for personal investment via bank financing in a startup or maybe that’s PE investment in acquiring a company.

Lots of ways to go about that, but it’s the initial stage of either starting or acquiring a company. So, for instance, there might be things on your bucket list or your bucket of things that you have to accomplish as part of that. There might be some buy-side due diligence, there’s going to be deciding on an ownership structure and the organizational aspects of your company.

I think about along with that, there’s normally this financing component and how does that impact you personally? There are a lot of decisions to be made as an individual and as a family about how you’re going to approach that financing and the requirements that are often placed on individuals to be super diligent in managing their own personal financial affairs as part of the basis for beginning this business.

Then, we moved to the next stage, and I would call that growth, and that’s where you’ve acquired a business, you’ve gotten it off the ground or you started it and gotten it off the ground. And now you’re in the throes of really exerting a lot of energy and a lot of time to grow that business. Maybe begin to develop new technologies or institute new technologies that could help your business thrive. I think about facilities planning. Growth often requires significant additional investment from a capital perspective to facilitate facilities to help you accomplish that growth.

Those are the types of things that I think in the growth stage, you’re also beginning to look forward much further down the road, even to begin to look at some of the challenging things like disaster planning and some of those things like: what happens today if something bad happens to my company?

We’re working for good, but sometimes we have to plan for the unexpected—as if the last four years haven’t taught us that. I think those are some examples of some things in the growth stage. I think the maturity stage is the next stage that I refer to it as, and it’s where you’ve been a business for a while and you’re solid.

Things are on a solid footing and now you have the opportunity to really step back and say: What do we want to do next? Is that: We’re happy where we are and let’s make sure everything is buttoned up in terms of ownership? Do we have the right ownership? Are there new owners? Do I have outdated documents that may need to be addressed over time?

Have I looked at insurance? Some of those types of things. Then, there’s also the aspect in the maturity stage of: Do I want to tackle a new market? Do I want to bring a new product? I think the maturity stage is a very rewarding stage. I think about that. You’ve already invested a lot of hard work. You really begin to feel the reward in that stage and what are you going to do with the reward?

And what is the reward? Even down to compensation planning and some of those types of things. And then through the maturity stage, we all know that can last a short time or it can last a very long time in the terms of, let’s say, a long-established family business. But at some point—be it early in the game or after many years of investment by family and other parties who have worked well together for a number of years—there is likely to be a transition and that’s what I call the next stage.

We are transitioning as owners of the business; maybe we’re preparing to transition in a new leader. We’re going to transition in a new family member as an owner, or maybe it’s even our own succession as we begin to think about transitioning. There are so many aspects that require a lot of detailed planning and a lot of forward thinking to be ready for those very significant events.

Then, I think about the next stage—especially for business owners in the life cycle—and some people might say that’s the end stage. That’s pretty negative, wouldn’t you agree? So, I like to think of it as the freedom stage. It’s where we get to take the reward of all the hard work and all the effort and one, decide how we’re going to live those years post work and post investment. I think it’s a very rewarding time.

I think it’s a time of opportunity where people really get to step back and make some critical decisions, but some really fun decisions and decisions that can impact their family for years, their family wealth for years, impact their community through philanthropic service or giving. And so just a super time and many complex things that have to be addressed, such as the dreaded Social Security, Medicare and estate planning. All those things that don’t sound like such fun but are so very important to all of us.

(00:09:45) Paul Perry: Sandy, to follow up on that because every stage is different.

I know that you spent a lot of time giving advice to clients and to business owners. Why is it so important to know what stage of that life cycle people are in? Because I can only imagine the questions that are being asked should be different. So, the advice-giving back should be different as well.

Now, there are other reasons why it’s important to know what stage you’re in.

(00:10:11) Sandy Coaker: You know, one of the reasons I would say that it’s important to really try to understand what phase you view yourself in is because I think it helps you be better prepared from a proactive stance rather than a reactive stance. I think about that from the perspective of even strategic planning your strategic plan would look very different in the growth stage than it might in the maturity stage.

I think that’s a very simple, but very key reason to understand that and the nuances between those stages and what the needs will be as you move from one stage to the next, because I do think they’re significantly different. And I think that it allows you a broader perspective of how to plan, what to plan for and what that path will look like rather than, “I’m in business and we’re keeping the lights on,” so to speak.

(00:11:13) Kim Hartsock: So, Daniel, you’ve been through all of these stages and I’m sure your memories come flooding back as Sandy is talking through each of those stages, but let’s start with the beginning. As an entrepreneur during the investment phase, what were your main concerns when you were starting Summit Housing Partners?

(00:11:30) Daniel Hughes: Gosh, Kim, the first thing I would say is, I think Sandy has just laid it out so nicely and you’re right, memories come back. I guess one memory is I was an investment banker before real estate investment trusts started flooding the market in 1994. Laws changed, structure changed, and it became advantageous for owners of real estate of all types to take their company public.

I was working on the debt side as an investment banker. Waking up on Monday morning, getting on a plane and going somewhere to try to get hired—and then once hired to try to make something happen. It gave me a great perspective on capital formation and what was to happen or at least likely to happen in the public real estate equity space.

And I was very fortunate to be there then and had I not, I probably would have not had the background to have been involved and played a role in some of the successes that we’ve seen. The other thing I remember is being 30 years old and thinking about making a $31,225 weekly payroll and wondering: How we were going to get that money in every two weeks and filling out a financial statement for my bank—which is still a bank that’s near and dear to me—and wondering whether I ought to put the shrubbery on my personal financial statement, because we just spent a couple thousand dollars making the yard look as nice as our neighbors.

So, I know a little bit of that humble starting—one property, three employees— and growing from there.

(00:13:20) Paul Perry: Compare those concerns you had with today. Are they the same? Are they different? How have the experiences of all of these stages changed your main concerns? What’s the same? What’s different?

(00:13:34) Daniel Hughes: So, I think there’s three areas to keep your eye on. Let’s take capitalization first. A small business starts with somebody’s dream and a home equity line of credit—maybe some friends and family money. It usually doesn’t start—it can, but it usually doesn’t—with private equity or sophisticated institutional capital.

So, it’s starting with someone that’s laying it on the line. You might start having some options to get outside capital into your capitalization. This is a huge decision. It is one that does not need to be entered into lightly or quickly. Maybe that’s the first flashpoint, Paul and Kim, is that if you’ve got something that’s going and if you’ve got something that can run, don’t box yourself in a corner.

First big piece of advice to fellow entrepreneurs: see it coming. Get with your advisors. Know it’s around the corner, but be careful about bringing outside capital in. But separate mentally the growth of the business from the capitalization. Make that determination. Keep the pedal down on satisfying customers and getting more people saying you are the best thing since canned beer. But do not rush into the first person offering you a check because that might not be the right partner for you and your family and your fellow shareholders.

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(00:15:19) Paul Perry: Sandy, let me ask you a question about when companies’ values don’t ever change. That usually is what dictates activities for the organizations and what they are doing.

How can they still look at their strategic plan? How can they position their plan to be adaptable to those stages that you have talked about when really the mission and the value doesn’t change?

(00:15:42) Sandy Coaker: Well, I think about that mission and values for me is really the “why” behind a company and the “why” behind it exists.

I think what I would say is that your strategic plan is really more about the “how.” And sometimes the “what.” If the “what” changes, to Daniel’s point, from time to time a business model can change or even the service or product can change or have a new addition.

But mostly, we’re talking about the “how,” and I think when you think about that the “how” of every day is pretty consistent, but when you look at that at a 30,000-foot view over a three, five or sometimes, even a 10-year time span that needs will change during those periods. I think that while a business may be about the same thing as it evolves—and Daniel used that word and he is right—every business evolves from day one throughout its history. As it evolves, the needs of the “how” are going to change.

And so, I think as part of your plan, if you think about the “how” and the future impacts on the “how,” I think that being very cognizant and being very aware of the things that will impact your business on a day-to-day standpoint, and then looking to be prepared for those things that are coming over that three-to-five-year timeframe.

Some of those we can see, some of those we cannot. I think you are in a better position to execute on opportunities that come along. There are so many decisions from day to day, from week to week to month to month. I think with a very clear vision—which you have a very clear “why” that you have, then it allows you greater insight into the “how” and how those external forces—and sometimes internal forces—are going to impact that “how” and how you might need to be strategic in making a shift.

I even think about I think in the world we live in today: technology is one of those things, right? That no matter where you are in the growth life cycle, if technology is not on your strategic plan, then it probably should be. That’s a very simple and easy example, but understanding the landscape of technology and how it impacts your business and your industry and constantly looking—not just at, but trying to look ahead of that, I think is just an easy example of some of the critical components of understanding the differences in say the investment stage or the growth stage or the growth stage and the maturity stage.

Because those needs, even from a technology standpoint, will be different from one to the next. That’s just a very simple example, but I do think that absolutely your vision and your mission can stay the same, but your “how” will change, almost sometimes on a daily basis.

(00:19:06) Kim Hartsock: So, that’s really good thoughts around just being strategic and including the people.

But at some point in this life cycle, you have to think about succession and moving on. So, Daniel, maybe you can share with us, what are your thoughts on planning for succession in a business and what part of that is important to you personally, and what priorities do you think about for the future?

(00:19:31) Daniel Hughes: Yes, it’s a great question, Kim. And thanks for that. So, if you’re going to have the best people, it’s not about you being the CEO for the next convenient period of your life and then handing it off to your buddy. That’s not succession planning. Succession planning starts with the talent level at a much lower level in the organization and often with younger people.

These are product managers or regional managers. There are people that made their decision to start their career with your company. Why is that a rational decision and why should they be excited about their future? Do they see a pathway? Is your culture and your processes inviting people to say, “Hey, I’m Kim, I’m 28 years old? One day I’m going to be 45, I’d like to be making more money and have more responsibility. I’m willing to be accountable. What’s that pathway look for me here?”

And so, you got to get that right and scale that right as a cultural item. In my view, real succession planning starts with a serious, robust and sustained bottoms-up approach of we will beat our competitors because our people are better. They’re happier. They’ve made a better choice to be with us, and they’re going to be more successful if they go to work every day and work hard. Alright, so that’s number one.

Number two, you really do have to look out seven years. Three is too short, 10 is too long, seven is my choice. It’s beyond five years, which most of your competitors are thinking.

And in any business of any size and scale, people are going to be thinking about the future, whether they’re any good or not, that who knows, but they’re going to be thinking about five years, be a little bit further than them, be focused as a board with some sort of governance, whether you’re a private company, family company, public company, some sort of varied input, here’s our markets, here’s our capabilities, here’s what we could be, and in my view, Kim, seven years and say, “All right, here’s where we’re better than everybody.

“Here’s the strengths we have. Here’s the customers we have. Here’s the products and services we have.” In seven years, what does success look like? And once you’ve got the first part right, nobody’s getting better young talent than me. And then you get the second part, right? We’re going to be the most successful company because it matters.

And whatever sphere we’re in, then you look at who are my leaders and what do my leaders need to be over the course of time? How does it impact these people? It’s going to vary. So, you don’t want to get too formulaic at that point with any company, but have more talent than anybody else? No. What domination looks like, but let’s drive from there. That would be my algebra.

(00:22:32) Paul Perry: Good stuff on succession planning for those that are thinking about it coming up. A great way to think about it. Sandy, I want to come to you. And we’ve mentioned, Daniel and you both have mentioned several characteristics of business owners. You’ve seen life cycles play out in your experience. What would you say are the characteristics of a successful entrepreneur and why would you use those characteristics?

(00:22:57) Sandy Coaker: I think it’s interesting. Daniel has mentioned two or three of those that I would say are probably the most common things that I see. And he talked about, you just do it, and you keep doing it.

Tenacious people make great entrepreneurs, right? And these are in no particular order, but you have to be pretty darn tenacious from day one to make it work. I think the other thing I think about is that a good entrepreneur is really good at assessing risk, but even better at managing risk, because there is always risk—especially starting something, there’s a ton of risk.

So, I think an individual that can identify what the risks are and prioritize those risks. They assess them for how impactful this or that would be on their company, and then be good at deciding how best to manage that risk. And quite frankly, is it a manageable risk? And then putting that management plan into action.

I think that’s a key component. I think the other thing… Daniel said in his comments about private equity, he said to slow down and those were his best words of advice. I think that is such a key statement because a great entrepreneur has to have a very delicate balance and understanding of how to keep the foot on the gas while they slow down on certain aspects of the company or certain decisions.

I think about quick decision makers—people who are good at making decisions based on a company’s strengths, not necessarily based on its weaknesses. So, I really liked his advice and I think that it’s very pertinent because I think both speed and the discernment of when to slow down are critical.

The last thing I’m going to say is you certainly can’t be afraid of failure. You have to understand that failure can be your best friend at times, because often from a failure comes some of your greatest achievements, right?

I think anybody would agree that, as an entrepreneur, you cannot have a fear of failure. You have to almost embrace it at times to really achieve the best that you can achieve. Then, to simply repeat what Daniel has already said: An entrepreneur who surrounds themselves with the right people, the most talented people, but then I think most importantly is that they trust those people and they understand that by trusting those people, they can accomplish so much more than when they don’t trust or have to control.

I think that takes a lot of wisdom to surround yourself with the right people. It takes loyalty on both sides of that equation. And then just leaning in and allowing those people that you trust and are loyal to help you succeed. To me, those are the top five for me in terms of most important aspects for an entrepreneur.

(00:26:44) Kim Hartsock: So here on The Wrap, we like to wrap it up in 60 seconds or less. So, Daniel, we’ll start with you. What’s the big takeaway that you want listeners to hear? We’ve talked about a lot of aspects of the business owner’s life cycle, but if you had to leave with just one key thing for them to take away, what would that be?

(00:27:06) Daniel Hughes: Number one, believe in yourself because no one’s going to invest in you and your idea if you don’t believe in it. Two, once you’ve decided to start a business, grow a business, be a major part of a business in any form or fashion, then be passionate about it. Don’t be afraid to show that passion.

You’re going to make mistakes. We all do. But one of the modern things that’s not that great is that we tend to jump on people for their mistakes and forget that mistakes are part of a learning process for all of us. No one bats a thousand. Surround yourself with people that believe in you, and you believe in them.

That’s so important because it’s not a solo sport. A speech I recently listened to that Roger Federer gave at Dartmouth while winning 80 percent of the matches, he only won 54 percent of the points. So tomorrow, you got a point to play. Play it as best you can, as hard as you can, with all the tenacity you can, and all the team members you can.

Get yourself the best people and be the best decision they ever made to be around you. Don’t win every point but learn from every one of them. When they’re played, recognize it’s another point tomorrow. I would say, Kim, that the odds are going to be with you in business.

(00:28:28) Kim Hartsock: Thank you so much for leaving our listeners with that. And Sandy, we’ll give you the opportunity. Is there what one thing you want listeners to hear as we wrap up this episode?

(00:28:41) Sandy Coaker: That’s a hard act to follow right there. You know, as cliche as it sounds…what’s the old phrase? Plan the work and work the plan. I believe in strategy. I believe that it takes you from investment to freedom and retirement in a very manageable, proactive stance.

I think it is worth it. Every bit of the time that business owners will take and pause to create the time and find the time to actually create a strategic plan. Understand where they are in the plan, in what phase they’re in and what that phase, as well as the next, might require. In using that as a principal guide, create the plan and work the plan.

I think at the end of all of any stage, you’ll be more successful with that intentionality behind it, that strategic thought and that pause in the day to day. I think it will help you stay the course, number one, stay the course, and number two, execute the course more effectively.

(00:30:02) Paul Perry: I’ve got to say thank you both, Sandy and Daniel, for being on this episode with us. This has been a pleasure to listen to your thoughts and your advice on the business owner life cycle and from the experience that you’ve seen and experienced yourself. Thank you both for being here. Happy to have had this conversation.

(00:30:20) Kim Hartsock: Yeah. And I look forward to joining our listeners on the rest of this series as we dive into a deeper level of each of these stages.

(00:30:28) Daniel Hughes: Well, thank you, Paul, Kim and Sandy for having me.

(00:30:31) Kim Hartsock: Thank you guys. Enjoyed it.

(00:30:32) Paul Perry: Kim, always a pleasure to be with you.

(00:30:34) Kim Hartsock: Yeah. Thanks, Paul. Thanks, Sandy. Bye.

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