Carl Bates on making a business about more than the founder
“Craftsmanship is about sustaining the small; it’s not about becoming a big organisation.”
A few years ago, Carl Bates, a New Zealand-born business speaker, mentor, author and global entrepreneur received a call from his mother telling him that his father had suffered from a life-changing stroke. “A few days later I had to make the toughest, single decision of my life.”
Bates, who has had to make tough decisions about firing CEOs during his career, said this decision was more difficult than any he had ever made before.
“Because I had to sign a piece of paper that put my dad’s business, after 30 years of business, into voluntary liquidation,” he explained to an audience of business owners at a Business Partners seminar in Cape Town. “Because when you pluck the master craftsman out of the business that has been built around the master craftsman, it doesn’t matter how much life insurance you have got, the business loses its life if it is based around an individual. And many of us base our businesses around us,” he said.
Bates went to university at age 16 and had his first directorship position at age 18 at a private hospital in Palmerston North, New Zealand. At 19 he was appointed as a director of New Zealand’s largest multi-stadia complex, the Arena Manawatu, also becoming chairman of the finance and audit committee. He is now the founder and managing director of Sirdar Global Group (and CE of the Sirdar South Africa Group) which has partnered with the Institute of Directors in Southern Africa in the education and implementation of governance in the small, medium and micro enterprise (SMME) sector in Southern Africa. He speaks regularly on the role of governance in growing a business in the SMME sector.
According to Bates, the most profitable businesses per employee in South Africa are those businesses that employ fewer than five people. However, entrepreneurs, who are skilled in a particular craft, often lack an understanding of how to grow a company and run an enterprise.
Craftsmanship vs a big organisation
“We become brilliant in a particular craft but then ego kicks in. We want a bigger business, we want to grow our business, we want to make more money and we wonder why profitability drops through the floor.”
Bates said it’s important to understand the distinction between two games in entrepreneurship: the craft game and the enterprise game. The existence of a craft business depends on the active involvement of the owner. “Because he or she represents the expertise required to keep a business going,” he explained.
“An enterprise is a business with a promise and a structure that makes it sustainable beyond the persons that either founded or operate it.”
He added that craftsmanship is about owning a job, and while there are some brilliant examples of craftsmen and women around the world who have made a lot of money, they are often the exception. “Craftsmanship is about sustaining the small; it’s not about becoming a big organisation,” explained Bates.
“Understand the game you are choosing to play... Enterprise has nothing to do with you. Enterprise has everything to do with the purpose an organisation promises.”
For entrepreneurs, this can be a difficult concept to digest. Bates highlighted that while many small and medium enterprise business owners will know the exact returns they get on an investment in rental property, for example, they have no idea what their returns are on their investments in their own business. Why? Because of the emotional attachment entrepreneurs have to their companies. “Our baby, our business, is a different story. And we wonder why we don’t achieve the results we want to achieve.”
Making the business about more than the founder
For a business to be an enterprise, it has to be able to exist without the founder. To become an enterprise, business governance needs to be implemented, said Bates.
“In business there are three hats: the role of shareholder, director and manager. The problem is in our own businesses we think we can wear all of them... You have to have people wearing different hats in your business... You might be the best person to be the manager of your business but what the law of three hats says is that you have to have – sitting in the middle – independent non-executive directors who hold management accountable for their performance and ensure a general investment is delivered to shareholders. And as business owners you have to understand what an engagement of a board actually is,” he explained.
Bates said he often argues this concept with SME owners who think it doesn’t apply to them, mainly because of the emotional attachment they have to their companies.
“We think, as small and medium business owners, that the best thing we have is the fact that we own our business and our emotional engagement. I want to challenge you and suggest that it might not be as much as of a positive strength as you think it is. Yes, it’s a strength, obviously it’s a strength but it is also a weakness... For those of us who are also a manager, we think – as shareholders in our businesses – that by some divine right we are the best person to be the manager and always will be. We think it’s like the game of Survivor on TV and because we are the shareholder we wear an immunity idol in the role of manager in our own company. We don’t think that having someone hold us accountable will improve our performance.”
However, Bates said he can guarantee business owners that the moment they allow independent, non-executive directors into their companies to make and enforce decisions, company performance will improve.
“I’m not talking about coaches, I’m not talking about mentors, I’m not talking about a board of advisors – I’m talking about people who are legally liable directors of the company with the ability to fire you as the CE of your own business. The moment you choose to step into that game, the performance of your organisation changes... it changes because we start to play by the game.”
He added that the law of shareholder wealth creation says that until business owners treat their investment in their own businesses exactly the same as they would an investment in someone else’s company, they have “lost the game”.