OK, so, it’s a bit of a trick question, as you probably have no idea what a ‘Unity Agglomeration’ is in the first place.

Unity means ‘togetherness’ and agglomeration means ‘to form a cluster’.

It is a methodology or model created to solve a number of problems entrepreneurs face in growing their business and adding value: by that I mean shareholder value, or what the business is worth at the end of the day, and how and when to exit.

Start-up is exhilarating, fun and exciting, but if the business is not going to die it has to evolve into a more ‘grown-up’ form. At this point, much of the joy gets sucked out for a lot of entrepreneurs who move on to the shiny new thing, or get stuck in a desert of mediocrity for years.These business owners are often award-winning, highly talented leaders in their field. So why do they get stuck and how do they break out of the desert?

Issues That Small And Medium-Sized Businesses Face

The Scale Paradox

It is well known to most entrepreneurs that you need to be big to get big. Landing the biggest margin, juicy contract often requires you to be big enough to handle them. Whilst you might have the expertise that no one else does, you often find the dominant market player picks up the contract and subcontracts to the specialist to actually get it done.

It is generally true in procurement best practice not to issue contracts that represent more than 30% of a company’s turnover. This information is often not shared with suppliers; they just see their tenders getting knocked back and contracts given to less able competitors. Scale not only affects growth but also valuation: big businesses are just worth more than small businesses.

Succession

Entrepreneurs are often integral to the business and, when it comes to an exit, companies usually get tied up in legal knots to retain them. This often means they can’t get their hands on the exit money for years, or create a huge risk by paying them off, so they leave and most of the drive and passion leaves with them. People dislike change.

Demographics

This is really prevalent in the mature economies that have the demographic cliff looming, such as the US, Canada, UK, Europe, Japan, Singapore, Australia, and so on. In these countries, the baby-boomer generation started businesses, which are often solid, profitable and successful. In previous generations, there was always a wave of new blood to come and acquire or take over the running of these businesses. But now, for the first time in history, the next generation is smaller than the last and, what’s more, the barriers to start up a business are almost non-existent, so why buy a business when you can start one and compete almost instantly?

This means that literally millions of small to medium-sized businesses are going to find themselves without succession and without buyers: too small for the larger players to buy and too good to simply close down.

Liquidity

This is the ability to buy and sell your shares.This might seem a little strange at first: not a challenge you necessarily thought was a challenge, but it is a huge driver of shareholder value. Public-listed shares often carry a premium for their liquidity and, for most entrepreneurs, the exit is a ‘binary’ choice: they sell or they don’t sell. If they take on an investor, they have to show a strong business case for the use of the money; they can’t just go and buy a Porsche.



Wealth And Value Creation

As a business owner, how do you create the best value and wealth from your business? A lot of people, myself included, had good businesses that were ‘keepers’ back in 2007/2008 that simply don't exist any more. You don't want to sell too early; what if next year you get all those contracts that you have been saying you will get ‘next year’ for the last five years?

The biggest issue with wealth creation in business is that only 20% of businesses actually create any wealth for their owners (the rest cease to be). Those 20% don't normally achieve much more than a return on capital (sweat equity in most cases), so if you added up the man-hours contributed and added a risk-adjusted return on capital, that is probably what you have achieved for all the blood, sweat and years you just gave up.

It is not just an idea, it is economic fact (ask an economist) that, in a free market, businesses find an equilibrium where profit basically boils back to a risk-weighted return on capital, so the very free market that allows you to start up so easily also makes it very hard to break out from the momentum of mediocrity.

Global Expansion

Having strong international markets and businesses is a great way to reduce risk and, therefore, improve valuation. But opening up in a foreign country is a minefield and can be expensive, time-consuming, and hugely risky and distracting.

Portfolio Approach

We all know we should not keep all of our eggs in one basket, but entrepreneurs feel forced to: they have their shares in their business and that is it, for better or worse. Often this business will be taking the best years of their life. I think we are taught to see that it is all or nothing -you either ‘hit it out of the park’ or you fail, and there is no happy medium.

In Part 2, I talk about how merging companies and Unity Agglomeration can be a solution to all these problems.

_{Edited by Nedda Chaplin}

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