Welcome back to Part 2 of our quest to find “the perfect business”.

If you haven’t already read the previous article, you should definitely go here and read Article #1 now.

In that article, I explained the purpose and context of my “List Of 16″, and outlined the first 4 elements.

Today, I want to continue this conversation, and explore the next set of 4 elements of my List Of 16. We’re going to drill into the business model itself, and think about the future before the present.

Area #2:  Business Elements

This second set of elements is all about your business in the future.  In other words, I want you to think about your business from the perspective of a few key elements that will become extremely important down the road.

It was Dr. Stephen R. Covey who coined the phrase, “begin with the end in mind“. This may have been one of the most profound and powerful pieces of advice ever dispensed when it comes to business — and sadly, one of the most ignored as well.

As it relates to business, there are several critical factors you can think about today which will radically affect the rewards you will ultimately gain from running it.  Let me first go through these elements, and then I’ll comment on why most entrepreneurs completely ignore these things (at their peril).

Element 1:  Sellable / Exitable

Yes, I think the word “exitable” is made up, but the concept is critical — down the road, is there going to be an opportunity for you to sell or exit your business?

Most entrepreneurs blindly and blissfully going into business, never considering the future and how they might strategically craft their “baby” so that it actually has an appeal to someone else at some point in the future.  In fact, this describes most business owners — and explains why most entrepreneurs start and run business that eventually are just shut down or go out of business at some point.

By thinking carefully and strategically about how you structure, build and grow your company, it’s possible to not only love the business and enjoy it while you operate it .. but you can also create the future benefit of selling it to someone else when you decide it’s time to get out.

I’ve sold several of my businesses in the past, and in every case it was because I had some kind of asset that someone else wanted that did NOT require me personally to be involved.  I’ll speak to this more specifically in Part 4, but right now I want you to think about who might buy your business in the future, and what is it that they are paying for.

If your business is not sellable or exitable in the future, guess what?  You have simply created a job for yourself .. and worse, you’ve got a job you can’t quit.

And yes – there are businesses that are difficult, if not impossible to sell.  However, that is usually the result of poor planning and execution .. which is what the next element is about.

Element 2:  Scalable / Systematizeable

Ok, another made up word – systematizeable.  But the importance of this element cannot be overstated.  This is another critical factor that determines whether you’re building a dynamic business that can create a future of freedom for you, or if you’re just constructing an iron cage around yourself that you’ll never escape.

Again, thinking about the future, scalability of a business refers to your ability to grow the business without running into major bottlenecks or obstacles that stop your growth.  Scalability is usually (but not always) impacted by one major bottleneck of a precious resource — and that is people.  And it’s usually even more specific than just people — it’s usually about you as the owner.

Most businesses are built around one or two key individuals that create most of the value for the company.  For example, a real estate agent who markets under their personal brand (ie: “The Jane Doe Team”), a speaker or author who is the brand and the company, or a famous chef who owns a restaurant named after them.  This is also true for the vast majority of professionals such as lawyers, dentists and consultants .. as well as almost anyone who charges for their expertise by the hour.

The core problem here is that if you do not have systems that allow others to create value in your company, you are stuck being the value creator – and you are eventually going to run into 1 of the 2 fatal limiting factors.

#1 is that you only have so many hours and once you max that out, you’re exhausted AND your growth is capped.

And #2 is that the market will always place a maximum on what you can charge per hour.  So the number of hours will hit a ceiling, as well what you can charge for each hour.

Your job as an entrepreneur is to figure out how to create systems and processes in your business so that you can teach, train and delegate to others to create value in the business instead of it being all about you.

The market rewards you for the amount of value you create – so if you want to make more and create a valuable company, create more value.  That’s what it’s all about.

Element 3:  Sustainable

Next in the list is considering how to ensure that your business is going to have the ability to live a long life, without relying on random or unpredictable factors.  How predictable is your ability to find new clients?  How predictable are your revenue streams?  How predictable are your clients in terms of their willingness, ability and need to buy what you have?

As an example, a lot of businesses rely a small handful of clients (or even just one) as the core base, and all it takes is one of those clients making a change to cripple the business’ revenue stream.

Another example is a business that is designed around some kind of loop-hole, or an otherwise overlooked gap that creates an opportunity.  This often happens when there’s some gap in the tax law, creating a little known opportunity for an entrepreneur to exploit it and create value.

In Canada, for many years there was a specific type of corporate tax structure (the income trust) that Canadian oil companies utilized, providing investors significant tax benefits.  One day, the Canadian government changed the law – and destroyed billions of dollars in asset value over night for the companies, as well as investors.

Obviously you can’t perfectly predict what the government is going to do, nor be able to see the future.  However, it’s critical that you think through what potential changes could occur that would threaten your revenue streams, or your very business model.

Sustainability is really about predictably, and not relying on hope or manifestation that somehow, things will “just work out”.  While I’m a big believer in positive attitude and manifestation, those things are not enough and you have to do everything you can to allow the universe to support your efforts and passion.

Element 4:  Continuity / Perpetual Revenue

The last element of the Business Elements is a critical one to think about, because this is often the difference between owning a growing, thriving business .. or having a business that is a constant grind to maintain and grow.

Continuity or perpetual revenue refers to the concept of receiving more than an individual revenue payment for what you do.  In other words, repeat business.  For example, think about a retail store that sells baby cribs.. They’re likely to make the first sale to new parents looking for a safe place for their baby to sleep.  But if that’s all they sell, it’s unlikely they’ll generate more than 1 sale from any given client.

The most important sale you make to a client is NOT the first sale .. it’s the second sale.  The reason being is that not only does that mean the client was satisfied and happy the first time, but it means you have something else to sell them!  Most entrepreneurs focus on making the first sale, and then ignore and neglect the client and instead go out and try to find another new client.

That means they have to continually be attracting new clients from which to maintain their revenue stream.  Attracting new clients is expensive and difficult, but when you have no continuity or repeat business from your clients, that’s your only alternative.

So the question here as it relates to your business is ask ‘how can I create an ongoing, value-based relationship with my client so that they continue to pay me and generate repeat business in the future?”

If you sell products, one thing to consider is how you might be able to turn a product into a service, or to wrap some kind of ongoing service program or offering around the product you sell.

A great example is a new car dealer – they know once you’ve bought the car, you’re likely not buying a new one for several years.  So they’ve built an entire business around providing service on that vehicle.  That’s how they’ve created continuity or repeat business, and it’s something you need to do as well.

Ok, that wraps up the 4 Business Elements on my List of 16.  I’ve covered 2 areas so far (Industry and Business), and in the next article I’ll tackle area #3, which is Financial Elements.  We’ll wrap the series up with article #4 on Marketing Elements (which is my favorite part of all, as you’ll see).

I hope you’re enjoying this thinking, and as always if you have any questions or comments, please post them below.

It doesn’t matter if you disagree with what I’m saying, or you’ve had an “aha” based on something I’ve said.  I’d love to hear from you, so please join the conversation!