The Role of a CEO/Entrepreneur

It’s been my fortune to have worked with thousands of green industry companies over the last 38 years. Many of these companies have been run by very effective entrepreneurs. Most have not. Let me explain. (In this article, I use the terms chief executive officer, or CEO, and entrepreneur interchangeably. Just because you’re an owner, doesn’t mean you’re a CEO.)

According to my very anecdotal analysis, approximately 12% of green industry companies reach $1 million in annual revenue. Only about 2% make it to $5 million in annual revenue. Approximately 75% of all green industry businesses have annual revenues of $500,000 or less.

My green industry benchmarks for net profit margin (after all the bills are paid and owners receive a reasonable salary — before dividends, distributions and bonuses) for a company are as follows: 10% NPM indicates that things are running OK. 15% NPM is excellent and 20% NPM means the company is hitting it out of the park. I’ve reviewed thousands of profit and loss statements during my career and I can tell you that less than 1% of green industry companies attain a net profit of 20% or more. About 3- to 4% reach a net profit margin of 15%.

As I’ve pondered these statistics, a couple of questions have come to mind. First, why do so few green industry owners build businesses that exceed $1 million in annual revenue? Second, why do so few companies achieve net profit margins below 15%? I think that the answer lies in how owners think. Owners who think like business professionals evolve into real CEOs and entrepreneurs. They understand the role of a CEO or entrepreneur.

How it works in the real world

In the business world, you can use personality assessment tools. These tools “map out” one’s personality strengths and weaknesses. Specific patterns in these strengths and weaknesses provide profiles of individuals who would be good at certain tasks or jobs such as accounting, marketing, business development and so forth. For instance, a good irrigation service technician usually likes to work alone and solve complex technical problems. An irrigation installation crew leader, on the other hand, likes to work with a team and “get’er done.” How does this apply to the subject at hand?

There are four essential skill sets for a CEO:

1. Able to assess investment risks from a cost-benefit analysis perspective

2. Able to build a high-performance internal company team

3. Able to build and effectively network with an external company team to include CPAs, attorneys, bankers, consultants, peers, professional associations, educators, etc.

4. Able to analyze business threats and opportunities and take appropriate action. There are other qualities that a CEO needs to possess but these encapsulate what I’m getting at.

If an owner is going to graduate to become a true green industry professional (CEO or entrepreneur), he or she has to exhibit these four characteristics. Too many green industry owners simply do not understand what their role is. That may have the position and title of a CEO, but their behavior is that of a foreman — nothing against foremen, but they’re focusing on the wrong set of problems and issues.

Over two years ago, I hired a builder to build a barndominium for me. His company does more than $10 million in annual revenue. He’s a great guy, but it’s been over two years and we’re still not done. His design systems are great and his pricing is accurate. However, he has trouble keeping staff and subcontractors. His solution is to grab a hammer, go on-site and pound nails. Instead, he needs to build his bench and network more effectively. I could tell you dozens upon dozens of stories of green industry owners who are just like my builder. That’s why so few of them reach the $1 million annual revenue level.

If your desire is to be a true green industry professional, you need to understand the skill set that’s going to get you there. Bookkeepers generally do not make good entrepreneurs because their skillset is risk averse. They tend to be penny-wise and dollar foolish. It’s all in how you think. First, you need to fix your head. Then you’ll be able to fix both your top line and bottom line as well. Hopefully, this gives you something to think about.

Travels with Jim follows Jim Huston around the country as he visits with landscapers and helps them understand their numbers to make smarter decisions. He can be reached at: jhuston@jrhuston.biz.