Smart Business Magazine, Jul 2012

4 Smart Business Philadelphia July 2012 Click or scan to read more columns by Fred Koury THE COST OF OWNERSHIP Your responsibility as CEO stretches far beyond yourself There are plenty of warnings about wanting too much in this world whether it is in your personal life or as the CEO of a company Remember the dot com bust Prior to the technology market bubble bursting tech companies could do no wrong Investors were ignoring basic fundamentals because this was a new era and the old rules didnt apply Well it turns out the rules did apply As did one very old rule about what goes up must come down Tech company valuations were slashed by billions thousands were laid off and the ripple effect was felt throughout the economy More recently we experienced the real estate bust It was pretty much the same story people ignored basic investing and common sense rules and the prices for real estate went sky high and then the bubble burst The results were also the same billions in value lost thousands of jobs affected and the ripple effect was felt throughout the economy There is plenty of blame to go around for these events both by investors who got caught up in the hype and CEOs who were trying to get rich or at least richer than they already were It was a quest to have the biggest paycheck the biggest yacht the biggest plane and the biggest house The reckless CEOs were trying to use get rich quick methods that are dangerous to everyone There are four common ways to grow a company Going public through an IPO Mergers and acquisitions Debt financing Self funded organic growth IPOs cost a lot of money to launch and even more money to maintain The second and third methods are all about leverage Overvalued stocks and overleveraged companies were major contributors to the tech and real estate busts Too many CEOs were borrowing more and more money to fund the next great merger or open more locations When tough times hit and the money dried up they had lived well beyond their means and a harsh reality set in Despite these recent economic failures many companies are still playing with borrowed money overleveraging themselves and putting their entire company at risk You have to understand the leverage game and the risks that come with it The best way to grow a company is to create an environment that fosters growth and to focus on building long term relationships This isnt to say that you wont make a strategic acquisition here and there or occasionally borrow money to fund needed expansions The key is to do it in moderation and understand how too much debt can hurt your ability to grow Making a mistake with debt can spell doom for your company and everyone in it Your responsibility as CEO goes far beyond yourself Investors obviously are counting on you but so is everyone that works in your organization For some of your vendors you might be their largest account If you suddenly went out of business how would it affect them Would you create your own mini bust that rippled through the local economy even on a micro scale In todays world you need to take a hard look at how you are leading your company One wrong move could cut you off from the credit you need to fund your leveraged growth With no money the organization often collapses under the weight of its own debt Its OK to be satisfied with what you have and not play the high risk game of leveraged growth Growth is good but not when it requires an all in risk that can ruin your organization and the lives of the people who work there Remember more often than not slow and steady wins the race FRED KOURY is president and CEO of Smart Business Network Inc Reach him with your comments at 800 988 4726 or fkoury@ sbnonline com From the CEO Fred Koury Smart Business Magazine is a management journal providing insight and advice for top decision makers Each edition includes feature articles on management strategies of CEOs of leading local companies In addition we partner with leading service providers to deliver 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