CEO vs Owner
There is a journey from being in the business to on the business to owning the business. As a business founder, you’ll find yourself wearing two different hats: the CEO and the owner. It’s easy to make the mistake that the two hats are interchangeable and are the same. There is a difference between running a business and considering it an investment.
Sometimes you’re starting that you might even wear a third or fourth hat–maybe when you’re serving as your top marketing person, salesperson, or lead engineer.
But the two most essential hats any founder wears are that of the owner and the CEO. And the truth is that each hat requires you to think differently about the business.
Let me explain.
Hail To The Chief
To better understand how the CEO’s role differs from that of an owner, it can help deconstruct the CEO acronym. It’s short for the chief executive officer. That means you are the top executive in your business. It also says you are a generalist and responsible for the company’s growth, profitability, and strategy. It’s an operational role. It’s your job to keep on top of the millions of different things that influence how well a business performs.
This should all sound familiar. It’s the job that most of us are doing.
The problem is that we get in trouble because we don’t recognize that this is not where the business owner should focus.
Thinking Like An Investor
As an owner of a business, you need to think differently than you would as someone working inside the business’s operations. In short: you need to think like an investor instead. It would be best if you thought of your business as an asset.
Most of us have assets in our portfolio, such as a home or stocks and bonds. But the most valuable asset in your portfolio is likely the equity in your business. Some founders have 95% or more of their wealth tied up in their business.
And just like you expect the return your other assets should generate for you, the same is true for your business. It would be best to evaluate how well your business is generating a return on the investment compared to other options available.
Let’s say you run a business with $10 million in value. And you are currently taking $400,000 a year out of the company. That’s a healthy sum, equating to a 4% return on your investment. Now, if your stockbroker reported that he was generating a mere 4% return, would you be satisfied with that? Not likely.
So why would you be satisfied with that return on your most valuable asset? Your business should be outperforming every other asset you have. And if it isn’t, it’s time to put in your owner hat and find out why that’s the case.
What’s Your Real Priority?
The conflict most entrepreneurs run into is neglecting an owner’s role in favor of the CEO. It’s an easy trap to fall into. After all, many rewards come from wearing your CEO hat. You get non-financial rewards like ego gratification and an exciting lifestyle that comes with running a business.
The catch is that you can forget that the business exists to generate returns for the owner.
I have a client who I have worked with for years who enjoyed living the CEO lifestyle. He flew worldwide, joined all the best clubs, and lived large–and the business paid for it all. He ignored the return the company generated. It was the ultimate lifestyle company.
And there’s nothing wrong with this until you bring in outside money or try to sell, which is exactly what this CEO did. As soon as he brought in outside investors, everything changed. This CEO could no longer run the business the way he had been. He needed to change, big time. He had to start thinking like an owner. Luckily, he made some easy moves to dramatically increase profitability and make the company perform like an asset.
Finding The Right Hat
The truth is that there can be cases when, as an owner, you might need to fire the CEO and bring someone else in who can generate the returns you want. In other words, you might need to fire yourself.
And that’s ok.
When it comes to something you spend so much time on, like running a business, you shouldn’t expect anything less than a great return on your investment. That’s why understanding the difference between wearing the hat of the CEO and that of an owner is critical–and why you need to be honest about which hat fits you best.