The Business Transition Blog

Succession Strategies for a Pandemic

The scientists predictions were right. In 2009 I wrote this (now abbreviated) excerpt from my book, The Business Transition Crisis – Plan Your Succession Now and Beat the Biggest Business Selloff in History. If you heeded it, congratulations. If not, it might not be too late.

The world is preparing for a pandemic. Worst-case scenarios predicted by health organizations would indicate that 50 percent of employees could be off work at any given time either from the illness itself or from fear of catching it.

What plans do you have in place to keep your business running in this event or some other calamity? This situation shows the ongoing and vital need for cross training and preparation for sudden, unexpected, and unpredictable events. But a pending pandemic isn’t the only reason for succession planning. Every position in your company should have back-up so you can continue to operate despite any setback – illness, natural disaster or a strike.

You’ll be better prepared by having documented systems in place so that others could step in and follow directions. But still, how well would your business run if you suddenly lost half of your people?

And it’s not just a pandemic. What would happen if your competitor recruited a key manager? What would it cost you to replace her? Who is groomed to take her place? You might avoid this very costly and disruptive situation by planning regular, open, respectful communications with your managers. Striving to become an employer of choice will not only help you attract top talent, it will help you keep the talent you already have.

What if a senior manager had a heart attack and died? Consider the cost of replacing a key person especially at the most inopportune time, such as the month before tax deadlines or in the midst of important negotiations with a major supplier. Are others in the department capable of carrying on the essential activities and getting the required results? Do you have life and disability insurance to offset the costs of losing your key people?

Who could replace you? What if you get sick or die? What if you no longer find working in your own company to be invigorating or in your best long-term interests? Many companies that look like the walking wounded are the result of an owner who has lost hope, lacks confidence in the future, or has lost interest in continuing to run the business.

While you may have heard all this before, it is even more relevant and urgent in the current crisis. Expect the best, but prepare for the worst.

Value vs. Price

Value and price are moving targets, different for everyone. There are many variables that contribute to perceptions about what your business is worth. Let’s say you believe your business is worth $1 million. But do you want:

  • Payment in cash so you can purchase a second property or invest wisely and diversify your wealth?
  • Payment in instalments so you have a guaranteed income for life?
  • Payment into a trust for your children?
  • Shares of the company that has acquired yours?
  • Donation to a charity of your choice to create a legacy?

In addition you must consider the buyer’s concept of value. Does the buyer want:

  1. A write-off to reduce taxes on another business?
  2. Your customer list?
  3. Your employees?
  4. Your technology, patents or intellectual property?
  5. Your unique products or services?
  6. Access to a broader, international market?
  7. Access to stronger purchasing power?
  8. Your location and/or real estate?
  9. A greater presence, control of, or monopoly in the market?
  10. Your reputation?
  11. Your predictable cash flow?
  12. Synergies that enable cutting of expenses and overhead to increase profit?
  13. Systems, processes and procedures that helped you become successful?
  14. Your website and social media presence?
  15. Your brand?
  16. Your expertise and abilities?
  17. Your entire operation to be managed by the new owner?

Initially, most people I talk with about transitioning their business think that their best option is the last one; but they haven’t seriously considered the others. With so many variables, you can see that value and price are quite different. For example:

  • You might have an easier time convincing someone to give you $7,881 per month for 15 years (at 5% interest) than a million dollars in a lump sum. You take some risk, reduce your tax liability, and enable the new owner to pay you out of profits created by synergies or increased sales.
  • You might be able spin off a part of your business that is not important to the new owner and sell it to someone else. For example, half of your $1 million valuation could include real estate that isn’t important to the new buyer because what they really want is your customers and employees.  You may be able to sell them what they want at your asking price and still keep the real estate.
  • You could leverage your $1 million by buying a life insurance policy that would pay $10 million to your family or favourite charity on your death and have the new owners pay the premiums.

There are many alternatives to consider. Ultimately, your business is worth what someone is prepared to pay for it. Think beyond what you believe is the way a transaction should go and consider creative ways to structure a deal that gives you and your acquirer exactly what you both want.

Entrepreneurs, Black Dogs and Depression

Winston Churchill famously called depression his “black dog.”

During my sabbatical in 2008, I interviewed an entrepreneur who had sold his business in 2004 for more money than he knew what to do with. However, soon after the sale he fell ill. He had trouble getting out of bed. It was like having the flu all the time, but the usual treatments had no impact.

Finally, he met with a psychiatrist who diagnosed his symptoms as depression and told him that, “when you sold your business, you died.” Although on one level, he was pleased with growing and selling a successful business, emotionally he was a wreck. The doctor pointed out that, “the person you were before you sold your business no longer exists. You have to reinvent yourself.”

It took this entrepreneur two years to recover from selling his business. By 2008 he was doing well. He was going to the gym every day, watching his diet and reconnecting with his family in an intentional way. He felt ten years younger. As we discussed his journey, he confided, “You’re only the third person I’ve told this to. In a way, I wish I could stand in front of a group of entrepreneurs and tell them what I experienced. But I can’t.” When I asked him why, he replied, “I don’t have the courage to do it.”

I was surprised by his answer. Here was an aggressive entrepreneur who started and grew a business that created thousands of jobs and equity that exceeded his wildest dreams. A man who took incredible risks, negotiated with tough bankers, union leaders and executives, yet he was reluctant to admit he experienced depression. What a stigma we’ve created around mental illness!

Depression is widespread in our world and has been identified by the World Health Organization as a looming threat to productivity and human health. It strikes individuals regardless of socioeconomic status, gender, IQ, or ethnicity. It happens in spite of positive attitude, educational status, or the ‘pull yourself up by your bootstraps’ approach to life common to entrepreneurs.

Depression requires treatment and intervention, often with a combination of medication and behavioural counselling, which can include simple strategies such as:

  1. Write what Dr. Martin Seligman calls a “Blessings Journal.” At the end of every day, identify three things from the day for which you are thankful.
  2. Connect with people who care. Even though you may feel like isolating yourself, reach out to your social network.
  3. Exercise daily.

You may be surprised at the difference these three actions can make in how you feel. For more strategies and helpful research, read Flourish by Dr. Seligman and The Happiness Advantage by Shawn Achor.

11 Ways to Prepare for Transition

The Common Denominator of Successful Transitions

As I reflected upon the successful business transitions with which I’m familiar, I looked for patterns and commonalities that made the business owner successful in achieving their goals. There are so many variables and unique situations, it’s hard to pin it down to one or two things, but here are eleven points that will increase your chances of success.

  1. They had a goal. It wasn’t a good intention or a wish, but an actual goal with a plan, a date and a strategy.
  2. They had help. They didn’t do it on their own. They reached out to experts they could trust to give them good advice. They had coaches who, like pilots, could help them to navigate the unknown waters, develop their plans, make adjustments along the way and follow through to their destination.
  3. They prepared well in advance. It wasn’t spur of the moment or a rush.
  4. They got the timing right. They put themselves in the right place at the right time by being prepared when the buyer showed up.
  5. They did their due diligence on their own business. They looked at their business through the eyes of a buyer and corrected the critical pieces that could hold up the sale or cost them dearly.
  6. They had a good story to tell to help sell the future value of the business. They had growth, profitability, a definable market, cash flow, predictable revenue, and a product or service that was in high demand.
  7. They had a diverse customer base with no one or two customers who represented a large percentage of their revenue.
  8. They had their books in order. Taxes and payables were up to date. Receivables were under control. They knew their numbers.
  9. They made themselves redundant. The business was no longer dependent upon the owner to be there all the time. The owner had successfully delegated responsibility and trained competent employees to do whatever was necessary to keep the business operating well.
  10. They were personally ready to move on. They had prepared themselves mentally and emotionally for the change.
  11. They were lucky.

That last point is important. The statistics aren’t in your favour. Only a small percentage (less than 20%) of businesses will ever find a buyer and successfully sell. Even those who have done all the previous ten points have no guarantees, but their chances go up significantly if they do. If you’re counting on JUST being lucky and not doing all the other steps necessary for success, you might do just as well by buying a lottery ticket. But I wouldn’t bet my retirement and the livelihoods of my employees on it.

The Importance of Asking Questions

Anyone who knows me knows that I love questions. I’m naturally curious and I like to understand what’s going on in the mind of the other person. If you can better understand others, their perspective, their wants and needs, their values and beliefs, their rational and emotional reasons for doing what they do, then you are in a better position to:

  • Communicate more effectively,
  • Address their wishes and issues,
  • Have a more meaningful, honest discussion,
  • Help them get what they want,
  • Better position your ideas to match what’s important to them.

When it comes to selling your business, a prospective buyer will be very curious too. They will want to know as much about you and your business as they can, in order to judge the value of your business as well as to understand what you want to get out of the deal. They’ll want to know why you’re selling and what’s critical to you in this negotiation. In addition, they will have a long list of questions they’ll want you to answer.

In order for you to be prepared and show that you’ve thought this through, you’ll do better if you know what those questions are and have documented the answers. If you’d like a free list of due diligence questions that a buyer is likely to ask, you can request it by sending me an email: WAV@TACresults.com.

You too should have questions. What is the buyer looking for? Why are they interested in your business? What will they do with it once they buy it? What are their priorities? How will your employees be treated? Will they want you to stay on? For how long? How will they structure the financing? How many businesses have they purchased in the past? What is their track record? What changes have they typically implemented once they purchase a business? Would they see doing that here? What else do they see? How does your business fit with their short and long term goals? Will they plan to move the business or leave it where it is? What are the strategic advantages to them in buying your company?

Stephen Covey wrote: “Seek first to understand, then to be understood.” Most people are happy to answer your questions because they want to feel understood. It’s an innate desire that we have. You can tap into that and ensure you are making a win-win agreement that benefits both parties by asking good questions.

Service to Others

Take a bucket and fill it with water,

Put your hand in it up to the wrist,

Pull it out and the hole that’s remaining

Is a measure of how you’ll be missed.

                                    S.W. Kessinger

The Indispensable Man (we could add Woman to this title) is a poem often cited for cautioning leaders to be humble as they exit.

But I think there is another message here for leaders – a successful transition should look like exactly like this…barely a ripple when it’s time to move on.  How we start is important; how we finish is the true measure of success.  Preparing all our stakeholders to move forward without us is a priority.

While we most often think about what’s in it for us as business owners, seeking ways to maximize our rewards after years of hard work, it’s worth considering succession planning from the perspective of service to others.

In 1970, Robert Greenleaf published an essay outlining the concept of servant leadership. Since then multiple authors have added to this theory that leadership must be about more than the acquisition and hoarding of power.

At its core is the basic principle that servant leaders recognize their responsibilities to a broad base of stakeholders – their employees, clients and customers, as well as the community in which they do business. They accomplish their goals by serving others. The Greenleaf Foundation’s research suggests servant leader institutions have improved retention and higher profits. Always good markers when you are transitioning your business.

As you prepare for succession, consider ways to serve others:

  • Share power rather than hoarding it.
  • Push responsibility and accountability further down the organizational chain.
  • Help individuals develop the necessary skills and ability to carry on without you.
  • Build capacity in the processes and structures of the organization as well as in the people.
  • Then, track and evaluate your progress in these strategies.

The world looks different when you are other-focused rather than self-focused. Sharing power, looking after the needs of stakeholders, and lifting individuals to their highest level of performance are key ways to serve others.  When you do, everyone wins. And you might be missed more than you would have otherwise.

Back to Basics

Here’s the basic question: If YOU don’t address and plan for your succession and the transition of your business, who the heck do you think will?

Burying your head in the sand, looking away, putting your head down, putting your nose to the grindstone, are all euphemisms for denying this obvious and necessary question. Rearranging the deck chairs on the Titanic didn’t put off the inevitable. Your business is going to change from your hands to someone else’s. Period. The question is, how and when. “If” isn’t in the equation at all.

What are your options?

  • You can do it in advance, on purpose, with a plan, giving yourself options, control and time to make the best of it.
  • You can leave it to someone else to do without your permission, your insights, your strategies, your concern for employees and customers and hopes for the future.

If you were to die with your boots on, without a plan in place, here are some possibilities:

  • Your employees could carry on, doing their best to keep the business going, keep their jobs and pay your family what they can out of profits – if there are any. But if they have the ability to do that when you’re gone, you should get them to do it now so you can oversee the process and coach them so they do it well.
  • Your kids or spouse could take over. Maybe that’s the informal plan anyway, but if it is, you should formalize it now when you are still confidently in control and able to mentor them and help them succeed. You might also find that they aren’t interested and you need to come up with Plan B before it’s too late.
  • Your creditors could call your loans and force your family or estate to sell even if it isn’t the best time in the market to do so.
  • Your former spouse or a shareholder could demand that the business be sold for pennies on the dollar. 

There are other options, but they don’t get much better. As the owner of the business you have an obligation – a responsibility to do what needs to be done so that when the time comes – and it will come – your business will transition according to your plans and wishes, not someone else’s. Because that’s the basic question: If you don’t initiate it, who will? That doesn’t mean you have to do it on your own, but you do have to make the first step and get help.

Catching up!

It’s hard to believe it’s been so long since I posted here, but I’ve been busy on other fronts. For more articles from the past year you can go here where you will find hundreds of my articles on succession, transition and planning. We’re just finishing up our first 3 year program for Business Owners in our Business Transition Coach Forum and will be starting another this summer. The results have been very positive with hundreds of thousands of dollars going on the bottom line for participants. More importantly, they have more confidence in their future and a plan to transition their business. Anyone interested in learning more about the next peer to peer group can call me at 519-654-2368 or email me at wav@TACresults.com.

Thanks,

Wayne

New Year’s Resolutions or Goals?

Happy New Year!

As we look to the New Year, there are lots of things to be thankful for. We can be thankful for the fact that we live in a land which is rarely plagued with natural disasters and have never experienced the kind of devastation that has happened in other weather or war-battered countries. Frigid temperatures and a few feet of snow look pretty good compared to what we’ve seen in photos from around the world. Regardless of any current discomfort we may be experiencing, when you put it into perspective, we are very fortunate.

Here’s a question for you to ponder as you consider your plans for 2016: Is your future smaller than or bigger than your past? When you look ahead, do you see bigger and better opportunities, or diminishing returns? Are you ramping up, or slowing down?

Regardless of your age or stage of life, it’s a sobering thought to consider. Even though I have the occasional grey hair, I’m confident that my future is bigger than my past. The opportunities are easier to recognize and take advantage of. The effort required to do what I did in the past is less so I can accomplish a lot more with the same amount of effort. If I put in 5% more effort this year compared to the last, the returns will be multiplied.

This is a great time to consider where you are, where you are going and how you’re going to get there. Forget about New Year’s Resolutions and go straight to setting some goals because goals expand your future. They expand your options and opportunities. When you are committed to them, they focus your energy into an unstoppable force.

Here are some questions to stimulate your thinking as you plan for the next 12 months:

  1. What are my business goals for the year? Remember to make them SMART goals.
  2. What do I have to do differently this year to reach those goals? Be specific. Remember that if you want different results, you have to have different inputs. If you want to make a chocolate cake rather than a vanilla one, you need different ingredients.
  3. What are the obstacles and what do I need to learn, practice and do to get around them?
  4. When I reach them, how will I reward myself?
  5. What personal victories do I want to achieve for the year?
  6. What are my goals for health and fitness?
  7. What are my family goals?
  8. What needs to happen in the next 12 months in order for me to be happy with my progress?
  9. What skills (sales, leadership, management etc.) do I need to focus on in order to make my goals easier to attain?
  10. What do I need to give up or abandon in order to have the mental energy and time to achieve the goals that are important to me?

If you haven’t already done so, you might also consider setting a Giving Goal to help those less fortunate than yourself. Sharing and altruistic acts have been proven to be one of the best ways to increase your own personal happiness.

2016 could well be your best year ever. Expect the best!

Happy New Year!

Wayne

A Letter To The New Minister of Small Business and Tourism

Here’s my latest article in ProfitGuide.com It’s a call for some recognition of the Business Transition Crisis that is looming – along with some helpful suggestions.

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