I just received my current copy of Inc. magazine. On the cover stand four, young, confident looking entrepreneurs.
Yet another story about how under 30-year olds are taking over the planet.
Personally, I like stories like that. I like the optimism and challenge that it puts out there.
But it distorts reality. It isn’t fake news. But it is disproportionate news.
The real news is that the majority of all small and medium-sized businesses are owned by people over 50. This same group of people is also starting more businesses than any other group. Non-profit and public sector executives tend to mirror these numbers.
Here’s more news:
- Most Want to Exit: 50% of these individuals want to exit their role within five years. 75% are planning on exiting within 10.
- Most Are Not Ready to Exit: 80% of business owners have 90% of their net worth tied up in their business. Non-profit or public sector leaders have, usually, no net worth tied into in their organizations.
- Most Don’t Know How They’ll Exit: 83% of all these business owners have no plan for preparing for or navigating their intended exit. Non-profit and public sector leaders are even more likely than business owners to be personally financially unprepared to exit.
This is a big deal. Ownership or executive change is one of the most consequential leadership decisions that exist. Leaders who are not prepared often stay too long – but stop contributing in the way the need to. They confuse their personal vision (which is now shortsighted) with organizational vision. They stop starting things. They stop creating opportunities.
Your Exit should be intentional and prepared for. Make it a strong part of your legacy and contribution to your organization.
The Four Legs on Your Stool
There are four legs, or major tasks, that need to happen for a successful exit or succession. There are significant value and consequences associated with each. These legs are:
- Create a Life Plan
- Create a Personal Financial Plan
- Increase the Value/Health of Your Company
- Prepare for On-Boarding
The First Leg: Create A Life Plan. I’ve noticed that my clients are often unable to plan for their organizations until they’ve built a Life Plan. A Life Plan is a picture of “what’s next.” It doesn’t need to be complicated. It’s just a description of what they want the next chapter in their lives to be about. What will it look like? What will be the new priorities?
Additionally, for many leaders, this may not mean completely exiting the organization. It may mean a redefinition of their role. A common example of this is an owner-operator may move to hiring a CEO or bringing on a managing partner.
Addressing Ambivalence: Most, in fact nearly all, leaders who ask me to help them relate to their Exit as a form of death. They flip flop back and forth between being ready to do something else and never wanting to let go.
Their identities, creativity, and energy are tied up and directly associated with their roles in their organizations.
This usually doesn’t change until they have developed a clear plan for “what’s next” for them. It might be a new business venture, it might be time with family, it might be a passion project they’ve always wanted to pursue.
Your Takeaway: If you are considering an Exit, you need to develop a picture of what you are moving to. Being able to see and be excited about, “What’s Next” helps motivate you through difficult steps of the process. It also prevents the common, subconscious undermining of a successful exit.
The Second Leg: Personal Financial Plan. I meet many leaders who are very high earners. But they’ll often tell me they aren’t financially able to stop working. Their income is high. Their debt is high. Their net worth is too low.
They can’t stop working. But they no longer have the same passion for their job they once did. They feel financially and emotionally stuck.
Once you have at least a rough picture of your Life Plan, build a team of trusted advisors. This might include a wise tax advisor, an estate planner and a financial wealth advisor and a consultant who can help you and your team plan for your exit.
Your Takeaway: The right team can help you prepare for your exit with confidence. Don’t wait to be surprised that you aren’t ready.
The Third Leg: Increasing the Value/Health of Your Company. Building as healthy and vibrant a company as possible is critically important. A healthy company will manage transition better. Importantly, a healthy company will attract higher quality successor candidates. A healthy company will have a strong leadership bench to pull from internally. Or it will be able to attract better people externally.
For those that are considering a sale of their company: Many in the business world have prophesied an enormous flood of companies for sale as Boomers retire. This hasn’t happened.
The sad reason is two-fold. The first reason is the most companies aren’t worth anywhere near as much as the owners think. So, they can’t sell.
The second is that many companies are structured around the personality, skills or relationships of the leader. Good buyers will see that and go elsewhere.
This is true in the non-profit community as well. While selling a non-profit isn’t an option in the United States, they still want to attract qualified leadership. The best potential Executive Directors aren’t usually looking for fixer-uppers. Particularly if they still have the same board that didn’t fix things up the first time around. The sad reason is that often they aren’t worth much or anything. The owners have used their companies to support their lifestyle but didn’t know how to relate to the company as an investment and an asset. This isn’t wrong, but it means that more owners end up liquidating any material assets they may have and shuttering their businesses.
It is common for business owners over-estimate the value of their companies. Additionally, by the time they emotionally shift to a place of readiness for an exit, they’ve often taken their foot off the gas, growth.
This might be because they’ve hit their personal ceiling for what they feel they can comfortably manage. It might be because their attention has been diverted elsewhere. Whatever the reason, the company’s value is often not as high as they expect.
Taking the last 3-5 years before you exit to focus on expanding the value of the company, tidying up systems and processes so that the company can run without you, and expanding the leadership capacity within your company all contribute to creating a much more attractive company for a buyer or ideal new candidate for executive hire.
This rarely happens. It often creates confusion for the exiting leader because they tend to believe that their company is more attractive and worth more than it is.
This isn’t much different for non-profits or public service leaders. If they’ve been in their positions a long time, they often create very personality dependent organizations. Streams of funding might be closely tied to their networks and relationships. As a result, they are less likely to attract ideal new executives who often have better options, from more prepared organizations, elsewhere.
Your Takeaway: Before people sell their homes – they often invest in home improvement projects to increase the value to buyers. Do the same thing with your business. But start sooner. You stand to gain far more.
The Fourth Leg: Prepare the On-Boarding. When it comes to exit planning, the onboard process is more than introducing the new executive to the staff, giving a briefing, doing a few shadow days, and handing over the keys.
Onboarding, in this scenario, is about preparing both the successor and organization for a change in leadership. This includes making it possible and easy for employees to shift loyalties to the new leader. Being sure to clean up unresolved projects and issues. Ensuring that strategic relationships have been handed over.
Onboarding should include the board if there is one, and senior staff. They all have a direct stake in the success of the new leader. It is important that they are engaged in this process from the start.
If you intend to remain involved in the organization, a good onboarding process also includes thinking through how you will offer the new leader sufficient space to create their own identity, relationship with the staff, and establish their own authority.
Past leader or owners, particularly if popular or very influential, can sink their companies if they like to exert influence or meddle periodically.
The greatest legacy is to create a path that will allow your successor to bring the organization to new heights.
Your Takeaway: Planning to bring on the new leader is a key part of success. Planning for their success will reflect well on you.
The Excitement of Exit Planning Done Right
I used to run relay races in track and field. I was often the starter. A fast start was important psychologically as well as reducing overall race times. But the handover was always more important. A stumble, or fumble or baton drop could easily cost us all the gains of a fast start.
The team I raced on regularly won and set records. They key to our success: Our handoffs were flawless. We practiced handoffs far more than our starts or anything else.
When your exit is well planned, it can be an exciting process. Make yours a flawless one.
Take good care,
 Adapted from “The Master Plan” 2015 Peter Christman. Exit Planning Institute. Comments on non-profits are my own.
Exit Planning Done Right: Building All Four Legs on Your Stool
Would you like to prepare for a strong exit and handover? Would like to maximize your return during that process? Would you like the confidence that the business that you’ve built and people who helped you build it will be taken care of?
If your answer is YES, then I’d have something for you. I’m opening a few slots on my calendar to schedule a 30-minute call to talk about how you can plan for your exit.
On the call, I’ll share with you the specific strategies you can use to build all four legs on your stool. This will allow you to exit with confidence, allow you to maximize your wealth and build your legacy.
Due to my busy schedule, I only have a few slots open for this complimentary call on a first-come-first-served basis. Email me at Christian@vantageconsulting.org or call me at 907 522-7200.