Does your (small) business have value for successors ?

Picture of goldfish jumping from bowl into hand
Man pointing to image to the left

If you currently run a small business, what will your legacy be as a a business leader?  Will you squander what you have built and end up leaving nothing of value for your successors?  Or will you take steps now to ensure your organization is sustainable, equipped to compete - now and for a long time to come?

Whether you plan to transition your business to your children and/or sell it to fund your retirement, what you do now to create a business with sustainable value will make a big difference down the road.Picture of Stacks of coins

How "safe" do you think you are with your company right now?  Do you think your company offers such a unique product and/or service that you have a solid future if you just keep doing what you are doing?

I'll bet the leaders of SGI (Silicon Graphics Inc.) thought their company had a bright future.  Their technology was used to create movies like Jurassic Park, Twister, Congo, Men In Black and many more.  Unfortunately, the remains of their once industry-leading company were bought by Hewlett Packard Enterprise for a tiny fraction of what SGI was once worth.  SGI's market capitalization dwindled from a peak of over seven billion dollars in 1995 to just $120 million at the time of delisting in 2005.  See HPE Buys Silicon Graphics for details.  In less than 2 decades, SGI went from the company personally endorsed and supported by Bill Silicon Graphics Inc LogoClinton, when he was President of the United States, to a company with no future.  SGI went from the company everyone in the industry wanted to be a part of to a company from which everyone was bailing out.

Do you think this lesson only applies to fringe companies?  See what Ginny Rometty, CEO of IBM has to say at Interview with Ginny Rometty when asked about the challenges IBM have gone through to stay relevant to their customers.  Less than 15 years ago, IBM, the oldest tech company in America, was considered at risk of going bankrupt.  They are not yet back to their blue-chip status, but they are building back.

Picture of horse rider statueThere are many examples of once-successful companies (large and small) that fizzled and died.  Blockbuster Video, Kodak, Blackberry (Ok, not dead, but certainly not the industry leader it once was), Saturn (the "different" car company), Radio Shack,  Polaroid, Yahoo and many, many more. In fact, ask yourself how many industries you can identify where the industry leader of 25 years ago is the industry leader today.  Not so easy is it?

There are thousands more small companies that rose to success and then fizzled.  You likely know of a few local companies who fit that bill.

The lesson for all businesses from the small to the very large:Graphic of people walking away

Stay current and relevant to your customers,
or your competitors will pass you by,
leaving you with a company having no value.

So what do you do to stay ahead of the competition?  How do you know where you stand with your customers and how do you plan to make sure you deliver the best value to your customers?

Can you just ask your customers what they want?  Not likely.  According to Steve Jobs,

"You can't just ask customers what they want and then try to give that to them.
  By the time you get it built, they'll want something new.".

What makes one company succeed over time?  According to Jack Welch,

"An organization's ability to learn and translate that learning into action, is the ultimate competitive advantage.".

Goldfish watching TVHow do you keep every single employee constantly searching for ways to improve your organization so complacency and blind faith do not become the order of the day - and the route to failure?

How do you instill the need for and belief in the positive opportunities that come from change in your company?  Many people fight to keep the status quo - they will oppose change in sometimes obvious and sometimes subtle ways.  According to Peter M. Senge, at MIT Sloan School of Management,

"People don't resist change.  They resist being changed.". 

Also from Peter

"Scratch the surface of most cynics and you'll find a frustrated idealist
- someone who made the mistake of converting his ideals into expectations.",

which if that is true, you may have some insight into how to engage a change cynic.

So how do you make sure you are the company with whom your current and future customers want to do business?

And how do you make sure your company will be around to do business with those customers?

Cartoon Head examined for controlWith many businesses, but especially a small business, there is a key element, beyond the product or offering, that has contributed to the success of the business - the leader.  Imagine the Trump organization without Donald (I know, many of you already dream of that day ...).  Remember the angst when Steve Jobs was gone from Apple, or Jack Welch left GE.  And multiply the effect of one person leaving when the business is small and was potentially founded by the person still in charge - you.  The impact of your departure could take the business down.

Since you are likely depending on the sale of your business to fund your retirement, it would be nice to get the best price when you do sell your business.  And that means creating a business that has high value with you now and keeps that value after you are gone.

There are multiple elements to ensuring sustainability of a small business:

1) Create a company / offering that competes now
     AND can stay competitive after you are gone

  • all the standard product roadmap and customer loyalty initiativesKeyboard with You Win I Win
  • relevant, engaging messaging that tells a prospective customer
    - in their language
    - why they should choose you over your competition
  • where possible, develop recurring revenue streams to smooth cash flows
    and increase forecast credibility
  • a conscious attempt to ensure customer contact and revenue generation
    are driven by others in your organization, not just you
    (A good benchmark to determine the urgency here is to calculate what percentage of business is driven by you.)
  • a persistent effort to develop a culture where everyone celebrates team successes, not just your successes

2) Do transition planning now:Goldfish jumping from one bowl to another

  • so you have someone to take over when the time is right
    (buyers often want to see evidence of sustainability without the initial founder)
  • equip successors now for future success
  • demonstrate to customers (and potential buyers) that you are not the only reason customers are well served

3) Structure your business so the transition reflects
     the highest business value possible
Graphic of business network

  • different corporate structures create  different tax treatments,
    with some actually diluting the business value on transition
  • partnership agreements can enable or effectively prevent a successful transition
    - choose wisely
  • ineffective or inefficient systems or back-office processes
    can negate the value of a business,
    requiring a buyer to invest in creating the required systems and processes

This takes time to plan and execute. 

In some cases, like with tax legislation, you must have your structure in place for 2 or more Stopwatchyears or the tax advantages will not be available when you sell.  If you want to expand your list of potential buyers, you may want to start courting someone in your food chain (supplier, customer, competitor).  This would take patience (5-10 years) and diplomacy (looking at the acquisition from their perspective and negotiating accordingly), but it would make you a strategic acquisition, increasing the earnings multiplier you would get, increasing the price for your business.  Even if you are selling to a "normal" buyer, taking the time to plan for and properly position your business pays off in higher business value = higher sale price.

But, you say, "If I start equipping someone now to replace me, am I not forcing my hand to retire, perhaps before I really want?"?  Another way of saying this is: "If I do a good job of succession planning, and can retire early having earned a good price for my business, what am I going to do?"?  The second question brings a different perspective and the answer to it presents a whole different set of opportunities to you.  You could stay on as an "Advisor" or in another role, but to do that successfully, you need to acknowledge that the new leader is the leader, not you.

What about the concern that "If I train and support employees, am I not increasing the risk that they will bail and go to a competitor?"?  Yes.  You do run that risk.  And you run that risk if you do NOT train and support your employees.  There is a good likelihood that training and supporting employees will lessen the risk of good employees leaving, since they have growth opportunities with you.  Even if employees do leave and go to a competitor, employees who were supported and trained will not be as motivated to destroy your business.

graphic figure doing handstandA key is to populate your organization with people who have a passion for what your business does and share the values that are important to the reputation of your business.

There are many methodologies for creating a solid, sustainable business plan and model: Blue Ocean Strategy, SWOT-based thinking, and many more.  Whatever model you use, keep in mind that 5-10 years from now, many of the underlying business drivers could be different.  Is your business today the same as it was 20 years ago?  Not likely.  There are products and services today that add value to a customer in ways that were not even envisioned 10 years ago.  And there will more 10 years from today that you cannot imagine right now.  So make sure your planning is adaptable and your key people are able to - and want to - adjust as required. 

With baby boomers approaching retirement, there is a burgeoning industry in helping business owners prepare for and execute a solid transition of their business for maximum value.  Search on google for succession planning or business transition and you will find lots of articles and numerous advisors willing to help.  Find an advisor with experience in a business like yours and see what they can offer as help.

It is your business and your future, but it is also your legacy. 
Plan accordingly.

Goldfish lookijng at you

Posted in Strategy Development.

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