Entrepreneurial Businesses: Why 'Alligators' Never Swim Away Unprovoked
Years ago, Tom and Jessica LaRoque, (fictional) owners of TJL Temps, a company that provided temporary workers across various industries, met with an advisor that came highly recommended. Before they even introduced themselves, Tom said to this advisor,
“I heard you can help us sell our business, and we need to sell it before it kills the both of us.”
At first, this experienced Exit Planning advisor assumed that TJL Temps was failing, but quickly learned that TJL was not only successful but also provided the LaRoques with about $250,000 in annual income and had been doing so for several years. TJL was a “lifestyle business,” but the problem was that after working an average of 60 hours per week (often more), Tom and Jessica had no time to enjoy the lifestyle that their business would have otherwise allowed. When weekends rolled around, Tom (65) and Jessica (66) were just too tired to enjoy them.
Tom explained why they were burned out: All marketing, sales, interviewing, and staff hiring and firing duties fell to him, while Jessica acted as the company’s non-official CPA, customer service department, and handled everything else Tom couldn’t make time for. They ended most weeks far behind the schedules they’d set. Not surprisingly, growth was stagnant. The LaRoques could barely handle the customers they had, let alone new ones.
After a quick review, their advisor discovered that the LaRoques’ non-business assets could not provide the $250,000-a-year income they wanted. If they wanted that income, they would have to continue sacrificing all their time. Without the business, the LaRoques could theoretically enjoy the lifestyle they desired, but only until the money they had saved up ran out. This is a conundrum many owners of good businesses face when they begin thinking about their business exits.
Finally, the less evident problem (at least to Tom and Jessica) was that without their involvement, TJL Temps was worth little. The LaRoques were the business. In order to sell the business successfully, they had to make some changes.
The LaRoques’ Exit Planning Advisor asked a simple question: “What can you tell me about your management team?”
“We hired a manager a few years ago, but it didn’t work out,” Jessica said. “It’s just easier for us to do it ourselves. Besides, we’re too busy putting out fires to train somebody.”
For years, owners have put off training management to take over because they’re “too busy putting out fires.”
“Tom, Jessica,” their advisor said, “the only way to sell your business for the money you want is to keep it and grow it until you can sell it for the money you need. It’s obvious that you can’t manage this business by yourselves anymore, and frankly, you haven’t been able to for a few years now.”
Tom and Jessica nodded as the conversation continued.
“Fires will never stop popping up, and the alligators that prevent you from draining the swamp won’t ever go away. The only way to move toward the exit you want is to change what you two are doing. You’ve got to hire top-level management to put out the fires and fight with the alligators so you can have the time to do what you want, in and outside of the business.”
That’s the rub with entrepreneurial businesses: The alligators never swim away unprovoked. They never waddle to the shore to allow owners to drain their swamps without an owner taking action. The only way for owners to hold the alligators back and avoid becoming their next meal is to hire someone to deal with the beasts.
Hiring great managers lets owners snatch their lives back from the alligators’ jaws. It lets them finally begin to do what they do best instead of forcing them to do everything. It gives owners the time and energy to begin to do what they need to do to develop and grow their companies rather than forcing them to fight every battle.
As owners hire management, their role in their business will change. As Peter Drucker observed,
Long before the time has come at which management by one person no longer works and becomes mismanagement, that one person also has to start learning how to work with colleagues, has to learn to trust people, yet also how to hold them accountable. The founder has to learn to become the leader of a team rather than a “star” with “helpers.” Building a top management team may be the single most important step toward entrepreneurial management in the new venture. It is only the first step, however, for the founders themselves, who then have to think through what their own future is to be1.
Recall Jeff Bezos and the three frogs from last week’s post. Bezos isn’t writing code, developing marketing materials, or doing inventory; other Amazon employees are. Bezos doesn’t oversee operations or manage those employees; his top-flight managers do. Because he’s acted on his need to improve his business (unlike those three lazy frogs), Bezos has time to set goals and act to achieve them. He doesn’t have to do it all, and that makes all the difference.
All successful business owners are busy. But if your clients think that they’re too busy to plan, much less act on their plan, be sure to ask them, “When will you be less busy?” More specifically, ask, “Are you too busy to plan for the most significant financial decision of your life?”
It’s rare to find a business owner who became less busy without jumping off the log, hiring others to assume their current and future tasks, and changing their roles. Failure to do so will stunt or even destroy their businesses.
Unfortunately, Tom and Jessica didn’t have the stamina to heed the advice. They were too burned out to manage the business for the several years it would take to find and train managers to assume all their responsibilities. Instead, they sold TJL for pennies on the dollar within six months of that initial meeting. They didn’t get to benefit from their lives’ work. They walked away with far too little in exchange for the lives they’d spent valiantly wrestling alligators.
This fate is common for many hardworking owners who fail to jump off the log. Exit Planning is the blueprint owners (and their advisors) create to avoid that fate.
Don’t Be Tempted to Persuade Your Clients
Recently, I've been seeing a lot of articles about Advisors persuading clients to move from active management to passive management. Persuading clients to follow the way you manage investments is a big mistake. Do this instead.
Click on image above to watch the video.
- 1 of 1383