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Exit Planning

To Grow Value and Exit Successfully Owners Need to Change Their Role

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To Help Them, So Do You.

In this series, we examine our role, as advisors, in the process of building transferable value in our clients’ businesses, specifically in helping them to change their role from indispensable hub to dispensable spokes.

It’s clear to us that owners don’t have all the skills necessary to singlehandedly create a business with significant transferable value.  Most owners reach a point where they cannot move the business forward because they simply don’t know what to do.  And so the business stagnates.  In a recent survey, 41 percent of owners (over two-thirds of whom were age 50 or older) stated that a barrier to their exit was “too much dependence on my active involvement.”1  Our experience tells us that a high proportion of the owners who did not see their companies’ dependence on them as an issue would hear a very different opinion from professional buyers.

Often then, the necessary first step to move a business beyond stagnation is to help owners understand that the major obstacle to growing value in most businesses is the owner.  Until owners realize that they must change in order for the business to prosper, they will ignore our efforts to help them move their businesses forward.  

The change owners must make, as we explained in the previous article, is to transition owners from being the center of all decision-making and activity in the business–or hub of the wheel–to an important, but less critical, spoke.

This transition is not easy, but with knowledge of Exit Planning you are able to:

  • Understand how and why owners need to change if they are to meet their financial and other exit goals.
  • Can educate owners on how changing their role benefits them, their companies and their employees.
  • Provide access to the advisors who can undertake value-building tasks.
  • Know how to quarterback an owner’s advisor team to keep everyone accountable and working in an owner’s interest.
     

These abilities allow attorneys, CPAs, bankers, financial professionals and other professional advisors to provide guidance other like professionals lack.  We gain these abilities through our experiences working with owners in a consultative capacity and through learning more about how Exit-Planning-trained advisors work with owners.

Your Role in Changing an Owner’s Role

If we are to help our owner-clients create transferable businesses through changing their role in their companies (from indispensable to dispensable), we too must change our roles (from more than “just” CPAs, financial advisors, attorneys, M&A intermediaries, etc.).  As important and vital as our professional skills are to a successful owner transition, we must develop our abilities that are beyond the confines of our professions.

For example, we must develop the ability to foster in owners four specific attitudes and provide them with supporting resources.  These attitudes include:

1.  A willingness to delegate meaningful duties to top management.  This requires owners to surrender, or at least share with key employees, control of many facets of their business operation.

As key employees broaden their capabilities and take ownership of their jobs, their growing competence and expertise is a platform for accelerated company growth and increasing business value.

Further, as key employees assume greater responsibility, authority for and competence in various company functions, so do the junior workers under them.  For many owners, finding and encouraging skilled management within the company to move the business beyond the owner’s capabilities and giving them the authority to do so is the key to rapidly creating business value.

2.  A willingness to involve outside advisors to help improve business operations, procedures, process, and planning.  This requires owners to accept outside advice and implement.  For Peter Drucker, this was a key point in an entrepreneur’s success,

…the founder does need people with whom he can discuss basic decisions and to whom he listens.  Such people are rarely to be found within the enterprise.  Somebody has to challenge the founders’ appraisal of the needs of the venture, and of his own personal strengths.  Someone who is not a part of the problem has to ask questions, to review decisions, and above all, to push constantly to have the long-term survival needs of the new venture satisfied by building in the market focus, supplying financial foresight and creating a functioning top management team. 2

3.  Openness to an objective assessment of the capabilities of the existing management team to take the business to the next level.  In many companies, the management team rises through the ranks and there is a high degree of loyalty between owner and management.  This loyalty blinds owners to the need to objectively assess management performance on an ongoing basis, and to insist upon best-in-class performance.  Outside advisors can be an objective resource in determining if an owner has a capable management team to move the company forward to the extent necessary to achieve the owner’s exit goals.

Consultant (and BEI Member) Ken Stiefler describes how he worked with one of his Exit Planning clients, “This owner brought me in when he recognized two things about himself:  

  1. too much of the business revolved around him, and
  2. he wasn’t capable of taking the business to the next level.  In an effort to change his role, the owner began planning to replace himself by bringing in a new general manager (instead of simply delegating to existing management), by creating a plan to delegate his responsibilities, over time, to others in the company and by looking at outsourcing some tasks.” 3
     

4.  An ability to constantly focus on strengthening value drivers executed through others–management team members and outside advisors. To owners who believe they are too busy working in their businesses to work onthem, you can suggest that changing their attitudes, delegating more responsibility to best-in-class management (developed internally or recruited) and using specialized advisors to supply knowledge and ability where lacking in the business, will free up time to spend it on activities they choose.

We hope that this article persuades you that:

  1. Owners need help in understanding the importance of changing their roles if they are to help, not impede, business growth.
  2. You can recommend to owners specific actions, and support them as they take those actions.
  3. The tools necessary to help owners “step up and step aside” are outside the technical expertise of most professional disciplines.  This means, you too must step up and expand your role, thus differentiating yourself from others in your profession.
References
1Bruce, Doug and Wong, Queenie, Canadian Federation of Independent Business, Passing on the Business to the Next Generation, November 2012.
2Drucker, Peter F., The Essential Drucker, HarperCollins, 2001, pp. 159-160.
​3As part of his role as an Exit Planner, Ken recruited a management consultant who assessed the current management team and concluded that new management was necessary if business was to grow at the pace desired by this owner.
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