Family Businesses : Exiting in the New Year

Characteristics for Successful Exit Planning in 2021 

It is the beginning of a new year--a time for renewal and reflection about the previous year, and oh, what a year it was!  What went well, and what might have gone better?  In that spirit, I thought I’d offer a few topics to ponder. These topics represent opportunities to leverage lessons learned in 2020 into better results and more profits in 2021.

Channeling Johnny Carson’s “Carnac the Magnificent” (he had all the answers), perhaps you will find some crucial answers or even a few new questions ahead. I offer these for your consideration.

Top Ten Small & Family Business Success Characteristics

 10.       BUSINESS OWNERS SELF-KNOWLEDGE

Dr. Bill Anton, a noted psychologist, best-selling author, and speaker, works almost exclusively with CEOs.  Through his company, CEO Effectiveness, he seeks to help leaders tap into, then harness, the great reservoirs of potential locked away in places we weren’t even aware of.

Did you know an infant that is only 45 minutes old can mimic three human expressions?  It would seem that until age eight, we humans are sponges.  We soak up and take in all the experiences around us.  Are we loved or loathed, lifted or beaten down? Were we the bully or bullied? Were we popular or unpopular?  All of these experiences form the mental models we carry with us for the rest of our lives.  These models are at the forefront of how we make decisions, how we lead, how we love, and how we live. 

 It isn’t until later in our development that connections between the left brain and right brain are made. These connections provide access to the frontal lobes, where maximum creativity and deep thinking are found. Though physiologically possible to access these lobes, our mental models can stymie actual access and limit our potential.

The journey to self-knowledge (different than self-awareness) can help here. It is especially poignant in the aftermath of COVID 19 and how we responded to the challenges it brought to our doors.

 9.         EXIT PLANNING PROCESS

It is not by accident that I follow #10 with this topic.  Anyone who has seriously considered exiting their business has wrestled with the anxiety that attends that decision.  During 2020 we were confronted with just how fragile the value of that asset might be. For many of us, we have labored in our businesses for years, and it represents the single largest asset in our portfolio. We created it or had a hand in growing it, and there is an inextricable link between that business and how we identify ourselves. Michael Valdez of Synergy Wealth Alliance says, “This is no small matter easily cast aside but rather an essential psychological component of the sales process that must be acknowledged.” Glossing over it is a root cause for much of the indecision I see in circumstances where an owner says she wants to sell but makes no movement towards that end.

Increased self-knowledge is a decisive step in overcoming the inertia that results from having your identity inextricably bound up in the company you run.  You are more than your company.

 8.         GOVERNANCE AND MEASURABLE GOALS

Investopedia defines corporate governance as the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as family, investors, management, workforce, customers, suppliers, and the community.

It also relates to a thoughtful approach to the exit planning process.  Having taken the time to develop good governance can pay dividends in terms of a final company valuation. Did you know that different exit choices produce other valuations? Where a potential buyer is evaluating two firms of similar size and profitability, the one with better governance might reasonably expect a premium for their company.  The premium reflects a reduction in risk associated with practicing good governance.

 7.         DAY TO DAY MARKETING STRATEGY

How are your marketing efforts going?  Have you finally gotten to a point where you can measure the effective ROI of these efforts? How has the sales process benefited from this effort?  If marketing’s point is shortening the sales cycle by being more effective in audience reach and messaging, you should see its impact.  Are you?

 “In today’s world, it is no longer sufficient for many businesses to put up a website and call it a day simply. “The great news is that modern marketing efforts are much easier to track and measure than those in the past. Any business that isn’t tracking and improving its results will be behind the competition, which is.”

 6.         OPERATIONAL PROVEN PROCESS IMPROVEMENT

There are essentially two ways for you to drive more profitability in your business.  You can make more sales, or you can drive out waste on the cost side of the company.  Yes, of course, you can also make acquisitions or take advantage of structured financing to boost profits, and these techniques remain in play. I’m speaking here of a focus on the business’s guts, the engine that drives cash.

 The call for continuous improvement has been a long and well-documented one.  Despite this, I find many organizations pay lip service as a worthwhile topic without executing on it. Other companies never pull their heads up long enough from working “in” the business to make the commitment.  Will this be the year?

5.         MANAGEMENT TEAM LEADERSHIP DEVELOPMENT

Many of our businesses are run by a workforce in the waning years of their work life.  The potential for significant turnover is high.  Just how high is the percentage of your workforce that is or will be eligible for retirement within ten years?

 What are you doing today to plan for that turnover and loss of institutional knowledge, the knowledge you rely on to run your business? There is a direct link to the value of your company and the answer to this question. Will the core competencies you need to compete in the future be different than those you have now?  Is your industry morphing? Do you see change on the horizon? 

 You need to identify the competencies needed in the future now and begin bringing candidates for tomorrow’s leadership into the pipeline today with leadership development planning.  Your survival may very well depend on it.

 4.           STRATEGIC PLANNING ISN’T JUST FOR LARGE COMPANIES

To quote Dr. Phil, “Plans move vision to reality, intentions to results and purpose to performance.”  Strategic management is a continuum of thinking, planning, and acting on a purpose.  According to John E. Johnson and Anne Marie Smith in their best-selling book, 60 Minute Strategic Plan, you first think of outcomes you favor most, then plan the steps to accomplish those outcomes, and finally, you take action to get results.

This last step is where I see most organizations fail.  They fail in the implementation.  If you do plan on developing your plan, or you’ve already revised last year’s plan to recognize today’s realities, DON’T DROP THE BALL! Get it across the goal line by taking action.

3.     BOARD DEVELOPMENT IS AN OPPORTUNITY

Frankly, I don’t see many small family businesses taking this step of bringing non-family business people onto a board of directors. Whether a fiduciary board of directors or a less formal advisory board, I think Board Development is a missed opportunity. I recently had lunch with a sailor friend of mine, the CEO of a large healthcare company. We were discussing the value of different perspectives in solving problems. While the context was about the importance of teams in problem-solving, the lesson is the same. He recounted the time he and a group of 19.

other colleagues took a Coast Guard “Lost at Sea” test designed to demonstrate different perspectives’ value.  The test essentially put everyone on a boat crossing the Atlantic when it was struck and began sinking.  The captain and crew were lost. Their task was to list the items they felt should be salvaged for their survival until rescued. My friend, a sailor, was confident he would ace the list, and in fact, he was the most correct.  It turns out, though, there was room for improvement.  The second part of the exercise had them tackle the same question in teams.  As you already suspect, the team approach with its varied perspectives brought new information into the discussion, and the final list was an improvement over the individual one.

Boards, developed intentionally, can raise your game that way and help your team see around corners.

2.     BUSINESS SUCCESSION PLANNING

It is no accident that I followed board development with succession planning.  Succession planning takes time.  Whether passing the mantle of leadership to family or non-family members, we do our successors a disservice if we give them the responsibility of leadership before they are ready, before they have earned it.  Don’t get me wrong. You can do whatever you want; it’s your company.  The plain fact of the matter is that we grow our businesses with the effort of those who show up to work every day.  By recognizing the importance of leadership acceptance by the rank and file, you’ll improve on the very disappointing statistics of failed succession plans.

 The board, especially an outside board, can be an effective mentoring mechanism for preparing this next step. We are currently doing this for a company I serve as a director on. 

To lead effectively with a keener appreciation for different perspectives can inform decision-making and position the next generation of leaders for the success they deserve and that you wish for them.

 1.        BUSINESS AND PERSONAL CULTURE

Finally, my favorite and perhaps the most impactful thing you can do to sustain the trajectory of your success for years to come.  Most companies exist in a commoditized environment where their products and services look mostly alike.  Coming out with new products and services is great, but it merely creates a short-term window of opportunity to be different.  All serious competitors hire smart people, so you probably don’t hold a distinct advantage because your people are smarter, though they might be.  The problem is that good products/services, and smart people are not enough to create a sustainable competitive advantage. Culture, however, and the experience your people deliver along with their contribution of discretionary effort is not so easy to duplicate.  Therein lies the silver bullet to remaining competitive in a dynamic environment.  

 So there you have it! My countdown for 2021for your business.  Your issue(s) not on the list?! Put them on it and work them.  Showing up is ½ the battle.

NEED HELP TO ACHIEVE YOUR DESIRED OUTCOME?

Are you looking to sell your business?  Exploring exit options?  Long-term planning?

 Let us know if we can help you with your 2021 business planning and exit strategy.  Our team of subject-area experts could provide just the outside view you need to improve your business’s performance and profitability. We have decades of experience servicing businesses in the Tampa and greater Florida area.