In 2003, a respected and successful business owner that I know announced to his family and friends that he was going to sell his business in five years and retire. With some fanfare, he circled the date on a calendar, kissed his wife and smiled broadly.
Six months short of his five-year deadline, he initiated a major shift in his business that just about killed him and his company.
Because of that impulsive decision he lost customers, salespeople and employees. He lost his health. He lost respect and dignity. He permanently damaged family relations. He contemplated suicide. And he lost 75% of the value of his business over the next two years. That wasn't what he had in mind at the time he circled the date. Unfortunately his plan to retire wasn't really a plan. It was barely a good intention, probably stated aloud in order to appease his wife.
For some entrepreneurs, the thought of planning for transition and following through on that plan is painful. They started the business and regardless of how much it has grown or changed, it is still their baby. They imagined it, created it, nurtured it through tough times, and watched it grow. They are intimately connected with its daily ebb and flow. They can't imagine what else they would do.
So why should entrepreneurs plan for their transition? Because it is their responsibility. Besides, they are the only ones who can do it the way they want it done. Transition will happen in your business whether it is planned or not. In the above case, the owner still had to transition his business, but he did it under duress and in ill health, rather than with options, forethought and a clear mind.
Here are some interesting statistics that pertain to this discussion:
- In a 2005 survey conducted by the Canadian Federation of Independent Businesses 71% of entrepreneurs said they planned to retire some time in the next 10 years. The recession of 2008 pushed that time frame out for many people, but it still means that in the next 3 to 5 years, we can expect over a million Canadian businesses to change hands.
- In the same survey, only 7% said they had a plan for transition.
This would suggest that while many business owners are thinking about transitioning, few are actually doing anything about it. That's a real issue because another statistic suggests that most companies that are put up for sale are unable to find a suitable buyer. Only 1 in 5 or 20% of companies will get sold.
That's a big problem. A problem that affects not only the owners, but also their families, employees, suppliers, customers and communities. That's why I call it a crisis. Imagine the trickle down effect of 80% of the businesses in your community closing down or dying a slow, painful death.
If you don't manage the transition of your business, who do you think will?
This summer I'm taking a road trip with my son who is researching the resilience of rural communities. We interviewed leaders in Elliot Lake who guided the one-industry town through the devastating aftermath of closing the mines some 20 years earlier. Their transition crisis happened in one fell swoop and unemployment rose to 60% within 18 months! While the town ultimately survived, it required a lot of blood, sweat and tears over two decades to make it work.
Elliot Lake's crisis happened quickly and there could be no denying that serious action was required immediately. It affected everyone in the town! The Business Transition Crisis caused by aging baby boomers is more insidious and potentially more devastating because of the willful blindness of its members.
So if you have been procrastinating, here are eight steps to get you started on your plan:
- Make time to decide what is most important to you and then set about to make it happen. Just get started!
- Invest in and develop your employees, your leadership team and your salespeople. It makes it easier for you to delegate responsibilities and adds value to your business.
- Position the right people in the right roles and get rid of the deadwood. Ask yourself, "If I were buying this business would this person be an asset or a liability?"
- Strengthen your story of future potential by ensuring long term, happy clients and employees.
- Get your balance sheet cleaned up.
- Develop and document reproducible systems and processes that are consistently followed and proven to work.
- Prepare yourself mentally for the transition. Visualize your ideal future. Get comfortable with the picture of your next stage.
- Identify and cultivate relationships with key advisers who can provide guidance, advice and tools well in advance of when you think you need the help. The best strategies often require years to implement in order to achieve their greatest value.
This takes time and you still need to run your business while you work on the transition process. Is it worth it? Absolutely!! The time you invest in this critical stage of your business will pay a higher ROI than just about any other activity you can imagine. Even relatively small businesses can reward their owner with thousands of dollars per hour for the effort made in developing and executing a transition plan. And the relationships, reputations, dignity and respect it preserves are priceless.