THE 4 STEPS TO ACHIEVING EXIT OR SUCCESSION IN BUSINESS

START IT TO EXIT IT

Savvy business leaders know their business is worth many times more if they are not required to work within it on a day-to-day basis. With this in mind, they arrange their entire business operations and affairs in ways that allow them to step away from operations quickly, or at almost any time – this is “starting it to exit it”.

Of course, this does not mean that they will step away, they may love what they do after all, but that they can step away. Importantly, it is these options to move in or out of operations at will that both improves business value and provides expanded lifestyle choices.

Having said this, I am sure you will agree most discussions on the topics of exit or succession invariably centre on exit or succession planning.

Whilst it is true that planning is important, recent Australian research* suggests succession and exit plans are either not being embraced or that succession is not successfully occurring even when they are!

Not surprisingly, the reason for this is that a good plan on its own means little.

SUCCESSION OF LEADERSHIP

Before we explore why this is the case, let us compare two definitions of an exit plan, the first being the common definition and the other my alternate:

1. The common definition of an exit plan, roughly paraphrased from Wikipedia, is:

“…a way to transition one’s ownership of a company or the operation of some part of the company”; whereas

2. The Stuart Hayes ‘alternate’ definition, for private companies at least, is:

“…a way to transition one’s SELF from a company or its operations.”

More than anything, it is a business owner’s personal exit from day-to-day operations that is most important in precipitating succession success: it is what I call succession of leadership.

Achieving succession of leadership can be tough, no doubt, particularly since many owner-founders either won't or can't lift themselves out of day-to-day operational involvement easily, but it is possible.

More to the point, once an operational succession of leadership has actually occurred, achieving a succession of ownership or a family generational succession is a simple matter thereafter.

WIDEN YOUR FOCUS

To achieve succession of leadership, business leaders recognise focus needs to be on much more than 'planning': succession of leadership is centred on change, both operational and governance. Not surprisingly it also introduces the concept stewardship, which along with change is central to all forms of leadership.

Great leaders recognise that their role is to direct the course of a team (or business) for a period, to contribute to it meaningfully and then hand it to the next leader in a better state. This is stewardship, and great leaders achieve it by teaching, empowering and fostering potential successors.

With this in mind, let’s look at how great leaders lead a succession or exit, using the 4 Step change model we have discussed in the past 3 editions:

STEP 1 – ASK THE TOUGH QUESTIONS

On the topic of exit, almost more than for any other subject, it is critical for a business leader to engage a trusted and independent person to ask those hard questions that really need to be asked… the reason being, of course, that most of the hard questions need to be asked are about them!!

Consider, for example:

  • Is the leader the right person to lead the business at this point of its life?
  • Is the leader blocking natural succession through the way they lead?
  • What needs to be in place so the leader is not needed day-to-day?
  • Is the leader delaying the start of their exit (or exit planning)?
  • Is the leader relying on an exit strategy of hope?

My tip – Imagine you are a potential buyer doing due diligence on the business. What would you see? What would you value? What arguments exist that the business is worth anything, if its current owner is required within operations?

STEP 2 – FEEL THE REASON

Preparing a business so its owner has the option of departing at any time rarely occurs successfully, without also preparing the owner for the departure of their business as a way of life!

In this regard, for owners, it is important to find a reason or vision for the future that is strong enough to break the ‘parent-child’ type strings that often keep them involved in their business for too long. The reality is, owners who don’t find a vision they can feel and be driven by, frequently invent reasons to stay involved – valid or otherwise!!

My tip – Communicating the business owner’s strong vision to staff helps them to buy into it and to realise things really can change. If nothing else, this will help them to support achieving it.

STEP 3 – DEVELOP A SIMPLE PLAN

Changing a business so that exit of leadership is achieved requires a strong ‘execution’ focus. This means the plans that support it are generally a great deal more practical than a typical “succession plan.”

It also means there is little point in making any plans without a simultaneous commitment to executing them.

My tip – Consider the following four objectives and identify whatever execution steps are needed to ensure they can be achieved:

  1. The business is not reliant on its owner/founder in any operational capacity;
  2. The owner confidently 'owns' the business, knowing it is in safe hands, produces cash & profit and their 'ownership risk' is managed;
  3. The owner is prepared for 'life after stepping away'; and
  4. The succeeding leadership team is ready and understands their mandate to move the business into a new era.

Suffice to say, my experience in fixing failed successions has shown that non-operational or financially dominated successions fail more frequently because the owner’s exit was poorly led or did not take into consideration the execution requirements of each of these 4 areas.

STEP 4 – ACHIEVE POSITIVE & SUSTAINABLE CHANGE

Notwithstanding everything else we have talked about, the potent and irresistible fuel that enables sustainable change is the belief generated within a team when they see their leader actually deliver.

That is, the leader is visible in:

  1. Developing, teaching and empowering emerging leaders;
  2. Facilitating team ‘buy in’ by sharing their vision and passion for it; and
  3. Keeping their personal commitment and sticking to the plan.

My tip – Regard the exit plans you make as a leader as a series of demands or requirements you are placing on yourself… and don’t wimp out!

*RMIT University research, as reported by Smart Company on 20 January 2012