JUNE 2011

Why Plan For Succession?

by Wayne Vanwyck, author and CEO

For some entrepreneurs, planning for succession and following through on a 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 they would do if they couldn’t continue to lead the organization.

One business owner I know had a very successful company. He worked hard building all aspects of the profitable corporation. His family life was successful, his business was successful and he was well respected in his community. At an appropriate time he
announced that he was going to sell his business and retire in five years. His wife retired right on time, but the date for his “planned retirement” came and went. Friends and relatives wondered, “What happened?”

His plan wasn’t really a plan. It was barely a good intention, perhaps just a way to get his wife off his back. Then, as the deadline approached, he threw a monkey wrench into the business effectively creating a huge challenge that only he could solve. He renounced
his intention - like Superman, he would swoop in to save the day. Unfortunately, the crisis he created was big and things went horribly wrong. Salesmen
quit. He lost customers. He lost brand value. He lost the confidence of his suppliers. A very profitable, successful business went into a downward spiral that even he couldn’t fix. Almost overnight his opportunity to retire with wealth and a stellar reputation became a nightmare that literally hospitalized him and made him a pitiful shadow of his former self. How sad that such a great opportunity to exit with dignity and security soured so quickly.

Why should entrepreneurs plan for their succession? Because it is their responsibility to do so and they are the only ones who can do it. Succession will happen in a business whether it is planned or not. In this case, lawyers, accountants and family members
got involved, did triage and helped minimize the damage, but ultimately the owner still had to make tough decisions. He did it under duress and in ill health, rather than with forethought and a clear mind.

But if you don’t deal with succession for your business, who do you think will?
Some owners take the coward’s way out and hope they die before they have to deal with succession. It’s such a foreign, painful process, that they don’t know where to start. In my research, I’ve been interviewing a number of former business owners.

When I asked how they felt just before selling, I heard, “terrified”, “sweating bullets” and “scared to death” from individuals who had courageously built very successful businesses. Oddly enough, when I asked how they felt afterward, I heard, “relief”, “a
tremendous weight off my shoulders” and “peace.” In other words, the anxiety and fear was much worse than the real thing and ultimately the payoff was worth the effort.

Fear in itself is not a bad thing. Ultimately, it is a more powerful motivator to action than the promise of a benefit. The key is to feel the fear, recognize it for what it is and then
do something. Develop action steps that will move you to do what’s necessary to transition the business on your terms. Those business owners I’ve talked with who have been most successful in selling their business have done it with a plan.

1. They enhanced their employees, their leadership team and their sales.
2. They positioned the right people in the right roles.
3. They strengthened their story of future potential by ensuring long term,
   happy clients.
4. They got their balance sheet cleaned up.
5. They developed reproducible systems and processes that were consistently
   followed and proven to work.
6. They understood their industry, their competition and the market.
7. They prepared themselves mentally for the transition.
8. Then they were able to set the terms of their sale with greater confidence.

While the gremlins are always there, most entrepreneurs are able to keep them under control. If your gremlins are growing in strength or numbers, use them to motivate you to shore up your defenses, and take the initiative to get your house in order sooner rather than later.

My new book, The Business Transition Crisis, provides insights, examples, questions and answers to help business owners address the challenges they’ll face as they prepare their business for transition or sale. If you understand what you’re up against, you’ll be in a much stronger position to deal with it.