If you ever try to sell your business, one of the first things a potential buyer will look at is your leadership team. Do you have real leaders working for you? Are they compensated the way real leaders would expect to be? Or does the entire company revolve around you? There is nothing wrong with being a one-man or one-woman show, but don't expect to sell your business for much if you are.
As Vic Haas, a business valuation expert in Philadelphia and President of Haas Business Valuation Services (www.haasvalue.com) says, "Business is all about minimizing risk and maximizing return. A buyer will pay more for a company and its income stream if the risk of losing that income in the future is reduced. A broad management team is one important way for a company to ensure future earnings and reduce risk for investors."
Potential buyers for your company are looking for a deep management team. As a result, hundreds of thousands if not millions of dollars may rest on your ability to be a leader rather than a loaner in your business. Here are some steps to take to do just that:
Start planning right now. As Tom Raynor, CEO of Fleet Feet Inc. says, "The best time to plan your exit from your business is when you start it." Great businesses are built by people who understand the value of creating a business that runs without them and who are working a long-term plan to realize that value. This is not intuitive to many entrepreneurs but if you embrace it now, you will make yourself a lot of money.
Get honest about your own strengths and weaknesses. Early in your business development, you probably wore every hat in the business. However, no one is good at everything. You should increasingly focus your efforts on the areas where you create the most value. Ask people you trust who have no financial stake in your organization for feedback on this question. Good feedback here from people you respect is extremely valuable.
Stop being a control freak, it is hurting your wallet. When you started your business, it was strength to be obsessive over every aspect of the business. Things got done right because you made sure they did. Now, your business has grown. If you don't adapt your approach and learn to let go, you will stunt your company's growth and hurt its long-term value. Without fail, entrepreneurs who build significant enterprises realize that they have to hire good people and entrust major pieces of the business to them.
Assess your current staff. Do you have people in your organization with the right stuff to buy the business from you one day? Are there individuals in your organization you can envision promoting to President one day? Do you have people who can run important segments of your business without significant involvement from you?
If your answer to these questions is no, you have to put a plan in place to bring in stronger talent. Your company is filled with B and C players who may do a good job of following orders but will never be able to run the company. If your answer to these questions is yes, you have two issues to address immediately. First, do you have a plan to provide them with more responsibility and commensurate compensation over time? Second, are you taking steps to make sure that you keep them with your organization vs. losing them to a competitor?
Network. As a business owner, one of your primary roles is being "recruiter-in-chief." In the end, we all want to find someone whom we know, like, and trust to run our business for us. To find that person, you need to place a premium on building your network of relationships inside and outside your industry. The people you meet today may be running your business for you or buying it from you five to ten years from now.
Interview all the time. Organizationally, your goal is simple - hire the best people possible and meld them into a team that produces superior results. In my experience, executives that do this well are interviewing job candidates all the time and insist that their managers do the same. Fred Christen is President of Hallmark Stone, fabricator and installer of kitchen countertops in Fenton, Mo. Fred requires that his managers be interviewing job candidates all the time and that each one have a "farm team" of live candidates interested in working for the company. This is the kind of proactive recruiting that, over time, fills your company with leaders.
Consider using recruiters. Many small businesses have never used an executive recruiter to fill a position. If you have a senior management position to fill, the right "headhunter" will be a real asset. Ask around. You will be surprised at the companies that have used these services successfully. Like every other service, get referrals from people you trust.
Pay for talent. As a friend of mine says, money doesn't talk, it screams. Find out what good people are getting paid in similar roles in your industry and be prepared to be competitive with this number. Investment precedes return. If you want to hire A-players, you have to pay for them.
Don't micromanage. Accountability is critical but micromanagement never works. A-players hate to be micromanaged. On the one hand you must work with them to set the right goals and invest resources wisely. You also must provide appropriate accountability. But if you are going to hire and develop strong people you must give them the freedom to lead and manage. If you find over time that you have an executive or manager who must be micromanaged in order to create good results, you have the wrong person in that job.
CONCLUSION. Succession planning is about starting with the end in mind. If your goal is to sell your business one day, or even hire others to run it while you curtail your hours, the steps described above will get you on the right track. Investment always precedes return, and as Vic Haas says, "If entrepreneurs want to increase the amount a buyer will pay for their business, they have to make an investment in people who can run it for them."
Eric Herrenkohl is Founder and President of Herrenkohl Consulting (www.herrenkohlconsulting.com), a management consulting firm focused on creating organizations that drive growth and profits. His work has been published or cited in the Philadelphia Inquirer, Inc.com, Monster.com, Careerbuilder.com, and MSNBC.com. Eric is also the author of Performance Principles, a monthly e-letter that reaches thousands of subscribers across North America and is re-printed in a number of industry and company newsletters.