If you haven't started thinking about it already at some point in time you will begin pondering your exit strategy. Will you sell the business to your employees? Hand it over to a son or daughter? Sell it to a competitor? Sell it on the open market to someone looking to buy into the industry?
Naturally, the more systematically your business runs the higher the price a buyer will pay and the greater the odds your successors will be able to run a thriving business long into their future. Systems aren't the only issue. Staffing plays a huge part in its long-term success.
An often overlooked item is finding and/or developing the person who will perform your duties. This is the most common tripping point when the founder tries to pass off the business. We have a perfect example of this challenge playing out in the public eye right now as Tim Cook follows Steve Jobs at Apple Computer. People are already noticing the different manner in which Apple is addressing familiar challenges. General Electric is one of the few companies in the world that repeatedly moved from one CEO to the next without missing a beat. Much of that was due to the attention GE's CEOs pay to grooming their
replacements. And so should you. Spend time grooming your replacement that is.
Your first choice should be your son or daughter. There are many challenges in grooming an offspring to take over; however, there are many more advantages. First and foremost, they share much of your DNA. Many if not most of your traits are going to be present in them.
You know them. You know their interests and their motivations. You have a strong desire to see them happy and successful. You are motivated to help them provide for their children your grandchildren.
You have the unique opportunity to put them in several different roles through the years to develop their understanding of the business. You are allowed, even expected, to show favoritism to them. It is only natural
they would get opportunities in the business that non-family members wouldn't.
A couple of words of caution when going down the path of grooming an offspring as the business' future leader.
- Don't be harder on them than everyone else.
- Don't be disappointed when they don't work as hard as you did and do.
- Don't stifle their innovation. Listen to them and their ideas for doing things differently.
- Let them learn from their errors. You had to.
Your second choice should be a nephew or niece. Similar reasons to before.
Make no mistake about it, preparing family members to assume the throne takes a lot of patience and time unless you happen to get lucky with a chip off the old block.
Your third choice is to grow your own from inside. Preferably a young employee who starts in your business at an early age, earning his or her way from the ground up. One who shows a great work ethic, intuitive decision making, ability to learn and good people skills. Look for that exact combination of traits. If one is missing the person will fall short.
Move that person into positions of greater responsibility as quickly as possible. Keep them challenged. Force them to learn all parts of the company: operations, sales, finance, staffing, estimating, accounting, safety, etc. Give them that practical MBA that all business owners need. Grooming a young buck of this type is probably going to take between eight to 12 years depending on the size of your firm.
Your next option is the loyal sergeant. Your right-hand man who has been with you through thick and thin. He's probably no more than 10 years younger than you. You know his warts and his strengths. Once you land on this choice you'll need to push him out of his comfort zone and broaden his skills in running a business.
You're going to need to start explaining the way you make decisions. How you weigh risk and reward. How you get yourself out of trouble when you get into it. You're going to need to be honest with him about the things he is good at and the things he never will be good at. If you choose this path you will need to be available for support and mentoring for several years.
The second to last option is bringing in a hotshot from another firm. Most likely from a competitor. Often this individual will be working for an owner who is preparing to turn his firm over to a son or daughter (there's your first clue of which companies to look in). The other common situation is where the man's current employer takes him for granted. This dynamic occurs more frequently than you may think. It takes a strong ego to be a successful business owner. One of the downsides of a strong ego is a lack of clear appreciation for the contributions made by others.
Your last option is The Team. In other words, you aren't really selecting and grooming a single successor. You are pulling together a team of front office people who will work together well, make good decisions together and hold each other accountable to the business' ongoing success. This is a strategy that many owners are drawn to.
Selling the company to your employees feels good because it feels like you are rewarding your loyal soldiers for helping you build the company. Also it seems easy. You don't have to go find a buyer.
Pursuing the team approach has one terrible downside: it usually means there isn't a strong leader to take over the reins. Historically that means the company withers away due to excessive in-fighting or overly conservative business practices. The team approach almost never works.
So what should be your take away from this article?
Groom your replacement. Leave your business in the hands of someone who you have spent years preparing for the responsibility.
