More than a third of Americans will be disabled for more than three months at some time in their working lives; most electrical contracting businesses are heavily dependent on top management. Could your business survive your absence for days, weeks, months or permanently? Do you have a succession plan in place?
In this three-part series, we will look at several facets of the succession-planning process. Part 1 investigates the formation of an exit strategy and the reasons it is so difficult to get out of the way. Part 2 will show you how to structure your company for the promotion and support of future successors. Part 3 will reveal specific options for implementing the transfer of your business to new ownership. Now, let’s start with you, the owner.
When Lee Iacocca was the CEO of Chrysler Corp., a group of employees devised this mnemonic to help themselves remember how to spell his last name correctly: I Am Chairman Of Chrysler Corporation Always. Iacocca, who is remembered for his turnaround skills and the tagline he promoted in the company’s advertisements—Lead, follow or get out of the way—eventually moved on, but his words still ring true. At some point, all business owners must move on, but many resist and get in the way of new leadership.
So why won’t you leave? You built the company; it’s yours, and you don’t want to give up control. You don’t want to face your mortality, and you intend to die with your safety boots on. Other people want you to stay because no one can do the job as well as you can. You are too busy with daily operations to think that far ahead. Besides, you can’t imagine finding anything else as exciting to do. Maybe your identity is so tied to your work that you don’t know who you are without the business. After all, when was the last time someone you just met asked, “Who are you?” instead of “What do you do for a living?” Your biggest fear may be losing your sense of purpose.
Adding to the problem is a kind of succession conspiracy among your staff and family members. They might not encourage you to “get out of the way” because you seem to prefer living with ambiguity in discussing death or retirement. Your spouse thinks you don’t want to talk about it. Your children don’t want to seem greedy. Key managers don’t want to damage their relationships with you. Friends and professional advisers don’t want to offend you.
Society doesn’t offer much encouragement, either. Retirees have been put out to pasture, and policymakers refer to the “problem of the elderly,” emphasizing medical costs and disability instead of wisdom and talent. It seems if you retire, you are worn out, used up and no good to anyone. With this vision of your future, you cling to your company; however, if you suddenly become unable to run it, it will crumble, or you will be forced to sell, leaving your loyal employees and family to fend for themselves.
It is your job to become a steward of your legacy. Separate your identity from your work, and avoid competing with your chosen successor to prove you are still in charge. Instead, model trust and cooperation to convince your employees and stakeholders (especially lenders and sureties) to support and follow him or her. Decide on a timetable and structure for your departure; then honor it. Make sure you find new activities and purpose for your life after company ownership, or you will be tempted to boomerang back into control when the first problem arises. The successor must be encouraged to resist the impulse to rely on you for answers and advice unless it is absolutely necessary.
Unless you plan for and commit to a clearly defined transfer of power, potential leaders will not be prepared to take over, and key employees may leave because they are uncertain about the future direction of the company. In family businesses, conflicts will arise, and financial issues affecting the family may influence the health of the business. The knowledge and expertise within the company may be poorly transferred or lost. Most important, the big questions have not been addressed: Who should get the business? Who will get the business? If you don’t plan, you may not be the one making the choice.
The best motivation to establish a succession plan is to ensure the continuity of the business and the financial security of your family. The failure to plan for succession is one of the top five reasons why businesses fail. More than 90 percent (about 15 million) of U.S. businesses are privately owned, and most will fail within two generations. The average life expectancy for a
family-owned business is 24 years. With the best intentions, many owners have left their families scrambling to make business decisions while planning an unexpected funeral. Since the business is usually the largest asset in the financial portfolio of its owner, ensuring its ability to survive and prosper is an integral part of many retirement plans.
In his book, “The E-Myth Contractor,” Michael E. Gerber advises the potential entrepreneur to create “a business that works without you rather than because of you.” He strongly suggests that one of the first decisions the owner should make when starting a business is to project when he or she wants to sell or transfer it and for what price. You begin with the end in mind, and you realize that your business has a maximum life span under your control—a much more realistic approach than fantasizing that it will exist in perpetuity.
Your business moves on
How do you envision your business operating without you, and who will you be without your business? In addition to providing the foundation for your present and future standard of living, the business may be your living legacy to your industry, community and customers. In addition to ensuring that it continues to operate and maintain its high performance standards, you are probably concerned with retaining key employees and selecting competent leaders and managers to run it. If it will provide you a cash stream during retirement, then its value must be enhanced. If you are a visionary thinker, you may want the corporate culture to be energetic and supportive of new ideas to enable it to meet technological and marketplace challenges.
Your succession plan will reflect these priorities and attitudes, and it enables you to clearly indicate how much control and over which areas you want to keep. A successful leadership transition can easily take three to five years, and many companies take a decade to fully implement the plan. You may retire outright on a certain date, or you may gradually relinquish authority and responsibilities while you mentor your successor. You may decide to retain a seat on the board of directors for yourself (with or without voting control), become a strategic leader who takes on long-term planning projects or manage an acquisition or new division. You may elect to act as a corporate ambassador to key clients, at industry events or in community volunteer activities. Or, you may take the time to write a company history.
Meanwhile, you must clearly define how you intend to release daily operational decisions to your successor, who assumes authority and responsibilities one at a time on a defined timetable while your involvement decreases. At the beginning of the transition, you are involved before each decision; later, the successor makes the decisions and receives your feedback afterward; finally, your advice is only requested as needed, and you stay out of the operational decisions entirely.
At the appropriate time, your financial plan must be in place, including any income stream from company assets (you may own buildings or property and lease them back to the company, for example). Stock ownership must be transferred, and information on the transfer released publicly. Expect a grieving period, where you may deal with a form of empty-nest syndrome, and your successor may suffer guilt for past sins or worry about making bad decisions without you there to correct them.
The handoff of control is like the passing of a baton in a relay race. Performed smoothly, it is nearly imperceptible to the audience, but it requires intensive practice and preparation to build confidence and skills. The passer must release the baton, or the new runner may stumble and fall. The new runner must be prepared to take over at full speed and continue the race successfully, adding new power and energy to the team effort.
Your business is like a child. You nurture it, watch it grow strong and help it mature. One day it reaches adulthood and seems to be resisting your direction. Transition planning helps your business to find its own path, while crisis planning protects the system during the process. Once the business has found its own life without you, you are free to pursue new dreams.
Management guru Peter Drucker said, “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let his successor run the company.” Creating and implementing a succession plan will allow you to enjoy your past accomplishments, while you look forward to new adventures and enjoy the financial rewards of building your legacy.