What is succession planning? Succession planning as an exit strategy is one of the most rewarding and financially beneficial processes a business owner goes through to receive payments for their time and work developing the business. Owning a business, in large part, is growing the value of your work and ideas through equity so that your company becomes a valuable asset not just to yourself but also to any potential investor or buyer. This value realization comes through the capitalization of business assets, the cash flow, and the cash it turns into net profit each month. Being able to convert hard-earned equity that was grown over the years can only be realized after you depart from the business or your reduction in time and responsibility while remaining with the company if there is a business exit strategy.
Through either a continuing legacy with current leadership participating in taking over the reins and a continuing draw for the relinquishing member/owners or a form of sale of ownership to those internally, where the business owner can cash out on the value of the business in a lump sum or combination of a down payment and additional payments for a fixed period. This exit strategy enables current talent to buy control of the business via an employee stock ownership plan with the end goal of turning over ownership and completing a successful exit strategy. In the simplest terms, this comes down to how a business lives on and survives the people currently in it. That is the question an exit strategy must answer. But often, in trying to do so, we as business owners get caught up in many pitfalls of the spectrum of human behavior, born weaknesses we pass on in our DNA.
Three human conditions that wreak havoc on exit strategies.
The three pitfalls that destroy exit planning success are emotion, personal identity, and ego. They can cause havoc in our minds and cause us to make poor decisions producing results more like the three stooges than the three wise men.
In my experience working with small and large businesses, the change in the leadership process often ignites emotions. The basics of who will lead the company trigger personal identity and when change should occur stimuli ego. The apprehension in addressing these uncomfortable topics can be a blind spot for business owners. This unawareness causes procrastination, derailment, or failure in exit strategies. Planning left abandoned hits with the reality and panic that you are out of time and have lost the ability to put in the physical or mental effort required to keep leading the company. Worst-case scenario, the lack of an exit planning strategy makes the company die.
Another tragic loss these three topics cause when they become negatives is not utilizing or developing valuable talent within the company. Often this delay results in some of the best talent being lost to opportunities elsewhere as they feel underutilized or at a legitimate dead end in their current role. In comparison, a business exit strategy can provide them with a future vision.
The stress of an exit plan may cause us to respond differently.
Keep in mind, as normal human beings, we are hit with these three things every day and should develop normal healthy responses that result in engrained pathways in our brains. In typical situations, this is our day-to-day personality. However, when we are in stressful situations, experts have discovered that we pivot from our normal behavioral patterns in dealing with stress and often use tactics more related to primal survival tendencies engrained deep in our DNA. These overriding basic behaviors remove our own healthier normalized responses. When we are proactive in our tactical responses through the development of self-awareness, we keep control.
Self-awareness in business is like being the 4-Star General in the command center, keeping calm, reviewing as much information as possible from the battlefield, and considering each action and decision carefully and methodically. To continue the analogy, a business owner who is not self-aware is like the Hollywood celebrity who, while viewed as a figure of authority and can speak persuasively and convincingly on a range of subjects, may have a shallow understanding of the subject matter. If your knowledge base is low, peer pressure and trends may easily influence you more than data and results. These individuals frequently speak out of emotion that is short-sighted and harmful in the long run for real durable success.
Avoiding the three common exit strategy emotional traps.
Let’s break down emotion, personal identity, and ego one at a time to establish models we can use to neutralize the negative responses and promote the positive attributes as each of these relate to succession planning.
Emotion
In forming and executing a successful exit, you must remove emotion from the process. Instead, facts, KPIs, and historical data should be the key to developing a common exit strategy and seeing through any bumps along the way. In some ways, a succession plan is more like a marathon. At the beginning of the marathon, there will be training – the emotional acceptance of letting go of control, considering and accepting a new identity (we address in the next section), and new possibilities in your time and daily lifestyle. In the middle of the marathon will be running – patiently seeing the exit plan through and keeping to the process. You must support, monitor, even encourage and cheer on the business plan to the finish line. But, once across the finish line, that is not the end. Owners must prepare to accept the results of the race.
An owner who now has to face living a new daily routine and no longer going into their office may feel their identity changed. They must deal with and prepare for these emotions not to overwhelm or take control. Further, owners must emotionally prepare for new ownership making decisions they would not make themselves. They must be able to handle hearing that the direction or image of the company, they were once a startup founder and built from nothing, is changing in a different direction. Some of the best ways to work through these emotions are having a solid base of healthy people around and structuring an array of activities to invest time. Becoming involved with community groups and charities and focusing on family are often things a successful person strives for in this new phase of life. The venture capital acquired, and the financial freedom enables their professional and financial success. In short, be prepared emotionally to move on to other things. If needed, do not be ashamed to have the professional help of a great coach or therapist to help you resolve emotions along the way.
Personal Identity
As we touched on above, emotions often play hand-in-hand with our personal identities that we consciously or subconsciously make part of the enterprises we build. Those who are more engineering-minded and like to be active in kinesthetic ways often move toward the product side of the business. Then there are those of us who rely more on our personalities’ communicative and planning aspects and are drawn more to the service industries. Most of us have seen these situations play out in reality TV. Popular shows like “Orange County Choppers” that used to run on Discovery Channel showcased the flamboyant and larger-than-life personality of Paul Tuttle Sr., whose identity and personality made him the poster child of a mainstream biker and motorcycle manufacturer. On the other side, we have seen specials on famous business owners, from Steve Jobs to Oprah Winfrey. Each business owner has built their organization in a way that directly reflects their personality. Where this comes into the exit strategy is that as an outgoing business owner or one selling out of leadership, we must prepare to see a change in the personality and image of the business we built. When developing our succession plan, we must be okay with removing our identity from the future of the company. Of course, there are those companies where this may be a bit sticky. Removing Paul Newman from Newman’s Own salad dressings would be different. But in most business exit strategies, new ownership or the transfer of leadership amongst business owners should be seen as a valuable opportunity to bring in new life, new energy, and a way to keep a business current so that it does not succumb to failure through stagnation.
I would even argue that prior to exit strategy planning, one of the most successful ways to ensure that a business does not become stagnant, falling behind its competitors, is to purposely try and keep the personal identity of the ownership out of the external perceptions of the business. As an example, when you buy your iPhone, did you consider the dysfunctional and often abrasive historical personality of Steve Jobs when you made your purchase? Or did you buy your iPhone, more than likely aware that Steve Jobs was a founder and major owner through history at Apple, but not care as you felt it was the best phone for you available at the time in the market? I argue that you likely purchased the phone for the latter. Controlling your identity in your business is critical to successful legacy planning.
Ego
Now, on to a person’s sense of self-esteem or self-importance – ego. Can we see how the ego naturally comes from emotions and our personal identity? If a person is too focused on their identity, as we discussed above, that nearly meets the definition of egotistical. Similarly, if the same person is displaying a lack of focus on historical insight due to being triggered by their ego, you can then say that person is being emotional. This cycle is commonly seen daily in the workplace. Do you understand how this directly relates to exit planning? Business succession planning requires humility and the ability to share victory and credit with others for accomplishments achieved with the realization of the employee value as a valuable part of the company.
Business exit strategy planning is not just a way for owners to profit from the things they accomplished with their business but also to benefit from all things as a whole that every individual achieved. Companies can only survive succession if they can stand independently without the departing owner. One of the essential traits of a truly successful business owner is their ability to raise up and improve others around them.
Simply put, they encourage and equip others to grow professionally, personally, or both. Now, I said “equip” and not “make.” This statement was deliberate; as the old saying goes, “you can lead a horse to water, but you can’t make them drink.” In a way, this saying is its mini succession plan. If you inspire the horse to drink for itself, its victory is also a victory of the person who led it to water. The person or persons chosen to succeed, the current owner, or owners, must have their egos in check and exhibit true leadership qualities for the exit strategy to fully be realized and last with the next generation of ownership. Succession planning is an opportunity for all parties to check their gauges for how accurately they manage their own egos and continue in life. We are back to the development of personal identities and control of emotions, bringing us full circle.
Business self-awareness and strategic exit planning.
In summary, we take personal identity, emotion, and ego out of the exit strategy by committing to the work of being self-aware, planning, and not procrastinating in tasks we do not enjoy. As a business owner preparing for a change in ownership, either leaving or coming into ownership, you must be secure in your personal identity and healthy self. At the same time, health in all aspects determines and controls your emotions and responses to stressful situations so that you control your emotions through the marathon of the transfer of ownership. Lastly, we must limit ego to a tool of motivation and use our humility to establish the value of the business and all of its people. We must avoid getting caught up on ourselves or bringing in a poor choice for ownership, who sees the position as a way to selfishly exalt themselves, ultimately leading to the destruction of the business and failure of the exit plan. If you can adhere to these principles, you will be able to have a successful succession plan free of the pitfalls of negative human behavior. Lastly, you will enjoy the fruits of your labor with newfound financial freedom. Buy that sailboat, go on that journey and look back at the accomplishment of the business you were able to pass on to enrich others’ lives.