Case Study 5 - The Why Drives Business Transitions

One hundred percent of the owners who have completed our process (The Transition Roadmap™) have successfully transferred their companies to their successors and are living happy and meaningful lives. Their companies continue to thrive as do their relationships with the most important people in their lives.

It’s that 100-percent statement that one business owner found very difficult to believe when two of our Guides first met with him.

“Every single one of your clients has succeeded in leaving their businesses?” Hector challenged.

“Every single one who has completed the Transition Roadmap process,” we assured him.

“That’s a pretty bold claim,” Hector countered. “What’s the secret sauce?”

“If there’s a secret, it’s our Big 6,” we answered. “Six questions that, when you answer them, act like a compass and point you in the direction you want to go.”

“I can tell you my ‘Big Three’” offered Hector. “Number 1: How much will I get for my company? Number 2: How will the transition work, and how will I minimize the tax hit? Number 3: Who can run my company once I’m out?”

“Those three are among our six, but to How, How Much and Who, we add Why, What and When,” we explained.

“Why? Isn’t that obvious? I’m 65 years old. I’ve built a great company, supported scores of employees, and my wife says if I don’t retire soon, she’s going without me,” he responded.

“Going where?” we asked.

“Going on all the trips we’ve talked about,” Hector started. “Going to see the grandkids during Christmas and Spring Breaks. Going to our lake house from Memorial Day to Labor Day.”

“Sounds great,” we agreed. “How does that sound to you?”

“I get what she’s saying. I’d like to spend more time with the grandkids and at the lake house too,” Hector replied.

“Well, there are two of your answers to the question of Why,” we responded.

“The reason I’m transitioning my company to a successor is because I want to spend more time with my grandkids and at our lake house?” Hector challenged.

“Those are two small parts of it,” we answered. “Your Why is so much more. It’s all the things that will motivate you to do the work necessary to make your transition a success for all involved. Your Why includes the benefits of the transition not just to you, but also to your family, employees, and anyone who’s important to you. It includes the benefits to your company too.”

“My company?” Hector interrupted. “How could my leaving be good for my company?”

“Leaving your company in the hands of a successor who sees ownership as the opportunity of a lifetime and brings new energy and ideas to the table? Or a successor who can inject the cash necessary to take your company to the next level? Either can be a huge benefit to a company.”

“I guess,” Hector mused.

“When we help owners identify their unique Why,” we said, “we ask them to think about 10 dimensions of their lives: spiritual, life purpose or direction, professional or intellectual, financial, time freedom, peace or groundedness, relationships and connectedness, play or fun, physical mobility or health and environment.”

“I don’t have ideas for all those dimensions and coming up with them is going to take a ton of time,” Hector observed. “Why, no pun intended, can’t we jump to the issue of how much can I get for my company?”

“Because,” we argued, “how much you want for your company is directly related to your Why. For example, if one of your objectives is to travel to all seven continents, that will influence how much money you want from the transition of your equity and who can pay for it. On the other hand, if you want to live in an ashram for the first five years after you leave, that too influences how much money you want and need to live the lifestyle you want.”

“I can assure you,” Hector started, “there are no ashrams on my wife’s bucket list.”

“But can you see how all six questions are connected?” we asked. “And more than connected, your answers to your Why (or objectives) help you identify and rule out answers to the other five.”

“Explain,” Hector directed.

“Well, let’s say that you want your company to remain in Tacoma” we suggested. “You might rule out as a successor (or Who) a private equity group that would happily pay a premium for your company’s intellectual property, then close its doors.”

“Then add ‘keep my company in Tacoma’ to my objectives,” he responded.

“You can see how just this one objective worked,” we observed, “to narrow your options when it comes to your successor or Who. In fact, if you are set on keeping your company in Tahoma, that’s one of your deal breakers.”

“Deal breakers?” Hector repeated.

“Yes,” we answered. “Deal breakers are the things that are so important to you that unless a choice or decision you make leads to them, you will not move ahead.”

“Give me an example,” Hector said.

“For one owner,” we started, “a deal breaker might be not leaving until her company is worth $20 million. That deal breaker would have an enormous influence on her When. For another, a deal breaker might be keeping ownership of the business in the hands of family members. That would influence that owner’s Who and eliminate selling to an ESOP or third party as an option.”

“Transitioning my business is beginning to sound like a game of high-stakes, three-dimensional chess,” Hector sighed.

“A transition does have a lot of moving parts,” we agreed. “That’s one of the reasons some owners put off thinking about theirs because they can’t see how the pieces fit together.”

“I’m not putting it off,” Hector objected. “But I’ll admit that it’s a bit overwhelming. I thought I was just going to have to deal with the dollars—valuation, sale price, and taxes—and the deal structure—earnouts, promissory notes, retained earnings— that sort of thing.”

“Eventually,” we assured him, “you will.” But for now, we suggest you put your energy into defining your Why. Look ahead and ask yourself a few questions. First, what do you want to leave behind? On that list might be your personal guarantee on a building loan or having to come to work every day. Second, what do you want to keep? For you, that might be keeping your current income stream for the next four years and keeping your finger in the part of your company you love. Sales? Product development?”

“For me it’s rainmaking . . . meeting with people, serving on boards, that sort of thing,” Hector said.

“The same things energize me,” I agreed. “But when I imagine my life after transitioning my company to a successor, I think I’ll volunteer for the same organizations I’m involved with today. By volunteering, I can come and go as I please. No meetings and no fundraising!”

“That’s a definite possibility,” Hector said.

“And there’s one more thing we want you to think about,” we requested. “What can you add to your life that you’ve always wanted? Is it seeing the grandkids on holidays or taking them on week-long bike trips in Europe every summer?”

“I’ll admit that I’m beginning to see that starting with what I want and sitting down with my wife to map out the next phase of our lives is more interesting and less overwhelming than thinking about hypothetical deal structures,” Hector observed.

“Taking The Big Six™ in order,” we explained, “helps you organize your thoughts, and tackling your Why first points you in the direction you want to go. Knowing your Why grounds you and gives you confidence and clarity when you have to make the sometimes-hard decisions during your transition.”

“What are those ten dimensions again?” Hector asked.

“You don’t need to remember them,” we assured him, “We’ll send you our Objectives Matrix™ worksheet to help you and your wife identify and prioritize your Whys.”

Hector left our conversation excited to dive into the first step of The Transition Roadmap Process. We have a program to make it easy to start thinking through your answers to the Big 6 questions. If you’d more information, click here. And if you’d like a copy of the Objectives Matrix we gave to Hector, click here.