Have you ever launched a new product, service, or marketing campaign, or relocated your company’s headquarters without having to make some hard choices regarding the people and resources needed? No business transition is dilemma-free.
All the successful entrepreneurs we know expect to—and do—make course adjustments when faced with choices (or dilemmas) during important projects. When it comes to the project of transitioning out of their companies, however, too many owners become overwhelmed simply by thinking about the number and severity of the dilemmas they expect to encounter. Our job as Transition Guides, is to help owners understand that no business transition is dilemma free, and then identify, organize, and resolve transition-related dilemmas in a way that honors their important relationships.
[We’ve created a tool to help owners identify and identify and organize dilemmas related to the transition of their businesses. Click here to access it.]
Dilemmas, by Definition
We define a dilemma as a situation in which owners must make a choice among competing options. For example, will you transition your business to a family member or to a key employee? Will you sell all your ownership interest or just a portion of it? You don’t know what the outcome of these decisions will be when you make them, but you do know that the outcomes will be ones you 1) want, 2) don’t want, 3) fear, or 4) don’t think will work. Once you make and begin to implement a decision, it’s not unusual to encounter a combination of outcomes as the process moves forward.
Dilemmas: The Boogieman Under the Bed
Some owners speak of their dilemmas as if they are beasts that lurk around every corner and have the power to destroy the owner’s well-being as well as that of their families and companies. Well, some outcomes do have that power, but the dilemmas do not. To disarm a dilemma, we recommend that you define the rules of the game. In other words, you first set your objectives and then determine which objectives are so important to you that you will not make a choice that could jeopardize them.
For example, let’s imagine that two of your goals are 1) your three longtime employees keep their jobs and 2) you are paid at least $5 million for your ownership interest. Initially, the goal you decide that you will not sacrifice is your key employees keeping their jobs. Along comes a deep-pocketed third-party buyer with a $6 million cash offer. Do you take it if your employees are likely to lose their jobs or, with a great financial offer on the table, do you decide to find another way to financially reward these employees for their years of work? It is all up to you.
Three Types of Business Transition Dilemmas
Dilemmas generally fall into three categories related to the well-being of 1) the owner, 2) the business, and 3) the owner’s family.
Personal Well-Being Dilemmas
As you transition out of your company and into your Next Adventure (i.e., the next meaningful phase of your life), your successor transitions into your role as leader. Turning over the authority to make decisions that have always been yours to make can be both scary and challenging. You take a risk that your successor will make mistakes—and they will because they are not clones and come equipped with their own set of skills and experiences. It also can be challenging for take-charge owners to take on a new role as patient mentor and effective teacher. The dilemma for many owners is whether the date they’ve set for their transition out of their businesses is possible given the time that they and their successors need to transition into your new roles. Without knowing which goal they will not sacrifice, that’s a tough dilemma.
Another dilemma that relates to many owners’ well-being is income: Is the business worth enough to support the next phase of their lives? In other words, will the transition path you choose accomplish the financial goals you’ve set for your transition?
Business Well-Being Dilemmas
The dilemma that arises in nearly every transition relates to cash flow. Unless your successor is an outside third party willing to pay cash, you typically will be paid, at least in part, from the excess cash flow of your company. Can your company afford to buy you out and remain financially viable? While paying you, will your company have the cash it needs to invest in even a reduced level of growth? If not, will you consider a different transition path?
In addition to a diversion of cash flow, another challenge to your business might be transferring the financial commitments you’ve made to your successor. Will lenders make bonding and lines of credit available to your untested successor on the same terms as they did to you?
Then there are the dilemmas related to the effect your successor might have on your company’s viability. Which successor gives your company the better odds of success: Is it the longtime employee who other employees look up to and is completely capable of running the company or is it your daughter who you would love to work with and see taking over for you but whom employees haven’t warmed up to and has much to learn before she could successfully handle the reins? How can you resolve a dilemma like this in a way that maximizes your company’s odds of success and honors your relationships? Look back at your goals!
Finally, there’s the issue of culture. It’s likely that the culture you’ve fostered in your company plays a role in its success. Will a successor maintain it? Does your list of goals indicate that it’s important to you that they do?
Family Well-Being Dilemmas
Few owners are lone wolves. We are surrounded and supported by family members, many of whom have made sacrifices for our success, and the success of our businesses. Do you know how these people imagine the next phase of their lives? Are there family members who want to be owners? If so, how will you treat any other children fairly? Maintaining an owner’s important relationships is one of the guiding principles in all the work we do, so we take care to protect them.
A common family-related objective for many owners is to spend more time with family members to participate in activities as a group. It can be disconcerting (or even a shock) to discover that spouses and children may not have envisioned giving up the time they spend doing what they love to spend more time with the now-former business owner. I strongly recommend communicating with family members about how they see their roles in your Next Adventure™ (post-business life) before you jump into it.
No Business Transition is Dilemma-Free
One of the best ways to lose control of a dilemma is to ignore it. While a dilemma may not be a boogieman, it will keep you up at night, and it will not simply go away.
Once you start testing your assumptions related to the dilemmas you anticipate (e.g., Does your daughter even want to become an owner? Will your bank extend the credit your company needs to survive to the successor you have in mind?), some dilemmas will resolve themselves. Others that you imagined to be insurmountable will shrink in size. Some will appear that you did not see before. Adapting to unforeseen events is all part of the journey. Most importantly, by using your objectives to address and resolve dilemmas, you will gain clarity and confidence in your ability to navigate your transition successfully.
Organize Your Dilemmas
We’ve created a tool to help you organize and assess the dilemmas you anticipate in the transition of your business. Click here to access it. If you’d like to talk about dilemmas in general or specific to your situation, we are happy to talk with you.