Exit Planning Tools for Business Owners

Exit Planning

Not Just Workers…Qualified Workers

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A few weeks ago I attended one of Trinity University’s Policy Maker breakfasts. Although living in a large city has its drawbacks, it is great for access to events such as these. It takes substantial ticket sales to justify top-rank speakers, and Trinity’s series brings the best.

The speaker was Richard W. Fisher, immediate past President and CEO of the Federal Reserve Bank of Dallas, as well as almost 11 years on the Federal Open Market Committee, where he voted on monetary policy under Alan Greenspan, Ben Bernanke and Janet Yellen.

In Q&A time, I had the opportunity to ask how he could project robust growth over the next 20 years with the large number of Baby Boomers leaving the workforce and scaling back their consumerism.

Mr. Fisher had already warned the audience that he had no intention of making controversial or otherwise newsworthy statements, so his answer surprised me a bit.

He said that he remained confident that productivity gains through technology could offset much of the drop in workforce growth. The real problem, he said, was the failure of our educational system to prepare a generation of workers with the skills they need to succeed.

I’ve written previously about how small businesses are being saddled with the job of teaching young workers basic job skills. Just getting them to understand that cutting class doesn’t carry over into cutting work, that there are no unlimited extra credit assignments to make up for lack of effort, and that everyone doesn’t always get a passing grade, can be a real challenge.

Some years ago I employed a young Dutch woman who had come to the USA as a student in a top university. She also apparently had sufficient financial support that dropping out and taking a part-time job with me wasn’t a hardship. Eventually, more out of boredom than need, she enrolled again in the local state university.

She came to me one day to coordinate her class schedule with work for the semester. (I think it was her second half of sophomore year.) These were her courses:

  • Great Women in Architecture
  • Diversity in Art
  • The Sociology of Class Distinction
  • World Geography

I asked why she bothered going back to college if she wasn’t going to study anything that prepared her for a career. She laughed, and informed me that she was just catching up on the core courses required before she could declare any liberal arts major.

I’m sure each of those topics were interesting, and contributed to a well-rounded world view. What they contributed as far as preparation for the workplace, however, remains a mystery to me.

A recent survey of college students found 21% believe that the First Amendment to the Constitution should be modified to exclude free speech that is offensive.

A widely circulated essay on Vox.com expresses a liberal professor’s fear of violating the “safe place” of university learning by teaching offensive literature such as the writings of Mark Twain.

bright studentUniversities now publish their 6-year graduation rates (fewer than half graduate a majority of students in 4 years.) Students with failing grades receive almost daily emails as final exams loom, reminding them that they can drop classes without penalty (except, of course to their parents’ wallets — refunds aren’t offered.)

It may be helicopter parents, politically correct coursework or just a general corruption in the education system driven by billions in student loans that require no accountability. Whatever the cause or causes, a college education no longer seems to carry with it an assumption of career-readiness.

There are certainly many good colleges, and an excellent education is still a great beginning for a successful career. As an employer, however, I’ve long since stopped assuming that a six-figure degree is, by itself, any sort of qualification for a job.

Hunting vs. Farming

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At the family gathering, you are being introduced to a distant cousin you haven’t seen since childhood. The introduction usually includes your status as a business owner. “Do you remember little Cousin Bobby? He owns his own company now.” Or you hear it as you pass a conversation; “There goes Rebecca. You know, she has her own business.”

 You know what they are thinking. It may be the somewhat awed tone of being in the presence of success, or a “Who would believe it?” skepticism. When you are a business owner among non-owners, the undercurrent of envy and admiration comes from certain commonly held beliefs about the lifestyle of a business owner.

 You pay yourself as much as you want. As the holder of the checkbook, you can just decide how much salary you need, and take it. After all, if you determine other people’s compensation, so you determine your own, right?

 You only work as much as you want. No one tells you to be in the office by a particular time. No one orders you to stay at your desk until a deadline is met. You can’t get fired for leaving early. You don’t have to accrue vacation. If you work a lot of hours, it’s probably just because you like money so much, and want more. (See belief number one, above.)

 You only do what you want to do. That’s why you have employees. You can pay people to do whatever you don’t like to do. You write your own job description, as well as everyone else’s. No one is crazy enough to write a job description for themselves for a job they wouldn’t want to do! (Are they?)

 Of course, you are probably smiling right now. We know what it takes to start and build something that achieves that level of freedom. It can take years to get there, and it’s seldom an easy road. Many of us never make it that far.

 But it could be true. The vision other people have of an ideal entrepreneur’s life isn’t wrong, it is merely miss-timed. The entrepreneur always believes that such a lifestyle is in the future, it just isn’t here yet. It will just take a lot of work, a lot of talent, and at least a modicum of luck to make it happen.

 It should be true. Along the way, however, many (if not most) entrepreneurs stall in the  “lots of hard work for inadequate reward” stage of building a business. It happens because as the business grows, they are drawn away from what they enjoyed the most, from what they were best at, and into what the business demands that they do. They become farmers.

 Management is farming. Balancing the checkbook is farming. Paying the rent is farming. Locking up the business at night, or opening it in the morning is farming. Purchasing supplies is farming. Writing procedures is farming.

 Bringing in new sources of revenue is hunting. Finding and training great employees is hunting. Closing deals is hunting. Outmaneuvering your competitor is hunting. Motivating people to excel is hunting.

 As an entrepreneur, you owe it to your company, your employees, your customers and yourself not to get tied down in farming activities. You started your business to do what you do best- not so that you could teach yourself a set of skills that you have little inclination to learn.

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The (pen)Ultimate Hire

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Every sane business owner will acknowledge that there is a point at which his or her own skills are no longer sufficient to grow the business beyond its current level. The revenue point where that happens differs by industry, but it frequently begins at around 20 employees.

At that point, an owner becomes swamped by the conflicting needs of managing the existing operation, and having enough time to perform the tasks that made the business grow in the first place.

The owner realizes that further growth requires the addition of a key employee; one who can assume some of the owner’s duties so that he or she can focus on organizational development.

The typical plaint in this situation is “I need someone who can think. An employee who can run things without my daily input, so that I can focus on what I do best.”

But there is another version that is materially different, although it sounds the same on the surface. “I need someone who can run this company without me.” is a far cry from one who can handle day-to-day operating responsibilities.

Many owners fail to look beyond the immediate need for task relief  to determine exactly what this key employee’s long-term role will be. There is a big difference between hiring an SIC (Second In Command) and an SIT (Successor in Training.)

A Second In Command is responsible for assuming some of the owner’s ongoing decision-making and management duties. The SIC’s role is to free the owner to do what he or she is best at (or enjoys the most). The job description is based on the assumption that the owner is present, or at least available, to check off on major decisions and give ongoing guidance.

In my presentation to business owners, “Beating the Boomer Bust” I discuss the likelihood that many owners will have to execute their own succession plan by growing a successor internally. This Successor In Training is more than someone who can merely back fill your skill set. It needs to be someone who can eventually replace your skills in the business.

The common wisdom is that an SIC should compliment, not duplicate, your talents. We advise owners not to hire a “mini-me,” since it is unlikely that you can find someone who has the same motivations to cover all the various skills that ownership requires.

Typically, you take your job description (finance, sales, business development, culture, motivation, operations, marketing, management) and subtract those things that you want to continue doing personally. The rest of the duties become the SIC’s job description.

But the intention of many owners is to develop the SIC into an SIT. An SIT is someone who can eventually assume all of your higher-level duties. He or she has to create value while you are still there by filling in the gaps in your skill set, but must also have the potential to grow into a broader role as you prepare to withdraw from the business.

Of course, you are still in for a long search if you seek a “mini-me.” The likelihood is that your SIT will eventually need an SIC of his or her own. If you can’t run the company by yourself, your successor can’t either. If you need an SIC now who pays closer attention to the numbers and ratios than you do, then that person will eventually need someone to focus on sales and development.

Hiring a key executive is the single most important decision you will make. Don’t begin the process by making the mistake of looking at only the needs you have today. A solid SIC will probably take five years to fully integrate with you. An SIT may take ten. The investment can be wasted if you look only at your immediate needs. Start with a longer-term vision of how you want your role as an owner (or as an ex-owner) to play out.