Exit Planning Tools for Business Owners

small business advice

Work-Life Balance

by

The term “Work-Life Balance” is widely cited as first occurring in the United State in 1986 in a research paper. I can’t identify the specific source of this much-referred usage, but it is telling that it would pop up when the last Baby Boomers had just turned 21. They were all in the labor pool, and their competitiveness (see The Brass Ring) was rapidly becoming the norm in the workplace.

In the period beginning in 1912, the Federal Government began passing legislation to limit the number of hours that could be demanded of a worker. With the passage of the Fair Labor Standards Act of 1938, the concept of a 40 hour work week was enshrined in national labor regulations.

In the decades following WWII, the average work week hovered between 39 and 41 hours. As the Boomers assumed their dominant role in the workforce, however, it began to climb for the first time since prior to the Great Depression, and by the mid 1990’s was in excess of 47 hours a week for the entire working population. The race was on!

Just as it doesn’t take an economist to understand why a having lot more people creates additional demand, so it doesn’t take a PhD to explain why working more produces more. Combine a generation that was 50% larger than its predecessor, and have that much larger labor force work 20% more, and you have a rising tide that has carried the US economy through today.

But even those factors don’t fully explain the force that was the Baby Boomers. Driven to succeed, they sought new ways to increase household income. One of those became obvious. As the university system opened up to women, educated and ambitious Boomer moms were pressed into service as wage earners. The two income family became the new norm.

Between 1970 and 1980, while the US population increased by 11%, the workforce grew by an astonishing 29%!

“Work-Life Balance” wasn’t a term before the Boomers, simply because it wasn’t a widespread issue before the Boomers. The returning WWII GIs didn’t wrestle with the dividing line between work and life. There was work, and then there was life. You left the office at 5:00 (or the plant when your shift ended) and came home to your life. In the idealized middle-class family, Mom had spent the day caring for the children and preparing dinner. Weekends were for outings and backyard time with friends (in your new subdivision home).

Boomers abandoned that model by the millions. Although the wife still assumed the bulk of the duties of child care and food preparation (and does today), she had to fit it in around a work week spent supporting a lifestyle of success.

In 1984 (when the Boomers ranged from 20-40 years old- prime child-bearing time) Chrysler Corporation introduced one of the greatest product successes of the decade; the minivan. Built on a car chassis (so women could drive it more easily) it had the first feature that acknowledged automobiles as something other than transportation- cupholders!

Now families had transport that accommodated their need to feed children in between school and activities and home. McDonald’s installed its first drive-through window in 1975 (the oldest Boomers had just turned 30). Mom became an efficiency machine, going from work to school to soccer without ever getting out from behind the steering wheel.

In a foreshadowing of what happened to many products that depended on Boomers to support them, over 1 million minivans were sold in America in 2005, when the youngest Boomers turned 40. By 2008, just three years later, minivan sales had dropped by 80%, to just over 200,000. The Boomers were now in their 40s and 50s. More affluent, they could afford to move up en masse to SUVs. (Everyone had cupholders by then.)

The Boomers had reshaped society, first as children, again as working adults, and now as parents. This reshaping went much further that simple productivity. In their quest for identity through work and material success, the Boomers were about to engineer the biggest change of all.

Since 1776, with a small drop during the Great Depression, every generation of Americans has begun promptly producing a new, larger generation upon turning 20 years old. The Boomers broke that mold. Their need for higher education and early focus on potential careers delayed their marriages and child-bearing by years. Once they began having children, the challenges of juggling job and family, along with medical advancements in birth control, led them to have fewer children than their parents did.

As a result, the tenth generation born as United States citizens (known by their Roman numeral as “Generation X”)  was smaller than the Boomers that preceded them by almost 10,000,000 lives.

By now, you have had enough indoctrination regarding the economic effects of rising and falling populations to understand the implications of a shrinking work force. It is no coincidence that the suffering economies of Europe, Greece, Italy, Spain and Portugal, have had the four lowest birth rates in Europe for the last 30 years. Fewer workers are simply bad for an economy.

But Generation X will impact retiring Boomers through more than just numbers. They grew up in minivans, watching their parents work longer and harder in pursuit of success. They aren’t impressed by the results, and are returning to values that separate work from life.

That may be good for them, but it isn’t promising for Boomer business owners on many different levels.

(This is the fourth installment in a series about “Beating the Boomer Bust.” Previous installments are The Approaching Tidal Wave, The Pig in the Python and The Brass Ring.)

 

The Approaching Tidal Wave

by

A year ago this month, I began speaking to business owner groups about “Beating the Boomer Bust.” Since then I’ve delivered the presentation over 20 times, both locally and to national groups, and the requests for it are increasing.

It’s the product of a year of research, and of fifteen years helping business owners prepare to leave their companies. I’m convinced, actually I am certain, that small business owners in America are ignoring a tidal wave of change that, just like a real tidal wave, will leave a few small businesses untouched while wiping many others from the face of the planet.

Am I being dramatic? Absolutely. Am I being overly dramatic? Not in the slightest. Peter Drucker once said “I don’t predict the future. I look at what has happened already and point out the inevitable result.”

Two years ago I set out to learn whether the birth rate curve of the Baby Boomers was duplicated in other areas of American society and the American economy. Not only did that prove to be the case, but the correlation is shockingly perfect. When the Baby Boomers reach  an age where specific life activities would normally be expected, the incidence of those activities escalates overnight (with one notable exception that I’ll discuss in future weeks), in volumes not seen before or since, and exactly corresponding to the birth rate increase that started in 1945.

Describing it as a tidal wave isn’t at all metaphorical. Like a tsunami, it is well documented. The causes are known. It is traveling at a defined rate of speed. Its arrival is both inevitable and on a schedule. It will get higher and more dramatic as it approaches the coastline (Boomer retirement ages), and those who ignore the warning signs will be very, very sorry.

The impact will be universal, but I am going to focus on the implications for small business owners. Those who are exiting now will still have some options between selling to a late-stage Boomer and selling to Generation X, and should know what the differences are. Those Boomer owners who are planning to move on (perhaps not retire – another topic we’ll address) in the next 10 to 15 years need to understand the changed market that they will be selling in. Late-stage Boomers should be building a very different business than the ones they started or purchased. Post Boomer entrepreneurs need to assess the many opportunities that these changes will create.

Let’s start with defining the Baby Boom. Most of us know what it is, but it’s more than just a mere demographic description. Since this entire series will be about the inevitability of numbers, we should put the boomers in an economic context. Their numbers helped determine the personality traits of a generation, and of the generations that followed.

An important fact to understand in our discussion is that the Baby Boom is an American phenomenon. We were late to join World War II, and suffered far fewer causalities as a percentage of our young male population. In addition, the US was never a battlefield in the war, so our returning armies were discharged into a healthy infrastructure, with an industrial base fully geared up for maximum production.

In 1945, as the GIs began returning from WWII, the US population was 140 million, and the birthrate was about 2.8 million. That number of births had been roughly consistent, between 2.5 and 2.9 million, from 1900 onward, with one noticeable dip in the middle of the Great Depression.

In 1946, the birthrate exploded to 3.47 million, a 24% increase in one year! New births broke the 3.5 million mark for the first time in 1947, 4 million in 1954, and peaked at 4.3 million in 1957. They didn’t fall back below 3.5 million a year until 1971, and then didn’t reach the 4 million mark again until 1989.

In 20 years (1945-1964) the United States had added 78 million new, natural-born citizens to the population. By 1965 the US population had grown to about 195,000,000. which meant that two out of every five people in America was under 20 years old!

This was the uniquely American phenomenon that was to influence everything for the next sixty years. The impact of the Baby Boom has changed social and cultural mores, the job market, business structures and economics. As they exit the workplace, the Boomers will have one more giant shift to their credit, and it will change the face of small business in America.

If you are a Boomer business owner, know a Boomer business owner, or provide services to a Boomer business owner, I encourage you to share this first chapter of the series. By the time we reach the end, I can promise you that you will view the next ten years in a whole new light.

Three Circles of Family Business

by

What is a “Family Business?” A large percentage of small companies have some family involved. For most, it is simple a case of providing employment to family members. If the founder of the company is also the principle revenue generator, it may be a spouse (most often the wife) who keeps the books and runs the office.

Employment of children who can’t (or won’t) find another job is common, and more so in the current economy. In most instances it is just a matter of income transfer with some value attached. The owner could keep handing over money for the child’s living expenses, but he or she wants the offspring to “earn” that money. The business becomes a vehicle for parenting; teaching life lessons about responsibility. In fewer cases, it is a recruiting tool. The owner tries to get the child interested and involved in the business, with hopes that they will seize the opportunity to become part of a succession strategy.

There are scores of variants, such as the absentee family employee who is really just a charity case. Performing no duties, and frequently not even in the same geography of the business, employment is simply a mechanism for the owner to make tax-deductible contributions for someone’s support.

The three circles of this title refer to when the engagement of multiple family members in the business involves a blood (or marriage) relationship, participation in management decisions, and ownership. For our purposes, all three must be present in order for it to be a “Family Business.”

When all three factors are present, they set up a structural conflict that is challenging to deal with. Issac Newton postulated laws governing mass and attraction; the effect one body has on another in relation to its size. The problem with Newton’s laws is that they apply to two, and only two, bodies acting on each other. When there are three bodies of mass the laws become chaotic, since each change in one body not only alters its effect on the others, but immediately alters their effect on each other.

So it is with the laws governing family business relationships. When there are only two roles, effects are fairly predictable. One role, of course, is always the kinship between the parties. If only one of the family members has ownership, the roles in the workplace are pretty plain. If other family members have ownership, but don’t work in the company, their input can be anticipated and occurs within defined parameters. When family members hold two roles in the business, both employee/manager and ownership, each action in one area causes unequal and unpredictable reactions in the others.

In one business, a brother and sister were sold ownership, but until the parents were paid, the siblings remained dependent on their paychecks for normal living expenses. The brother worked long hours, kept a careful eye on expenses, and ran a “tight ship” when it came to employee issues. The sister came in late, left early, and was fond of showing employer largess by issuing unplanned raises to favorite workers. Her sibling and ownership relationships made it difficult to deal with her radically different management style. She felt that she had an equal “right” to run the company as she wished, even if it was the polar opposite of her brother’s style.

In this case, the brother’s solution was to force his sister to sell her stock, and continue to give her a salary conditioned on her no longer coming to the office. The company is better off, but they don’t speak to each other any more.

In another, a brother’s division of the family business underperformed those of his siblings. Eventually he left to work in another company, although he retains his ownership and they still get together for holidays.

The pressure of decision-making and implementation in a family business adds complexity to every situation. Is Dad overriding our opinions because of his greater experience and wisdom, or is it because he regards any dissent from his children as disrespect? Is Mom against the new initiative because she really judges the market to be weak, or is it just her natural inclination to protect what we already have? Has my brother really studied that opportunity, or is he just trying to do something on his own, without his big brother’s shadow over it?

Family members know each other too well to ever make a completely unbiased analysis. The best you can do is recognize the three circles that influence every action, and discuss the mass and attraction of each one when making decisions.

Lifestyle or Legacy – Part 3

by

Let’s turn to the Legacy Builders.They are the business owners who have achieved Lifestyle status (as defined in the last posting) but continue to work hard to build their businesses. Their objective is a company that does far more than merely provide a comfortable lifestyle and assure retirement.

A little bit of elimination to start, as we did with the Lifestyle owners. Just as we said a Lifestyle Business was neither a pumped-up hobby nor merely an adjunct to an alternative lifestyle, the Legacy owner isn’t a couple of things that people might normally assume.

Let’s set a baseline. The typical Legacy Builder runs a business that is very capable of continuing its day to day activities independently and indefinitely. Operations, management and sales are handled by competent employees. In fact, each is probably better than the owner at what he or she does. They are in the top 1% of American incomes. It varies widely, but we’ll call it a minimum of $500,000 a year. The Legacy Builder nonetheless chooses to work a full (45-50 hour) week to continue developing and improving the business, and not incidentally adding to its profit.

The Legacy builder is clearly not obsessive-compulsive, a workaholic, or in any other way driven unwillingly to work beyond common sense. It’s easy for observers (and sometimes family) to accuse the Legacy Builder of being enslaved to the job, unable to tear away for a personal life. That isn’t true at all. The Legacy Builders I am describing spend time with family and other pursuits. They coach Little League, attend recitals, and are active in the community. They take nice vacations (usually with family), and live in nice homes (often several of them), but are seldom ostentatious.

It is true that they are frequently missing in the devotion of time to community activities, preferring to fund the work of others. In fairness, I’ve spent a lot of time working in community organizations. There is a lot of wasted time. If I had the money to pay for someone else to do it, I probably would. Legacy Builders don’t like to have their time wasted.

They are also not greedy. Their continued push for improvement is not for the personal gain. They seek greater success for other reasons. As Bill Gates once said, “Money is just a way to keep score.”

I call them the Legacy Builders because they have an eye for a target that is beyond merely running a successful business. They have a bigger picture; a larger objective in mind. Developing an organization that lives beyond their own careers is at the core of their strategy, but it isn’t just monument-building that drives them. It is what that organization can accomplish.

Some are motivated by the benefit to the community that their talent can deliver. More jobs, more people who can provide security for their families. For others it is even a greater community responsibility, the money to form a foundation, or to fund worthwhile causes. For others their family is the motivation. They seek to change the lifestyle of their children, and their children’s children, permanently (or at least for the next few generations).

Many of the Legacy Builders are simply entrepreneurs without a limit on their creative drive. Most business owners have a difficult time looking backwards. Yesterday’s achievements are ancient history. They see no point to basking in past accomplishments when there is so much more that could be done.

Some Legacy Builders attempt things for the thrill of accomplishment. Once attained, the successes immediately become the basis for the next level, the next mountain to climb.

Admittedly, a substantial number of Legacy Builders have a head start when compared to bootstrap entrepreneurs. They achieved a substantial level of success in an existing organization, and used that as a spring board for their own purposes. They may come from a family where there was Legacy-type success in the past. They may have just been lucky. But none of those things explain their push for greater achievement in business when they are long past the point at which most owners would be satisfied; and there are plenty of bootstrap start-ups in the Legacy class to disabuse the notion that the game is fixed at the start.

Most Lifestyle owners say that they really want to reach Legacy levels, but few actually do. In my next post, the last in this series, we’ll look at what it takes to make the leap from Lifestyle to Legacy.

Lifestyle vs. Legacy – Part 2

by

Let’s define a lifestyle business. For our purposes, I’ll start with what it isn’t.

It’s not the small retail store being run by someone who doesn’t need the money. A few years ago I was on a judging panel for a business award. One of the finalists told her story of how she struggled and labored to build her company. I was getting pretty impressed, until she mentioned that she hadn’t turned a profit until her 13th year in business. Fortunately, she said, her husband was a prominent surgeon and could afford to absorb her losses indefinitely.

That’s not a business, it’s a hobby. And it’s one that has an unfair advantage against the real businesses that have to compete against it.

I’m also not talking about the fantasy businesses that regularly grace the pages of Inc. Magazine and Entrepreneur. You know, those stories that read like a cross between People magazine and the Whole Earth Catalog. Where people live in a mountain top retreat, go kayaking with their employees on Tuesdays and Fridays, and sell imported herbal teas on the Internet. I envy them, but the number of such businesses are limited. Most of us are in far more plebeian environments, where the business requires hard work and constant attention.

My definition of a lifestyle business is one that allows you to live the life you want. The business isn’t integral to your lifestyle, as with the mountain-top tea seller’s. It is any business that generates the income you need to achieve your personal vision, and runs well enough to give you sufficient time to spend that income the way you choose. It can be any business, as long as it is one that can be separated from your personal life.

I’ve observed that most small business founders are seeking a lifestyle business. Their dreams include some base line achievements; financial security for their families, the ability to retire in comfort, and a few weeks of vacation without calling in to run the company by remote. I think those are the trip wires for defining the beginning of a lifestyle business.

Those basics are really just the criteria for a well run business. It has to go a bit further than that for a business to truly achieve “lifestyle” status. It mostly revolves around coming and going as you please. Depending on your interests, it may be working a four day week, or leaving at 3:00, or taking the children to school each day before coming in. Of course, in order to qualify, you can’t be slammed when you return as the price of your “free” time.

It also has to fund not only your immediate and future financial needs, but also generate sufficient excess to let you indulge in your chosen activities without sacrificing elsewhere. Private schools are a quality choice, not an economic decision. Recreation destinations are determined by the activity desired, without worrying about time, distance, equipment or cost. Physical fitness regimens are scheduled each day or week, and the business simply has to fit around them.

If you are not in the office, your phone doesn’t ring with problems; they are handled in the normal course of activity. If you say that you are going out, no one is worried about when you’ll be back. If the business has an off month it doesn’t affect your paycheck. When you want information of how the business is running, it is available instantly, preferably on your smart phone.

For the vast majority of small business owners, this is a description of perfection. I work with a number of business owners who have achieved this, or are close to it for extended periods of time. But I also work with many who are well past this point, yet continue pushing the envelope to make the business grow. These are the Legacy Builders, and we’ll discuss them next time.