Guest Contributor: Don Jaine

Exit Stage …… Right!

Some thoughts on structured succession for business owners This month Warren’s thoughtful monthly missive is being outsourced. It is a privilege to have a virtual soapbox to Altiora’s network.

As an acquaintance of Warren’s and recipient of the Altiora monthly Opinion Piece, you are likely a business owner or an advisor of/to a medium sized private (closely held) enterprise. You have likely carved out a market niche in some part of the New Zealand economy that you know well. Demographically, you are likely to be a “baby boomer” so at some time in the next 5 – 10 years you need to consider your alternatives to “pass the baton” to a successor leader or owner. This could be the most heart wrenching, challenging and difficult decision that you will make as a founder/operator or as an Independent Advisor to your valued clients.

Starting on down this road requires careful thought about a whole range of subjects:

  • Your need to work – not just for the income, but the stimulation and social interaction
  • “Health, wealth and happiness” for you, your family, and your extended family
  • The current and future states of your business – particularly in this fast changing, now fully “wired” internet society.
  • Relevance of your business – to you, your incumbent management team, your family, the marketplace, and likely successor managers or owners.

These conflicting issues are in my experience best addressed by truly independent thinking. If you do nothing more than deliberate these issues with a smart outside advisor – like Warren – you will have at least taken the first step on a significant journey.

Use truly independent thinkers – not just your professional advisors or your mates and friends on the golf course. Why? – They will ask the challenging questions and have the wisdom, experience and external reflection to help you properly assess these choices.

Do you:

  • Sell the business to the highest bidder
  • “Give it away” to your family or your employees
  • Work until your health or a business issue means you close the doors

Or, have you still got the energy to drive, grow and thrive? If you have the ideas but not the energy, is there a better way?

Take a really good look at your leadership team – do you have people who can truly lead and grow the business in your absence? Translated, can you become an investor Director with no day-to-day involvement in the business and objectively expect your enterprise to thrive.

If you are prepared to invest time and money, have you thought about the possibility of attracting a talented leader from within industry and commerce? A leader of a large organisation, looking for a true independent leadership opportunity in a thriving mid-sized business. Operational excellence, contemporary leadership, professional development and quality business systems in many large corporations have created a group of well rounded leaders who are interested in business ownership to create long term value. The best of these people will be capable of taking your business and identifying, understanding, and executing the opportunities. All of this with the intent of creating a bigger, brighter, better business which creates shareholder value to help you realise your dreams – and realise true value.

If you have “unfinished business” in your own business sector and you are prepared to share that opportunity, then there are capable leaders in the market looking for opportunities of this nature.

What should you do?

  • Independent Advice – go out and find truly capable independent advisors – possibly not your lawyer, accountant or golf/fishing mate – but former leaders with large scale experience who can work with you to identify and document a true strategic direction for your business. Two people are best – one with all round leadership and chairmanship skill and the other who can supplement your understanding of your industry, or provide a skill or experience set in which you don’t have expertise e.g. marketing, technology, supply chain etc.
  • Strategy – work with the independent advisors and the existing senior executive in your business to evolve the very best strategic direction that you can take, bearing in mind your medium and long term needs i.e. work out what the business might deliver and then decide on your level of interaction.
  • Leadership – hire a Chief Executive and possibly one or two other leading executives – Sales and Marketing/Finance – who can work with you to achieve the growth that you strategically believe to be possible. Here, hire more than you feel comfortable with, and as much as you can possibly afford – But be careful what you wish for and who you choose. Take the time to have a thorough look at the market and identify people with the right attitude, ability, experience and cultural fit to succeed well in your business and in your market. Don’t just put an advert in the paper.
  • Be prepared to share the rewards – there are a variety of ways in which a new team can be motivated to support you and achieve true succession for your company. But to do so, you need to be prepared to share if the people commit and achieve the results. Structure up long term incentive arrangements which will enable the newly committed executive team to acquire a material interest in the business for fair value – less some discount for the uplift they have achieved i.e. so they don’t pay twice.

These arrangements – well stewarded by an effective independent board – can be a fabulous recipe for improved value for all concerned. As an owner, you realise much better long term value for your enterprise than is presently available, and the incoming executive also achieve value above and beyond that attainable as an executive within a major corporation.

So what can go wrong? In our experience, the number one pitfall is failure to use independent advice at an Advisory Board or Board level. In short, do not embark on these processes without truly independent support.

Well executed, leadership succession can be a very rewarding alternative to handing it over, handing it down or closing the doors. The most important thing – enjoy the journey.

Our guest contributor is Don Jaine, a founder Director of SEQEL Partners – an Executive Search firm with a specialist practice in leadership succession for large/medium private companies