the definitive guide to business owners’ changing roles · 5/4/2012 · show owners how changing...

BUSINESS ENTERPRISE INSTITUTE

EDITED BY JOHN PULLEGA

BUSINESS ENTERPRISE PRESS©2018 Business Enterprise Institute, Inc. All rights reserved.

The Definitive Guide to Business Owners’

Changing Roles

HELP YOUR CLIENTS CHANGE THEIR ROLES TO ACHIEVE THEIR EXIT PLANNING GOALS

TABLE OF CONTENTS

©2018 Business Enterprise Institute, Inc. All rights reserved.

TABLE OF CONTENTS

Introduction .............................................................................................................................3

Changing Roles: Why Owner Evolution Is Necessary .............................................................................................................................3

Exit Planning Challenges: Changing Roles .............................................................................................................................4

ExitPlanningBenefits:ChangingRoles ............................................................................................................................ 6

You Are Not Alone .............................................................................................................................7

The Road Ahead .............................................................................................................................7

What Needs to Change? ............................................................................................................................ 8

ChangingRoles:FromHands-OnandHeadDown,toHands-OffandHeadUp ............................................................................9

The Owner’s Current Role ...........................................................................................................................11

Change Is Nothing New to Owners ...........................................................................................................................12

ExpeditiousExpediters ...........................................................................................................................13

Meet the Owners .......................................................................................................................... 14

InflectionPointOne:ChoosingtoDelegate .......................................................................................................................... 14

InflectionPointTwo:10YearsLater .......................................................................................................................... 15

InflectionPointThree:TheFinishLine ...........................................................................................................................17

WhoCanHelp? .......................................................................................................................... 19

How Much Do Owners Need to Change? ..........................................................................................................................20

Owner Evolution ..........................................................................................................................20

TheBenefitsoftheEvolvedOwner:FromHubtoSpoke .................................................................................................................. 22

Conclusion .......................................................................................................................... 23

AboutthiseBook ..........................................................................................................................24

AboutBEI ..........................................................................................................................25

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INTRODUCTION


Changing Roles: Why Owner Evolution Is NecessaryOne of the most important steps business owners take as they approach their business exits involves changing their roles within their businesses. Most business owners don’t know how, or even flat-out refuse, to evolve from a hands-on, head-down owner into a hands-off, head-up owner. This eBook describes how you, as an Exit Planning Advisor, can both explain the importance of this evolution and help owners change their roles in ways that will facilitate a successful business exit.

Successful business exits require owners to grow their businesses’ value to the point at which they can leave their businesses and be financially independent. This almost always requires business owners to delegate responsibilities to people outside of themselves. However, most business owners struggle to take on less responsibility within their companies. This eBook will present a comprehensive case study, along with strategies and ideas, to help you show business owners how giving up control of their businesses gives them more control over their post-exit lives.

Transforming themselves from the hub of their companies to one of the spokes is a challenge that many business owners fail to overcome. In the process, they sabotage their efforts at a successful business exit. This eBook will show you how you can help them overcome this challenge and to whom owners will likely turn as they begin their business exits.

In subsequent guides, you will learn about taking the steps you, your Advisor Team, and—most importantly— your clients need to take to implement an Exit Plan that allows your clients to leave their businesses when they want, for the money they need, and to the person they choose.

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INTRODUCTION


Exit Planning Challenges: Changing Roles“A common challenge that BEI Members share with us is getting business owners to understand that they cannot be all things to all people if they want to exit their businesses successfully. Business owners tend to think that they are the only people who can guarantee that their companies succeed at the level they want, and so they must stay involved in as many aspects of the company as possible. BEI’s tools and training help Exit Planning Advisors show owners that the opposite is true. Until owners delegate responsibilities to qualified managers and begin removing themselves from day-to-day operations, they have little control over their business exits.” –Elizabeth Mower, President of BEI

Business owners will face many formidable challenges in their quest to leave their businesses on their terms, some apparent, but many subtle and unseen. Several challenges that many business owners fail to anticipate include:

THEIROWNMISPERCEPTIONS. Successful business owners tend to believe that because they built a successful company, only they can maintain the company’s success. They work themselves to the bone, only to find that even their best efforts were not enough to assure a successful business exit. This eBook explores these misperceptions and describes what you can do to help owners avoid them.

ALACKOFKNOWLEDGE. It’s common for owners to struggle with the concept of removing themselves from their businesses, because they don’t know who can help them. They aren’t sure which advisors to contact about helping them grow business value. They don’t know who else could run the business without them. And even if they did know who could run the business without them, they don’t know how to best train and transfer ownership to those people. You can fix this problem.

INADEQUATETIME. Owners who don’t or won’t change their roles often spend more time spinning their wheels than growing business value, preventing them from exiting on their terms. We calculate that about 200,000 out of 7 million businesses can be transferred today while allowing their owners to achieve their goals and objectives. An average time span to plan and execute an exit strategy is 5–8 years, which, of course, doesn’t start until you or a different advisor convince owners that they need to begin.

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INTRODUCTION


FEAROFCHANGE. Many business owners dedicate their lives to their businesses, so changing their roles in them can be a terrifying proposition. Those owners often have good intentions in their fear: After all, they built their businesses successfully, so handing them over to someone who might destroy their lives’ work can be difficult to stomach. But for owners who don’t want to die at their desks, this change is necessary. You can be the advisor to quell those fears.

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INTRODUCTION


Exit Planning Benefits: Changing Roles“BEI-trained Exit Planning Advisors use disciplined strategies and the pools of knowledge their Advisor Teams provide to help business owners transition from the hub of their companies to a spoke. In the process, they show owners how changing their roles not only increases their businesses’ value but also lets them control and enjoy their post-exit lives.” –Elizabeth Mower, President of BEI

Like other challenges owners face in exiting their businesses on their terms, some of the benefits of changing roles are obvious, while others are hidden. The most obvious benefit to business owners is taking on fewer responsibilities while freeing up time to prepare for life post-exit.

Some less obvious benefits of changing their roles include:

CLEARSTHEMISPERCEPTIONS. Most business owners firmly believe that changing their roles will do irreparable harm to their successful businesses. However, proper planning often grows the business and makes it even sturdier, in terms of cash flow, performance, and salability.

KEEPSOWNERSINCONTROL.Owners change their roles in their businesses gradually, rather than all at once. This lets them transition out of the massive responsibilities of owning and running the business at their own pace. It also gives the owners the time they need to see whether their management teams have the skill, stamina, and drive to run the company.

GIVES OWNERS OPTIONS.Changing from the hub of the company to a spoke gives owners the freedom to exit on their exit date or stay involved in the business for longer if they choose. Because the company no longer relies as heavily on the owner, the owner can choose which interests to pursue.

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INTRODUCTION


You Are Not AloneBEI always encourages advisors skilled in Exit Planning to reach out to business owners and other advisors.

BEI also encourages advisors to commit to Exit Planning for the sake of their clients and core practices. Exit Planning Advisors know how to best organize and streamline their Exit Planning processes. In fact, we’ve included input from several Members of The BEI Network of Exit Planning Professionals™ in this series. These professionals are from a variety of disciplines (e.g., investment banking, financial planning, insurance advising, law, accounting, business brokerage, and ESOP creation and maintenance). They have incorporated Exit Planning for business owners into their core services and have found that working with owners is the most satisfying part of their careers.

For years, owners had no one to turn to for advice about how to exit or prepare their companies for their exits because advisors simply did not know how to help. One of BEI’s founding and continuing goals is to equip advisors to prepare both owners and businesses for an owner’s exit.

After reading this eBook, we encourage you to contact us, either at 303-321-2242 or [email protected], so that we can help you help your clients change their roles in their businesses.

The Road AheadPlanning a business exit is a journey, and the destination determines the quality of the rest of your clients’ lives.

With your help, owners choose which path to take to reach their destinations. To best describe how you can help owners map the most successful exits possible, this series focuses on you and the key concepts you will use to plan the exit best suited to each client.

Additionally, by incorporating knowledge of the Exit Planning Process into their practices, advisors report the following benefits to their practices:

• They find more satisfaction in their practices because (a) they are no longer “order takers” or “first responders” performing tasks only upon client request, and (b) they take more pride and joy in addressing their clients’ “big pictures.”

• As advisors align their skill sets to address an owner’s most important financial event, their client relationships deepen and become long-lasting.

• They forge better working and referral relationships with advisors in complementary professions.

• They can differentiate themselves and their firms from competitors who lack both Exit Planning training and access to a successful process.

• Exit Planning serves as an engine for growing their practices.

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INTRODUCTION


What Needs to Change?Many owners resist changing their roles in their businesses. Most of this resistance stems from either fear or a

misunderstanding of what “change” means to them. By clarifying what “change” means and guiding business owners throughout their transition from the hub to a spoke, you can alleviate their fears and misunderstandings, setting them up for a business exit that reflects their wants and needs. This eBook will help you determine what needs to change for each individual client, based on his or her exit goals, by presenting case studies and applicable ideas. BEI provides numerous tools, including The BEI Seven Step Exit Planning Process™, to help Exit Planning Advisors guide their clients toward successful exits. In conjunction with the other guides in this series, this guide describes the most important actions you and your clients can take to help them change their roles in their businesses successfully.

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CHANGING ROLES


CHANGING ROLES: FROM HANDS-ON AND HEAD DOWN, TO HANDS-OFF AND HEAD UPAs a new venture develops and grows, the roles and relationships of the original entrepreneurs inexorably change. If the founders refuse to accept this, they will stunt the business and may even destroy it. But even among the founders who can accept that they themselves need to do something, few know how to tackle changing their own roles and relationships.1

In our last guide, we looked at the importance of assessing your clients’ Asset Gaps. Knowing the difference between what business owners have, and what business owners need for a successful exit gives owners a chance to close any gaps. They usually close those gaps by growing the value of their companies, which often requires owners to change their roles within the business.

The primary challenge is that owners don’t realize that their roles need to change if they expect the business to grow. Typically, there are three changes that owners need to make, and they occur in the following order.

CHANGE1: Owners must focus their efforts on growing the business beyond their capabilities. Because the primary goal is to assure that owners achieve financial independence after they leave the business, the business must be worth enough to support that.

CHANGE2: Owners must move from being the hub of the company to becoming a spoke. Owners who are spokes retain an important role in their companies, but their companies can function and grow well without them.

CHANGINGROLES

1 Peter Drucker, The Essential Drucker (New York: HarperCollins, 2001), 156.

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CHANGING ROLES


CHANGE3: Committing to the first two changes gives owners the freedom and time that come from fewer duties and responsibilities. Owners must use this time to explore and develop non-business pursuits. Whether that means developing new hobbies, pursuing lifelong interests, spending time with family and friends, or even starting a new business, owners need to make sure that they have something to do after they exit.

The overarching goal of these changes is twofold: to build the value of your clients’ businesses to provide financial security after they exit, and to help transition owners into the next chapter of their lives. But where does this change begin, and what can advisors like you do to facilitate this change?

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CHANGING ROLES


The Owner’s Current RoleMost owners and advisors view growing their businesses as their foremost responsibility. However, growth is

a challenge most business owners and their advisors will fail to meet. Consider the following from Bain & Company.

What is a sustainable rate of growth? As a benchmark, consider an annual growth rate in revenue and earnings of 5.5 percent. Most companies expect to attain that level or better—at least that’s what’s called for in their strategic plans. But a Bain & Company study of more than 2,000 companies indicates that only about one in 10 actually achieves that relatively modest goal over a 10-year period while earning its cost of capital. In other words, nearly 90% of companies fail to achieve that modest growth objective.2

In our experience, the biggest factor in determining whether a business expands rapidly or continues to tread water is neither a macro-factor nor an industry-specific factor relevant to a given niche. While there are many possible impediments to business growth—including recessions, tough competition, and other headwinds—the most common impediment is something that’s entirely within the control of you and the business owner.

The largest, most entrenched, and hardest-to-address roadblock to growth is the business owner and his or her management team. Sustained and rapid growth is stymied by owners’ reluctance, refusal, or inability to change their roles in and relationships to their businesses. Most often, this is caused by a failure to understand the importance of evolving.

2 James Allen and Chris Zook, “The Strategic Principles of Repeatability,” Bain & Company, last modified May 4, 2012, http://www.bain.com/publications/articles/the-strategic-principles-of-repeatability.aspx.

The largest, most entrenched, and hardest-to-address roadblock to growth is the business owner and his or her management team.

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http://www.bain.com/publications/articles/the-strategic-principles-of-repeatability.aspx

CHANGING ROLES


Change Is Nothing New to OwnersWhen most owners founded their businesses, they were the leaders of an army of one. Survival was the most

important aspect of the business, and building the business to greater success came next.

Most owners looking to exit their businesses are likely the top executives in their companies. They set the direction. They likely maintain strong relationships with key customers and vendors. They may still be integral to operations and/or marketing. Ultimately, they decide what needs to be done and whether a chosen action is right for the company.

Further, the owners of successful businesses likely saw their roles change as their companies grew from a one- person operation to a full-fledged multi-worker company. Just as their roles changed between the time they founded the company and the time they grew the company, their roles must change as they look to exit the company they’ve grown. The central focus of this eBook is how and why they must make yet another change: from being all things to all people to taking a supporting role.

It bears repeating: “As a new venture develops and grows, the roles and relationships of the original entrepreneurs inexorably change. If the founders refuse to accept this, they will stunt the business and may even destroy it.” 3

To highlight this idea, let’s look at a case study of three owners from the freight-expedition industry who took different approaches to changing their roles in their companies.

3 Drucker, The Essential Drucker, 156.

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EXPEDITIOUS EXPEDITERS


Expeditious ExpeditersBefore we begin, a bit of background: In this story, each of three owners started a business at about the same

time and in the same industry, yet ended up in three very different places. As you read, please note that the specific industry does not matter, but the inflection points do. An inflection point is a “moment of dramatic change, especially in the development of a company, industry, or market.” 4 In this context, inflection points occur as companies grow and develop, but they aren’t always dramatic. As inflection points occur, owners have a choice: whether or not they’ll change course and alter their roles within their companies.

As you read about how these owners did or did not change, think about how you would advise your business- owning clients at each inflection point. In this case study, we’ve used 10 years as the time it took for each business to reach its first inflection point. In reality, businesses can reach that point more quickly or slowly.

CASE STUDY: THE STARTING LINEIn 1989, three freight expediter companies opened their doors. Each founder possessed far more intellectual

capital than monetary capital, as each had worked in the industry for years.

After 10 years, each company had grown to $5 million in revenue. Compensation and other distributions to each owner totaled $250,000, which is the median compensation for CEOs of privately held companies with revenues less than $10 million. Each owner has been handling almost every aspect of the business, but at this point, each takes a different ownership- and management-style path.

EXPEDITIOUSEXPEDITERS

4 American Heritage Dictionary of the English Language, 5th ed., s.v. “inflection point.”

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MEET THE OWNERSArnie DeHoek - Arnie is quite happy with his eight-person company. He enjoys controlling all aspects of the company and doesn’t mind working 50–60 hours each week. The company is stable, as is his income, so he sees no reason to change his hands-on, head-down approach to ownership.

Brent Bridges - Brent has begun to delegate many responsibilities to others within the company. This eventually allows him to reduce his workweek to between 30 and 40 hours. He is still the company’s deal closer and maintains many of the most important customer relationships, but he has delegated many less critical and less enjoyable tasks to others. His day-to-day style is primarily hands-off, head down: While the work he does is less hands-on, he is still deeply involved in financial and key business decisions. In his free time, Brent begins to travel and volunteer in his community.

Charlotte O’Hara - Charlotte’s management style is similar to Brent’s, but she envisions that her company will one day be a market leader. She delegates responsibility in order to expand her business’ capabilities and grow the company quickly, rather than to work fewer hours. She’s a hands-off owner who is also emerging as head-up leader. She pursues her vision with the help of a team of outside advisors with whom she meets periodically.

INFLECTION POINT ONE: CHOOSING TO DELEGATEThe first inflection point for these owners occurred when continued growth required them to decide

whether to delegate management responsibilities. Peter Drucker put it this way: “Long before the time has come at which management by one person no longer works and becomes mismanagement, that one person also has to start learning how to work with colleagues, has to learn to trust people, yet also how to hold them accountable. The founder has to learn to become the leader of a team rather than a ‘star’ with ‘helpers.’” 5 As we saw, each owner chose how to address growth and change differently.

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5 Drucker, The Essential Drucker, 155-156.



INFLECTION POINT TWO: 10 YEARS LATERArnie: Revenues are stable, but earnings are slowly declining. Arnie simply cannot pedal any harder. He has heard that businesses like his are selling for seven times EBITDA, so he decides to sell before his health fails.

Brent: Revenue has reached $20 million, and EBITDA is almost $1 million. Brent’s compensation and distribu-tions total $750,000. The company employs 25 full-time workers. Growth is slowing, as the industry has matured. Brent finds that he’s enjoying his volunteer activities more than work, so he decides to test the waters to see whether there’s a buyer for his business. Brent is being pulled toward an exit, not pushed out because of boredom or burnout.

Charlotte: Charlotte’s company’s profitability and revenues have surpassed Brent’s, but her compensation remains $250,000, because she uses all available cash flow to strengthen the company. Given her hands-off, head-up style, Charlotte foresees that the days of rapid growth are over unless she injects significant capital into the business (to be used to acquire other businesses, state-of-the-art systems, and software). Charlotte knows that her company needs more than capital to move to the next level: Her management team is limited by its lack of experience at a higher level and, possibly, ambition. She appreciates that if she doesn’t take steps to grow her company, bigger and better-funded competitors with greater economies and efficiencies of scale will crowd her out. Consolidation within the industry means that the biggest leaders are getting even bigger.

As Charlotte sees it, she has three choices:

• Stay in the business knowing full well that revenue and profits may stagnate or decline.

• Sell to one of the bigger industry players—three of whom have approached her in the past nine months.

• Use bank financing and all excess cash flow to fund the purchase of smaller competitors, acquire the same software used by industry leaders, and add employees and space, all while hiring next-level professional managers who can use their knowledge and experience to compete successfully with the industry leaders.

Charlotte has reached the second inflection point.

At Inflection Point One, every owner decides whether to grow through delegating tasks (and eventually, management responsibility) to others, or not.

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This second inflection point arises when successful owners realize that they and their management teams have reached their limits. Taking the business to the next level and competing with well- funded companies requires significantly more capital and possibly next-level management. At this point, owners determine the future of their businesses and their futures with their businesses.

In the end, Brent chose to sell, whereas Charlotte doubled down. Arnie, on the other hand, decided not to delegate responsibility to others. His business growth was limited to what he could manage. He didn’t want the risk associated with delegating important tasks to others. In essence, the business lived and died by Arnie’s presence.

So, speaking of risk, who were the big winners and losers?

Brent chose to sell and transition to the next phase of his life. Charlotte decided to keep her business, and moved to a less entrepreneurial, more typical ownership role. Unlike Brent and Charlotte, Arnie had no options.

Most owners who reach this inflection point choose to exit, due to their age, their ability to exit success-fully, or a desire to do something else. Others choose to keep pushing for more. As advisors, it’s important to remember that neither decision is inherently correct or incorrect. Upon reaching the second inflection point, advisors need to ensure that their clients pursue decisions that reflect their clients’ wants and needs. So, while it may be tempting to encourage owners to take Charlotte’s route, it’s important to remember that many owners are comfortable taking Brent’s route. The only correct path is the path that allows owners to exit on their terms.

John F. Dini 6 adds this thought: “The second inflection point is when owners must decide whether to run the business based on personal objectives or to create an organization that doesn’t require the hands-on involvement of its owner.”

6 John Dini is a BEI Member, well-regarded value enhancement consultant, and author of several books, including Hunting in a Farmer’s World.

The difference between a business that cannot be sold (Arnie’s), a business that can be successfully transitioned while achieving the owner’s goals and aspirations (Brent’s), and a business that becomes an industry player (Charlotte’s) results from the actions owners take to change their roles in and relationships to their businesses at each inflection point.

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INFLECTION POINT THREE: THE FINISH LINEArnie: Arnie hired a business broker to sell his business. After 12 months of tepid interest, there were no offers. He closed the doors just shy of the company’s 25th anniversary. Had Charlotte known Arnie’s company were available, she might have acquired it at a low cost. In the end, once he decided to exit, he had no decision to make about the future of the business. It had no future without him.

Brent: Brent enjoyed life outside the business more than life in it, a benefit afforded to him through his success at delegating most responsibilities to his management and staff. He didn’t have the capital or desire to continue as its owner. Like Charlotte, he realized that the industry would continue to consolidate and squeeze smaller players. To compete, he’d have to grow or sell. The choice was easy: He sold, but only after a two-year undertaking to transfer important customer relationships to his management team and pay down company debt.

Charlotte: Charlotte made her vision of a larger, more competitive company a reality. She sought bank financing, brought in top-shelf management, and acquired three smaller companies. Company revenues quadrupled, EBITDA exceeded $4 million, and the business was worth at least $25 million. She was now ready to exit, but only for the right price.

Each business and owner started at the same time. However, each ended at a very different place.

The lessons in this story are clear:

• Owners choose their roles within their businesses. You must advise and guide business owners to transform themselves so that their businesses no longer depend on them.

• Unless an owner’s role continually evolves, business growth will be slow or stunted.

• Unless owners build their businesses’ transferable value, they are unlikely to exit successfully.

To expound on the third point, Arnie was comfortable with his hands-on, head-down role. Unsurprisingly, his business stopped growing when he reached his physical capacity to run it. He chose to go it alone and did not call upon the expertise of an Exit Planning Advisor—or any advisors for that matter—to help him. He never attempted to develop a true management team. He was comfortable running and controlling almost every aspect of the business, which, ironically, prevented him from controlling his future.

Most owners follow Arnie’s path. Like Arnie, they remain mom-and-pop enterprises without the ability to transfer ownership and achieve financial security. That’s why it’s so important for advisors to ask business owners the following question:

Regarding your role, ask yourself: “Where can the company best use my talents and experience?”

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Brent and Charlotte did include advisors in their decision-making, to differing degrees. Charlotte looked for and found the best advisors to help her and her company move to the next level. Brent hired advisors to help him exit when he wanted. These two owners also changed their relationships to their companies by carefully delegating responsibility to capable employees and management, with the help of their Exit Planning Advisor Teams. Delegation—which is an important step in all successful Exit Plans, regardless of to whom and when owners want to leave their businesses—enabled the businesses to grow beyond the time, skills, and experience of one person. It also provided two other important benefits:

TRANSFERABLE VALUE. Owners increase transferable value by delegating responsibilities to man-agement and others, creating systems to manage workflow and all other processes within the company, and focusing on growing value. However, building transferable value is nearly impossible for owners to do on their own. Because they likely play important roles in their companies as they begin to exit, trying to build transferable value and run the business at the same level can cause owners to spread their efforts too thin. This is where Exit Planning Advisors and their Advisor Teams (i.e., you) come in. You can devise strategies and action items based on the owner’s wants and needs, then help the owner implement them while the owner runs the business. As more strategies and action items are implemented, owners will find themselves with more time, fewer responsibilities, and a company that can run without them. That last part is the key to transferable value. Transferable value is what lets owners transfer their ownership interest in exchange for money, because it is the value of the company without their involvement.

TIME MARGIN. Time margin describes what business owners do in their free time away from their busi-nesses. Brent took advantage of the free time allotted through delegation and a focus on transferable value to travel and volunteer. Charlotte used her free time to develop and implement a business strategy to move through the second inflection point and become a leading player in her industry.

A BEI OBSERVATION

As a company approaches critical inflection points, the owner’s decision to transform his or her

relationship to the company is the difference between a business that cannot be sold, a business

that attracts the attention of well-heeled buyers, and an industry player.

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WHO CAN HELP?


Who Can Help?Who can help owners make the choices and changes they must make at each inflection point? Peter Drucker

suggests that advisors train themselves to perform certain tasks:

. . . the founder does need people with whom he [or she] can discuss basic decisions and to whom he [or she] listens. Such people are rarely to be found within the enterprise. Somebody has to challenge the founder’s appraisal of the needs of the venture, and of his [or her] own personal strengths. Someone who is not a part of the problem has to ask questions, to review decisions and, above all, to push constantly to have the long- term survival needs of the new venture satisfied by building in the market focus, supplying financial foresight, and creating a functioning top management team.7

There are three specific types of outsiders owners can consult to help them.

ANEXITPLANNINGADVISOR. An Exit Planning Advisor can help owners plan and facilitate change by working with them and other advisors to establish a plan that will allow those owners to exit their businesses and transfer ownership successfully. Exit Planning Advisors come from various industries, and with proper training, just about any ambitious advisor can become an Exit Planning Advisor.

NEXT-LEVELADVISORS. Next-level advisors are advisors who have experience working with compa-nies that have moved past the second inflection point. Often, these advisors have worked with significantly larger companies than theirs. It’s typical for Exit Planning Advisors—oftentimes through their network of Exit Planning professionals—to assemble this team for their business-owning clients.

WHOCANHELP?

7 Drucker, The Essential Drucker, 159-160.

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WHO CAN HELP?


OTHERENTREPRENEURS. It’s wise for owners to consult entrepreneurs who have moved their compa-nies to the next level. However, these owners are hard to find and difficult to pin down for a talk. Fortunate-ly, Exit Planning Advisors tend to have either worked with or know advisors who have worked with these entrepreneurs, making access to them a bit less challenging.

How Much Do Owners Need to Change?It’s likely that your clients have already been evolving as owners and changing their roles within their businesses.

But how much more change must they undertake?

Change is often uncomfortable, and your clients may not feel motivated to change too much about their roles. After all, why would they change something that seems to be working? That feeling is understandable, especially if your clients’ Asset Gaps are small or, like Brent and Charlotte, they’ve already moved to a more hands-off, head-up role. In those cases, owners only need to change enough to create a business with sufficient transferable value to carry them to their goals.

In Charlotte’s case, she realized she had neither the talent nor the desire to remain as president, so she turned over all operations to others, through a management transition plan. Often, a management transition plan can accurately describe how the owner’s responsibilities and the management team’s responsibilities will change. In other situations, owners have already transferred much responsibility to management, and their companies now only require their special expertise. As advisors, it’s crucial to determine where your clients are in the process of changing their roles, and use that information to help them transition responsibilities in ways that benefit the company, the management team’s performance, and your clients.

Owner EvolutionIn short, owner evolution is when owners change their job descriptions from running a company to ensuring that the

company is run well. The stories of the freight expeditors illustrate that your clients’ roles in their businesses likely need to change if they want to exit on their terms. While they must continue to build a business that is strong, growing, and vibrant, you must also help them focus on action items they can take to build their businesses so that those businesses are successful whether the owner is there or not. As simple as this may sound, it typically requires big changes to what owners do each day, and to their relationships to their businesses.

Perhaps the most important thing to stress to business owners is that the necessity of changing their roles has no bearing on their managerial or entrepreneurial abilities. Even the most successful and powerful owners eventually need to change their roles to assure a successful exit (e.g., Bill Gates). The reality is that there is a limit to how far owners, or any single person, can take a business on their own.

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WHO CAN HELP?


Consider the Peter Principle: Managers rise to the level of their incompetence. However, we like to expand this into the John H. Brown Principle:

When smart owners rise to the upper echelons of their ability, they seek more education and ask for advice from Exit Planning Advisors. They don’t shy away from making difficult decisions, whether that means replacing management, restructuring finances, or changing their roles.

When owners change their roles, it doesn’t mean that they start or continue doing tasks they’d rather not do. Instead, changing their roles requires owners to identify and do what’s best for the company by using their strengths. Exit Planning Advisors and their Advisor Teams are critical to this.

Consider what consultant Ken Stiefler said about one of his clients who owned a business that was already rec-ognized as a growth leader. “This owner brought me in when he recognized two things about himself: (1) Too much of the business revolved around him, and (2) he wasn’t capable of taking the business to the next level.” Stiefler continued, “Initially, the owner wanted to transfer his business to his two key employees, but we first had to address the two issues he had identified. In an effort to transition him into a mentoring role, we are planning to bring in a general manager, determining how to spread out his responsibilities over time to others in the company (or to the new owner[s]), and even looking at outsourcing some tasks.”

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WHO CAN HELP?


The Benefits of the Evolved Owner: From Hub to Spoke

As Arnie’s situation demonstrated, his Arnie-dependent management style prevented the business from growing beyond what he could directly manage and control. That alone should be reason enough to encourage owners to evolve into prime delegators (Inflection Point One) and beyond (Inflection Point Two), but there are other benefits to owners as well.

INCREASED FREE TIME. As Jeffrey Pfeffer stated (quoted in Gallo 2012), “[Business owners’] most important task as a leader is to teach people how to think and ask the right questions so that the world doesn’t go to hell if you take a day off.” 8

INCREASEDTRANSFERABLEVALUE.

MOREEXITOPTIONS. Owners can keep their companies, or transfer them to any one of several possible successors.

ACHIEVEOTHERGOALS. Owners can realize their values-based goals for their businesses and for their lives apart from the business.

STRENGTHEN THE ORGANIZATION. As owners allow others to assume greater responsibilities, they allow those people to improve and multiply their skills.

Evolution doesn’t happen overnight. The transition owners make from hub to spoke is gradual, and almost always requires help from qualified advisors. By guiding owners toward consciously deciding to do what is best for the company—delegating and focusing on Value Drivers—you help them control the pace of change and degree of personal discomfort they may experience when they are no longer at the core of their companies. With proper planning, you can give owners the freedom to throttle back or hit the gas as it suits their goals. This ability to progress organically, rather than in response to a deadline, is another advantage of starting business transformation well before owners feel ready to exit.

8 Amy Gallo, “Why Aren’t You Delegating?” Harvard Business Review, last modified July 26, 2012, https://hbr.org/2012/07/why-arent-you-delegating.

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https://hbr.org/2012/07/why-arent-you-delegating.

CONCLUSION


ConclusionTo achieve all of their goals (including the foundational goal of financial independence) by the time they exit,

owners must transfer responsibility for value creation and sustainability to others. Arnie refused. Brent and Charlotte were willing to change their roles. In delegating many of his duties and functions, Brent allowed his company to grow without his direct involvement and paved the way to a comfortable exit. Charlotte went one step farther and replaced herself with next-level managers to make her company an industry leader. She remained the CEO, but she removed herself from the operations and management of the company.

Had Brent and Charlotte refused to give up their original roles, the growth of their companies would have slowed or stopped, making successful exits nearly impossible. Like Brent and Charlotte, you must help owners make difficult decisions within their companies: perhaps changing personnel, advisors, strategic partners, and more. Most impor-tantly, you also must guide owners through their change from hub to spoke. BEI offers training, strategies, software, and other tools to help you guide business owners through one of the most comprehensive changes they’ll make in their business careers.

For more information or in-depth training, we urge you to call us at 303-321-2242 or contact us at [email protected].

CONCLUSION

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About This eBookThis eBook is intended to provide general information about the topics included. It is provided with the explicit

understanding that neither Business Enterprise Institute, Inc., nor its employees are engaged by the reader to provide legal, accounting, tax, or any other professional service. If the reader requires or desires legal, accounting, tax, financial, or any other type of expert assistance, he or she should seek the assistance and services of a competent professional.

The sole purpose of this eBook is to educate. Business Enterprise Institute, Inc., assumes no liability or responsibil-ity for any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly, by the information contained herein.

This eBook is adapted from Exit Planning: The Definitive Guide by John H. Brown with the author’s permission.

Finally, this eBook makes liberal use of case studies and examples from the experiences of both Business Enter-prise Institute, Inc., and its Members. The names of individuals, companies, and other identifying facts have been changed to protect the identities of those who provided them. Therefore, any resemblance to actual individuals is merely coincidental.

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ABOUT


About BEIBEI is the leading innovator in the Exit Planning industry. We offer comprehensive Exit Planning training,

marketing support, and plan-creation tools to our Members. Members of BEI have access to an established, systemized process that allows them to easily help their clients with their business-transition planning. Professionals in a variety of disciplines leverage Exit Planning to attract and keep high-caliber business clients in their practices. BEI trains and supports business advisors to be the preeminent Exit Planning resource for business owners in their communities. Our Members ultimately seek to help business owners and their families benefit from their lives’ work.

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the definitive guide to business owners’ changing roles · 5/4/2012 · show owners how changing...

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