When I was 16 years old, I didn’t learn to drive stick shift from my father. Although I knew my father could drive a manual transmission, it was one of my friends whom I asked to teach me, whom I knew wouldn’t get upset with me for grinding the gears at first or increase the pressure with what is already a stressful experience and can be a difficult skill to learn. When I consider the many family businesses I have supported as an executive coach and family advisor over the years, it’s no different!
Successful Baby Boomer business owners don’t achieve their success simply by teaching others what to do. They achieve that success by being driven, results-oriented leaders striving to accomplish more than those before them. This strong character trait, however, often presents itself through a more dominant and autocratic leadership style – one that may work for the chief executive of a family business or the principal of a family office, but likely doesn’t work as well when you want to groom your next generation child to assume huge responsibilities as your successor. This is very likely why I’m regularly hired by NextGen children to facilitate their transitions rather than the Baby Boomers themselves.
One of the other key challenges with the father/son relationship is the long history these individuals have together. While I may have learned to drive stick shift from my friend, that doesn’t mean I was a responsible teenage driver. I earned at least a couple speeding tickets in my first year of driving, and even got into a couple minor fender benders. Now imagine if my father ran a multi-generation family business and allowed me to work for him. How do you think he would feel about his somewhat irresponsible and overly adventurous son taking the reins? My guess is he wouldn’t have given me the keys to the kingdom before I could demonstrate I had matured – and rightfully so!
Did you know only about 20% of all privately held companies offered for sale each year actually sell? And only around 30% of all family businesses in the U.S. successfully transition from their first to second generation. Maybe worse, 75% of all business owners who do sell their companies “profoundly regret” the decision one year after selling.
Throughout my career, I have worked around the world with organizations big and small – ranging from multi-billion-dollar Fortune 500s to government agencies to privately held family businesses and startups. Of all my experiences, I cherish the most those projects that have had the greatest impact on the people I worked with. So, when I learned these statistics on privately held businesses completing a sale, I knew I wanted to help business owners maximize the value of their businesses and ultimately exit on their terms. This is especially true for the countless Baby Boomers who will transition out of their businesses over the next 10 years – a movement that represents roughly 4.5 million businesses and $10 trillion of wealth being transferred!
Many business exits fail because of a lack of knowledge and planning. Two-thirds of business owners are not familiar with their options for exiting. Almost 80% have no written transition plan or advisory team in place to help them. Nearly half of all business owners have not done any planning, and 93% have no formal “life after” plan. Compound that with the fact that 50% of all business exits are involuntary, forced by dramatic external factors such as death, disability, divorce, disagreement, and distress.
Owners need to plan for how they will walk away from their businesses, not only in a perfect scenario but also in a worst-case situation. A properly planned and executed exit can handsomely reward the business owner for the time, effort, headaches, and heartaches that come from building a business. It also benefits the many employees who work in the business and all the customers they serve. The following, then, is a proven three-phase approach for unlocking the wealth trapped inside your business.
Discovery – When discussing future plans with owners, I like to ask one particular question. “When it comes time for you to step away from the business, what do you want your legacy to be?” This gives us direction, especially for owners nearer to their exits. It becomes the driving factor behind the actions they will take in the months/years ahead and serves as the “lighthouse” to accomplish their true goals.Other critical areas to explore include the owner’s readiness to exit. “What are you going to do when you exit the business?” and “Do you have enough money to do what you want to do?” are two more great questions to consider in this process. With the support of their financial planners, owners often realize they do not have enough savings to reach their goals with so much of their wealth tied up in their businesses. For this reason, we clearly need to consider the value of the business and identify specific areas that can be improved to increase business value and enhance the business’ readiness for the exit.