Reality check

It’s not hard to develop great operational succession visions for your businesses.

Perhaps you want to move out of the daily operations as the kids take over. More golf, more vacations without calling back to the office every day, less stress and a comfortable retirement.

Or maybe your succession vision is to sell the company for a nice amount of cash or stock that will help pay you back for all of your years of hard work and provide a very comfortable life for you and your spouse.

Reality check

Last month, I discussed the first step in the operational succession planning process, establishing your vision and objectives. Once those are clear, you can develop the plan to achieve that vision.

The first part of developing that plan is to understand where you are now. By assessing the current situation in the business, you can determine how close you are to achieving your objectives. This also serves as a reality check on whether your vision is realistically attainable.

One client, the owner of a technology development company, wanted to sell his business to a public company within the next five years. While performing the assessment, we found that the company’s product and service would likely be an attractive strategic acquisition for a number of public companies.

We also found, however, that the organization had major deficiencies. The owner was completely in charge of the day-to-day activities of the business and the middle management team was either nonexistent or sorely incapable of moving the owner out of that role.

The key to added value

The owner’s vision was to sell to a public company, but even if he had wanted to succession it to his family, the weak management team issue loomed large. A potential suitor or successor equates a strong management team, capable of running the business successfully, without the owner, with a higher value. An investment banker recently said that if the management team is not in place, he loses interest in the acquisition.

Our assessment revealed there was quite a gap between the owner’s vision and the reality of achieving it. For the vision to become reality, a management team would need to be developed and the owner would have to become less important to the company’s success. These missing requirements for attaining the vision provided the basis for developing and implementing the company’s operational succession plan.

The need for objectivity

To be worthwhile, the assessment process needs to be objective. Objectivity, however, is sometimes very difficult for business owners. They are involved in the business daily, and, therefore, are often unable to back up and take an objective look at the company and its people.

There are also ego issues. Business owners know their efforts, dedication and hard work built the company, and thus, it is often difficult to admit that perhaps not everything is perfect and that the company, operating as it is today, may not be worth as much as they think.

Unfortunately, you may not discover that you are going down the wrong road until many dollars and years have been invested.

Once the assessment has been accurately and objectively completed, a plan for closing the gaps can be developed. Next month, we’ll discuss utilizing the results of the assessment to develop the operational succession plan.

Joel Strom ([email protected]) is president of Joel Strom Associates Inc., Growth Management. His firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. Contact him at (216) 831-2663.