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Succession Planning: Ownership Lessons

  • July 26, 2018 10:45 PM
    Message # 6400276

    When selling your business to employees or family, ownership lessons rise to a special level of importance. Regardless of the financial, inheritance, estate or valuation aspects of the plan, the real question is how to prepare your successors to run the company.

    I’ve written before about the Luxury of No Resources. When you started out, making mistakes was part of your business education. The company was small, so the mistakes were small. Now you’ve built a substantial enterprise, and your successors can’t afford to learn by trial and error. (Especially if you are depending on them to be successful enough to pay you for the business!)

    Experience is what you get when you don’t get what you want. We  learn very little from our successes. (“Hey, it worked! I guess I’m just brilliant.”) We learn a lot more from our failures. (“I sure as hell won’t let THAT happen again.”)

    Trial by Fire

    For many founders, business started off well because they had customers lined up and some reputation in their field. Their real learning experience came when a large customer defected to a competitor, or there was a recession, or a key employee quit. That’s when we learn fast how to pay attention to the numbers and solve problems on the cheap.

    So how do you prepare new ownership without having them go through the same trials by fire? Here are a few suggestions.

    • Segregate a department or division as a profit center. Make the manager in charge prepare a budget, generate independent financial statements and take on all of the HR responsibilities.
    • Use history to teach. Take a past bid, order, customer or product for which you already know that there was a bad outcome. Have the employee make the decision again, and use the historical experience to discuss together whether it would turn out better or worse with the employee’s decisions.
    • Tie one hand behind their back. Task them to train a group of new people, but without your training manager’s help. Have them open a new territory without your marketing department. Help them to understand that the resources you provide may not always be there.

    Of course, you will still be there to head off mission-critical errors. Letting them fail with limits on the damage, however, will render ownership lessons that prepare them for when you aren’t there.

    Reprinted from my exit planning blog at Awake at 2 o'clock?

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