Question of the Day: What Does Business Transition Planning Involve?
What is transition?
What we mean by “transition” relates to all the changes that could impact what owners and stakeholders want to achieve from their businesses. “Transition” covers internal changes, such as leadership and management, as well as external changes created by market conditions. Not being prepared to transition your business, that is, successfully addressing the changes you will encounter, will have a negative impact on your business results. These are the “tripping points” we will be addressing in this material. What we have learned, and what we will expand on, is change not anticipated creates anxiety. The antidote to anxiety is clarity, ergo, transition planning.
Historical perspective
Statistics indicate that more than 70% of all businesses will not survive to the second generation and less than 10% will make it to the third generation. This fact is illuminated when one discovers that over 79% of business owners desire to perpetuate their companies and 70% of the key managers and or children working in the business desire to retain control. If the desire is so great, why is the mortality rate so high?
Our sister company’s search for the answer began over thirty years ago. ¹ Through our work with post World War II start-up companies, as well as our own business management experiences, we discovered there are critical issues or “tripping points” that keep business owners from achieving their preferred results. These are not theoretical musings; we are presenting here observations from the collection of day-to-day experiences of business practitioners. They actually have changed very little.
Current business issues
There was a popular book about 10 years ago by Malcolm Gladwell that has received a lot of positive attention among business leaders, entitled “The Tipping Point.” It’s a fascinating read about that particular point when a product or trend just takes off, becoming a significant success or phenomenon. At one of our book discussion meetings, this book was the focus of our discussion. We observed that, instead of a business finding the “tipping point” that would carry them to significant growth and success, perhaps of equal or greater importance would be understanding the “tripping points” that are tripping-up a business owner’s ability to achieve the desired results.
In fact, our premise is that you will not get to the “tipping point” if you don’t address the “tripping points.” Your business objective is to avoid the mine fields on your way to the promised land.
Based upon our own business experiences, and after working with hundreds of companies in almost every industry, we have identified the following seven tripping points:
1. Lack of leadership
2. Lack of supportive, positive relationships
3. Lack of ownership/leadership succession plan
4. Lack of a process to implement strategic changes
5. Lack of systematic management
6. Lack of strategic financial management
7. Lack of a personal financial plan
In fact, the discovery of the tripping points was not a surprise. Working with the tripping points in our business consulting lead us to a holistic, multi-disciplined approach on how to anticipate and address potential upsets, giving rise to Business Transition Planning. Let’s now reflect on what is happening out there in many businesses:
1. Lack of leadership
Some CEOs fall into more of a “presiding” role while the committed leader grabs the reins, sets the pace and direction, fires up the troops and “goes for the gold.” You get the point. A true leader makes the right things happen.
2. Lack of positive, supportive relationships
Positive, supportive working relationships unleash the creative processes to attain excellence – but it won’t happen without them. Great business performance depends on great team performance which are based on great relationships.
3. Lack of ownership/leadership succession plan
Transitioning a business is not a quick process to get the best results. Developing successors is something most big companies are really good at. Every operating business over 5 people should do the same.
4. Lack of a process to implement strategic changes
Essentially, the strategic planning process, which many businesses use, results in creating goals that really would be great if they were achieved. But when evaluated a year later, most have not been realized. No implementation process was created – little or no execution actually happened.
5. Lack of systematic management
Essentially a business is experiencing sound management when the desired business results are predictable. That is what good management practices accomplish – predictability. And the main contributors to that predictability are good systems and training. Systems, when followed, help create predictable success.
6. Lack of strategic financial management
Too many businesses are “taking what they get” rather than developing initiatives to “get what they need and want.” That’s execution: identifying what you need to do to achieve the desired results, then creating the steps to make it happen.
7. Lack of a personal financial plan
Many business owners get to a point where they want, need or have to slow down, yet most of their assets are still in their business. They are not financially prepared to slow down or step out. This is an area where effective personal financial planning can make all the difference in achieving a care-free retirement.
Strategize to optimize your business
Now that you are aware of the business tripping points, what do we do? We can help you discover how to develop a plan. To learn more about the Academy of Family Business, our curriculum and our coaches, please email us at: info@myAFB.org
¹LeadershipOne.Inc. (Family Business Transition Planning specialists)