Succession planning dilemna

Last night, I hosted a private dinner with few seniors entrepreneurs in the city. Our main topic of discussion became succession planning... should I transfer and/or sell my shares to my childrens, should I sell the business, should I look for a successor inside my company - Everyone had their own idea and beliefs. It was such a great night - 3 hours of genuine conversation and passion about business. Few weeks ago, I came accross this excellent article from Mark Wardell, President of Wardell Professional Development Inc.

I believe it will be helpful to you:

Succession Dilemna

Hardly a day goes by without my coming face-to-face with the issue of business succession. Every banker, lawyer, accountant, and financial planner I know talks about it. Seminar after seminar deals with this issue, and all for good reason. After all, thanks to the baby-boomer generation, more than two thirds of independent Canadian business owners are planning to exit their businesses in the next 10 years (Canadian Federation of Independent Business, 2006).
But what we aren't hearing about so much is who is going to buy these businesses. Certainly some will be picked up by competitors, some will be bought by managers, and some will be passed on to future generations. However, the grim reality is that the product of many an entrepreneurs' blood, sweat and tears will simply cease to exist.

To avoid this fate, many entrepreneurs across the nation have begun succession planning. And while planning of this kind is absolutely necessary, it's also absolutely pointless unless the business owner truly understands what effective planning looks like for their business. In my experience, many don't.

Succession planning done right, requires that the business owner develop and execute a road map that proactively "productizes" his or her business into a self-sustained, truly valuable organization. Value. This is indeed an elusive word and one that is much more difficult to measure than the revenues, assets and profits we're all used to reading on our financial statements. It is, however, the key to what makes a succession, successful.
So how do we identify and ultimately drive value? To answer this question, we first need to understand that a valuable organization is one that is independent of its ownership. Therefore, the goal of an effective succession plan must be to transform a business from an owner-reliant organization into a genuine investment. After all, as a potential buyer, which would you pay more for?

Consider the following concept I call the "value pyramid."
It consists of four stages, or levels, of business development. As a business moves from one level to the next, risk is reduced, and the business takes a corresponding leap in value. The pyramid is designed to help a business owner, during the process of succession planning, consider the value of his or her business from the perspective of a potential buyer.

Level One: an owner driven business. In this type of business, the owner makes it all happen. Because this level of business is highly reliant on its owner, the risk of a business losing its profitability following a succession is highest.

Level Two: a people driven business. In this scenario, key people in the company, other than the owner, make the business happen. At this level, succession-related failure is reduced, but still plays a role due to the fact that the key people could leave, and thus take valuable information, and even customers, with them.

Level Three: a process driven business. This type of business is run by systems, which greatly reduce the risk of failure after a succession. At this level, systems are in place to ensure that operations continue according to plan, with or without the owner or key employees, so the business is set up fairly well to run itself. This type of business has more inherent value than the first two levels.

Level Four: a culture driven business. In this environment, the culture (driven by both people and systems) make the business happen. Level Four is considered as close to a pure "investment" as a business can come. Its culture indoctrinates new hires into an environment of continuous improvement, based on systems. The result is a "culture of excellence". This type of business has the least chance of succession-related failure, and is therefore considered the most valuable.

Once a business owner determines which of the four levels they are at, they can then move forward in developing and executing a succession plan that will get them as close to a culture-driven business as possible. Exactly how to go about doing that will be the subject of future articles, but you can start right now by asking yourself, "Am I ready to give up some of my control?" It's a tough question for many entrepreneurs, but it's impossible to move your business up the value pyramid without addressing it. Once you're comfortable, however, you may be surprised at how quickly the value of your business will grow.

How to find the help you need to grow your business

When environmentally-minded Scott Bryk joined his brother T.J. in 2005 as co-owner of Jemev Waste Recycling, www.jemev.ca, he was convinced that their eco-friendly wood processing firm was on the verge of a major market breakthrough.

A series of factors tipped him off, including Ontario's desperate need for solutions to its landfill crisis. Most of that province's garbage was—and still is—being hauled over the border to Michigan. The Walkerton water disaster and an increase in public concern about climate change were other telling signs that a market breakthrough in waste-recycling was at hand.
But what Jemev's co-owners didn't know was how to effectively evolve their wood grinding services into a broader offering. To meet the emerging market need, they would need to venture into organics processing and biofuel development. The necessary developments would be complicated.

They needed a team of senior-level advisors who could guide them through technical and engineering problems, confusing regulatory approval processes, and finding access to new financial resources. They also needed to know how to distinguish between companies in their potential market space that were "green-washing" (a term used to describe insincere environmental efforts) and those actually willing to implement change (i.e. their target market).

Two years later, Scott admits the process of finding and putting in place the right type of working advisory board wasn't easy, but it was definitely worth it. Before 2006, Jemev's revenues were in the $430,000 range. By the end of 2007, business had soared to nearly $800,000.

If you find yourself at a similar crossroads, and are looking to install a committed group of advisors to help your business through a critical transition, chances are an advisory board could be a good solution for you, too. But first you must…

1. Admit you need help.
During their "Eureka" moment of 2005, Scott & T.J. recognized they weren't reaching their market potential and they needed direction on all fronts.
For a proud entrepreneur, admitting you need help can be a tough pill to swallow. But once you do, you may be surprised at the quality of people who are willing to step forward and offer their support.

If you know you need help, it's likely because you have a picture of what you want your business to look like but you can't get there on your own.
Scott, for example, recognized his tremendous need for technical assistance. To get an organic processing facility up and running, he faced challenges from a project management perspective, in addition to the numerous regulatory hurdles he would need to overcome. These challenges were further complicated by, as he calls it, "the difficulties involved in being a company capable of generating greenhouse gas credits in an environment where various levels of government are still unwilling to aggressively deal with climate change issues."

Jemev's advisory board provided the expertise that reshaped the company's service offering. Most significantly, the board advised Jemev to focus its services on core business activities, rather than following industry trends and trying to offer a broader recycling focus.
In Scott's words, "They guided us to use existing wood waste as an input to products and services with a greater profit margin."

Combining the wood they processed with organic material from grocery stores, food processing plants and other industries, Jemev has harnessed a powerful, much-needed waste processing capacity in a province that is in desperate need of waste diversion. As a result, the company has enjoyed greater operational efficiencies and increased profit. Thanks to its advisors, Jemev is on-track to reach $2.0 million in annual revenues by the end of 2008.

2. Consider your options
An advisory board may be a good option for your business. But how do you go about finding one and how do you know they will actually provide the careful, helpful advice you are looking for?
For Scott, the process was much longer and more convoluted than he anticipated. And, this is what you can expect as well. Don't let that stop you, though. I've guided many business owners through this process and the benefits are always worth the effort.

Start by writing a list of dream advisor candidates. These could be industry celebrities, local experts, or even unknown geniuses. They might be people you've known about, come across at an event, read about in an industry paper, or met personally at some point.

Once you have a list of potential candidates, pick up the phone and start talking. In Scott's case, he shared his dreams and goals with his prospective advisors. He told them what he was trying to achieve (mission, vision, values) and gauged their reactions. Were they also committed to the environment? What were their experiences personally and professionally regarding the environment? Were they excited about what he was planning to do?

As a general rule, it's important to get a good feeling that you'll have a few things in common with these people outside of their professional competencies, as well. Because your goal is to build a trusted team you will work with for as long as you need advice, which, lets face it, is likely going to be a long time!

3. Find people you trust
The most valuable advice you'll receive from your advisory board will probably be in response to questions that you won't really want to ask.
That's because questions regarding competencies, expertise, and finances make most business owners feel a bit uncomfortable, maybe even embarrassed. We feel we should already know these things.

At an advisory level, you need to find people whom you can really trust, so that in spite of any embarrassment, you can rest assured they will keep your confidence and provide you with the most honest and valuable advice they have to give.
Scott decided to develop a combination of paid and volunteer advisors. Choosing to hire a financial team, Toronto-based Quest Partners Ltd., has helped him feel freer to discuss some of the more confidential financial aspects of his development.

4. Listen
As a group, entrepreneurs tend to be an opinionated bunch. After all, it's their company and they can do whatever they like. The problem with this type of attitude, of course, is that it diminishes the board's value to the company it is trying to serve, causing members to eventually loose interest.

So the best advice I have for someone considering setting up an advisory board is to make sure you are ready to hear what your board has to say. Advisory boards can be enormously helpful to those with an open mind. They can help you see trouble before it hits you, they can open otherwise locked doors, they can bring credibility to an emerging business, and they can help resolve issues with which you have limited experience. But all of this only matters if you are ready to listen.

5. Do it now!
If you know you need advice, find it now. Don't delay.
Begin the process with one or two advisors and build your "dream team" from there. You'll make a few mistakes along the way and not all of your advisors will work out the way you planned, but if you persevere, you'll end up with a powerful resource for taking your business places you once only dreamed of.

Turning personal goodwill into professional profits

Description: When a business owner begins to feel like they have bought themselves a job, something isn't right. That's what the owner of Globe Printers, Ken Giesbrecht, determined in May, 2003 when he realized the non-stop demands of owning his small Vancouver-based commercial printing business were more than he had bargained for. After nine years and many self-described "near fatalities" as the owner-operator, Giesbrecht decided to seek out professional help. His motivation for change came mostly, he says, from fatigue. He was tired of being at the constant beck and call of his business and wondered how "real business owners" were doing things differently.

What's confusing to most business owners is that, in the vast majority of cases, the company's financials paint only a partial picture when it comes to demonstrating true business value. They are important of course, but the main difference between someone who is self-employed and someone who owns a sellable business is not net profit; it is the distribution of goodwill.
Goodwill is a major component of the value of a typical business and forms the better part of its owner's "profit" when it's time to sell. Personal goodwill is the portion of that value that is associated with the owner's name, reputation, contacts, skills and abilities. Personal goodwill, however, is not transferable. And unfortunately, it is extremely common to find that the majority of a business's goodwill value is linked directly to the owner and therefore tied up in un-sellable, personal goodwill.

When I first met Ken back in the fall of 2003, he had two basic goals.
1. He wanted to take more time off in the near future so he and his wife could start a family.
2. He wanted to transform his business into a vehicle for his eventual retirement. At this point it wasn't clear to him whether that meant selling the business or simply using it as an income source.

In the real world, not everything goes according to plan and Ken still has a ways to go if he wants to be completely free of his business. But as the before-and-after stats listed below illustrate, he has made some measurable progress towards his goals and is clearly on the right track.

Globe Printers Vital Stats (over 3-year period)
Revenue Growth: From 1.5 to 3 Million
Net Margin Growth: From 10% to 15%
Number of Employees: Increased from 10 to 21
Number of Managers employed: Increased from 0 Managers to 4
Ken's weekly hours running the business: Reduced from 60 to 30 hours/week
Following is an outline of the main steps necessary for transferring your personal goodwill to your business goodwill.

Step One: Begin with the end in mind
A healthy business is made up of two main things… people and processes. So the challenge of transferring goodwill value is really the challenge of transferring your business skills, contacts, reputation and so forth, from yourself to these two important assets.

If you're like most business owners, you likely already know this intuitively but have struggled with implementation. After several years of owning a business, it's common for an entrepreneur to get caught up in the daily running of the business, and thus lose track of the bigger picture.

The best way I know to get past this is to take a short trip into the future. Get a picture in your mind of what your business will look like once it is running like a Swiss watch, and write it down. Not only will this help motivate you into action, it will form a measurable target that you and your team can shoot for.

How big a company do you want? How profitable do you want to be? How many locations would you like to have? What type of service offering would you like to develop? What will your corporate culture be like? These types of questions can be extremely powerful.

For example, Giesbrecht wanted Globe Printers to become the Fraser Valley's largest commercial printer, without sacrificing his family life. It was a simple goal, but by clearly articulating it, he took the first step towards building the business he'd always wanted.

Step Two: Get the right people in the right seats on the bus
Dr. Anthony Williams, VP Corporate Learning for Coast Capital Savings, once told me that "people eat process for breakfast". What he meant, was that your people have a greater impact on the success of your business than anything else, including your systems. And I agree.
So once you're clear on where your business is going, take a good look at the people on your team. Are they the right people to take your business to the next level? If you're not sure, ask yourself this question honestly about each of your employees.
"Given the chance to start over, would I hire them again?"

If the answer is "no", then make plans to replace them as quickly as possible. If the answer is "yes", then make sure they are all working in the right positions and that they have all of the support and training they need.

With Globe, for example, we developed an organizational chart with clearly defined roles and responsibilities. This process then led to several personnel adjustments including the exiting of some employees and the redeployment of others. Some changes, such as the development of new management positions, had to be carefully timed so as not to cause cash-flow problems. Personnel changes are never easy, but if they are made for the right reasons and if they are made in a respectful, open and honest environment, the results can be spectacular.

Step Three: Document your processes
As important as it is to build a company of great people, every once in a while one of those great people is going to leave. And if Mr. Murphy has anything to do with it, it will happen just as you're about to take your first vacation in 10 years.

The only way to ensure that a business will continue to run independently, in spite of the inevitable comings and goings of employees is to systemize it. In other words, to take the knowledge stored inside your head, and inside the heads of your key employees, and to write it all down.

First, develop a picture of the operational workflow of your business from start to finish. This picture will be used to help you analyze your infrastructure in order to determine what systems, strategies and infrastructure will need to be changed or implemented in order to get your business running more efficiently.

Next, begin designing and implementing your individual systems. I suggest beginning with the areas of your business that will give you the "biggest bang for our buck". In Ken's case, we started with his hiring process. It was a labour intensive and overly expensive procedure that was not giving him the results he needed. So we knew any improvement here would have a big impact on the business right away.

Once you develop a clear overview of what it will take to turn your business into a well oiled machine, it's only a matter of diligently putting aside some time each week toward making the transformation happen.

Previous Case Study: How to introduce a brand new service

Description: In the ever-changing world of SEO (search engine optimization), gone are the days when you could fool the search engines into giving your site a high ranking simply by repeating key words over and over again in hidden text. Search engines, especially Google, have advanced to the point where they now look for legitimate content and even penalize sites for cheating to get past the system.

For Rick Sloboda, this smelled like an opportunity. So in early 2006, he left his position as communications specialist and managing editor with Air Canada and took the entrepreneurial plunge to start Webcopyplus, a Vancouver-based business specializing in writing website content designed to appeal to both humans and search engines at the same time, or as they say in the biz, they write for both "humans and spiders".

Sloboda is now facing his key challenge—to make his market position known to the right type of customers. A challenge compounded by the fact that his industry is still relatively new. In response, Sloboda has taken a personalized, targeted approach to networking and resource-sharing. And it seems to be working, as this company is fast becoming recognized as a leader in its on-line world.

Vital Stats:
1. Location: Vancouver
2. Website: www.webcopyplus.com
3. Launch date: 2006
4. Revenue growth rate: average of 10% per month since inception
5. Customer breakdown: 56% in Canada, 25% US, 13% Europe, 6% Asia.

From the beginning, Sloboda has utilized networking, both on and off-line, as his primary business building tool. He has dedicated a great deal of time and energy to connecting with copywriting experts, SEO experts, and marketing experts, in an effort to piece together the knowledge he needed to enter into his newly chosen field.

In my opinion, one of the most important attributes for successful networking is the ability to focus one's efforts. And this is especially true for businesses that pursue untested markets. Not trying to tap every resource available frees a business owner to focus more thoroughly on the researched options that are a good fit. For example, on-line, Sloboda has focused exclusively on Facebook, LinkedIn and Digg to effectively find many partners, employees and clients, leaving MySpace, YouTube, and others to one side for now. And he's taken a similarly targeted approach to networking offline as well.

For example, whenever Rick meets someone who is working with his target market in a complementary manner (i.e. a great web designer or programmer), he learns as much about them as he can. He then looks carefully through his own list of contacts to see who might be a good fit for this person, and makes an introduction. The result is the development of a finite number of "networking cells" made up of complementary businesses and individuals, who are all comfortable working with each other on various projects. Rick then introduces his clients into whichever "networking cell" is most appropriate for their particular needs. In return, of course, Webcopyplus is often automatically included in his networking partners' projects and kept top of mind for referrals.

Following are several business networking lessons, drawn from the case of Webcopyplus.
1. Your reputation precedes you: Your reputation is the reason people choose to do business with you—or don't. So, even though you may feel anonymous when you're online, you really aren't.
Being an effective resource-builder means starting with the knowledge that everything you do is a reflection of your business. Or in other words, your reputation never sleeps. Ask yourself, is your business a good representation of your message? Webcopyplus, for example, specializes in SEO. If they didn't turn up on Google's top rankings, that would be a major red flag to their business colleagues and customers.

2. Start by giving Networking, as a form of prospecting, is a relatively ineffective approach to lead generation. Pitching people in a social environment can work occasionally, but the medium simply doesn't lend itself well to being used for direct marketing. That doesn't mean it can't be a great source of new business, however. It's all in how you approach it.

Networking works best when you approach it with an attitude of helping others build their own networks first. In other words, your job is to connect great people to other great people. When you develop a reputation for helping others, people will slowly but surely turn to you as their "go-to" person… someone who always knows the right person for the job. And when the job calls for someone with your expertise, it's highly likely you'll be the first who gets that call as well.

3. Don't waste your time As Sloboda quickly discovered, it's impossible to stay on top of every trend that comes along. Save yourself time and energy by developing a list of experts in every industry you work with, who you can refer to as needed. For example, do you know a great lawyer with industry experience? Do you know a skilled marketer who's earned your trust? Do you know an experienced accountant who understands more than just the numbers? Contacts like these are an invaluable resource for you, your network, and your clients. The trick is to make a list of the types of individuals you are looking for first. That way, when you meet them, you'll recognize them right away as someone you want to get to know.

4. Be systematic and stay organized While networking groups are a great way to get started, long-term success will come from nurturing your own networks. As I alluded to above, the best way to achieve your goals is to invest your time in fostering a referral system that offers real value to all involved. This means connecting with people having mutually beneficial goals and, whenever possible, becoming the go-to person in your network.

At Wardell, we use the term CIA (Centers of Influence Advocates) as a fun way to describe the key people and organizations we're surrounded by or work alongside. These are also the people who can introduce us to potential new clients. Take the time to create a system that leverages your CIA's in the most effective and mutually beneficial way possible. This can be as simple as scheduling that person's name to show up on your contact management software at regular intervals, say quarterly, to remind you to contact them. Then, each time their name shows up, find some small way to do something for them. For example, you might send them an interesting article, you might send them a referral, or you might invite them out to an upcoming networking event.

Another great tool is something we call a referral tracking tree. This is an organizational chart that plots your clients back to their original referral sources. For example, you may meet Bob, an accountant, at a networking event. Bob then refers you to two of his clients who become clients of yours. One of these clients then sends you two referrals, while the other sends you none. In a referral tracking tree, you'd show Bob at the top, connected to his two referrals below him. One of these referrals would be connected to her two referrals directly below her. And so forth. A tool like this makes it easy to see that Bob is either a direct or an indirect source of four clients… and someone you might want to invite out for lunch sometime soon.

4.5 And finally, don't forget your manners Webcopyplus automatically sends a note to say "it was nice to meet you" after meeting a new business contact. It's a nice touch. Recently, the owner of a graphic design firm was so impressed by this gesture that they hired Webcopyplus to assist with a project the very next day.