Business transition occurs when the business is sold, shut down, or when the day-to-day leadership shifts from the owner to a family member or capable employee. Regardless of the transition, considerable preparation is required. The act of transitioning a business is a two-sided coin. On one side is the process of preparing the business and the owner to let go; while on the other side of the coin is the process of preparing the buyer, family member, or capable employee to be skilled enough for the owner to actually let go with confidence.
Preparing for the day-to-day transition of leadership takes considerable time and investment. It can be a difficult but rewarding process and should not be left to the toss of a coin. Be prepared and start early.
When you sell your business, theoretically the money is in the bank and you can put your feet up and relax on some sunny beach and yes, worry about what to do with all your cash and where to invest it to earn passive income. When transitioning the day-to-day leadership of the business, if you have done it effectively, you can still put your feet up, relax on that beach and worry about how your existing business, now an investment, is performing to provide you with that passive stream of income. In either scenario you have to think about the performance of your investments – the only difference is that you know a lot more about the security of your investment in your own business than your stock broker would know about the stocks he/she invested in with the money from the sale of your business. It is an interesting perspective.
Both scenarios require similar preparation in order to ensure a successful outcome. And, there is a logical order to the process. An owner should always prepare the business for the transition of the day-to-day leadership of the business. The sooner that happens, the better. Doing so will not only give the owner more time to focus on other more important issues, it will prepare the business for an eventual sale, increase the potential array of buyers interested in purchasing the business, and increase the value of the business. Just because you prepare for transition, does not mean you will necessarily sell the business. You may have simply created another investment option to manage. But, most significantly, you have set up your investment to perform to your standards. You have picked the team to drive your business better than you did.
So how does one get ready for the transition of the day-to-day running of the business? Since transition is a two-sided coin, you need to find and train good people to take on the day-to-day leadership and you must prepare yourself to let go of the day-to-day aspects of the business. The extent of the preparation will determine the quality of performance and the ease of letting go. This will take a significant investment of your time to train, document process, develop regular communication routines, and the strategies and tactics that need to unfold for you to let go comfortably. It requires an investment in a leadership team, finding the right talent and preparing them to run the business. Finally, it requires that you let go of the day-to-day, which is often the most challenging task for the owner. This is often aided by finding some new adventure to keep you focused away from the day-to-day of the enterprise you are stepping back from.
The investment in people is critical and training those people is essential. Usually, the incoming leader is someone already in the business. This could be a son or daughter, or a key long-term capable employee. In either situation, training is required, often beyond what you, as the owner, can provide. My belief is that entrepreneurs are born and that effective managers need to be trained. So, as much as your son, daughter, or key employee may have picked up much of your knowledge about running the business, they have likely also picked up your bad habits as well. Remember, you are not looking for a ‘mini you’ when finding that right leader to transition the business. You are looking for a highly skilled manager of people and resources. One that does not fly by the seat of their pants but, instead, holds the management knowledge, attitude, and communication skills that will strengthen and protect your investment on a day-to-day basis. Osmosis is not enough to guarantee a successful transition.
As the outgoing leader, the worst thing you can do is to continue meddling in the day-to-day operation, thinking you can prevent the mistakes that you made in the past. Actually, it was through those mistakes that you learned and developed, so give the new leader a chance to learn too. Give her/him just enough rope to nearly fail, but be there to prevent catastrophe. You are the captain sitting in the right seat allowing the first officer to fly the plane, with your hands ready to guide or abort should that be required to prevent catastrophe.
You do not always get the chance to pick your leadership successor, one with the best skill sets. Sometimes you inherit the person and you have to work with what you have. Where a son or daughter is moving into the leadership position, it does not mean they have all the skill needed to be successful. They may expect to take over and they often bring a sense of entitlement with them. However, it is your job to ensure they have the right attitude, skills and abilities to manage the business and handle your investment. They will certainly need training that you are unable to personally give them. To a lesser extent, the same goes for that loyal and capable employee. They will likely have the right attitude but will most often not have all the needed management skills so again, training is required.
You can also hire from outside the organization but that will cost a considerable amount and the organizational fit and commitment to the long-term may be your biggest challenges. Training and mentoring will still be required and that may keep you in the kitchen longer than anticipated.
Finally, transitioning is not just you exiting the day-to-day running of the business, it is also about where you are heading. Without a plan for what comes next to keep you occupied and fulfilled, the running of the business will be like a siren calling you back into it. When you have a new focus, a new adventure to tackle, or a new interest to explore you will find that the day-to-day aspects of the old business are no longer of great interest. That does not mean you walk away. You have to stay in touch with your investment - holding regular meetings with the new leadership to track performance, discuss strategies and tactics, and consider new investments where ROI is the key measure of what you will do next. Sound exciting?