The Facts of Business Life (14 page)

• Buying a competitor.
  
• Starting an entirely new business that has some relationship—and can provide benefits—to the current business.
  
• Purchasing or leasing new facilities in a better location.
  
• Buying new and more efficient equipment.
  
• Upgrading current facilities.
  
• Creating a complementary or parallel business, or buying your distributor so that you can take control of your supply chain.
  

Although it may seem that ideas like these are limitless, in reality they are not. There is only so much excess cash available, only so many opportunities that can provide support to a business, and only a few of these that will create a competitive advantage. But finding or developing a competitive advantage is a “killer” weapon for securing a business and creating additional incremental profits, and if you want to maintain your business, it is imperative that you try to develop this kind of weapon.

Common sense tells us that a group of individuals working together to achieve a common goal is more efficient than a group of individuals working in their own interests. And it's this belief that has made the word
team
so widely accepted and used. But simply saying “We are a team” doesn't make it true. Creating a business team and maintaining it is actually extremely difficult to accomplish, which is why real business teams are few and far between. And in fact, the only way to build an effective team is through leadership, that is, through an individual who is willing to accept the responsibilities of leadership, who is prepared to make hard decisions for the common good of the business, and who is proactive. As an owner, taking on this role is your responsibility.

Despite the difficulties, there are several good reasons to develop a team at this level. First, one of the results of doing so is creating a dominant company that generates exceptional profits. Second, since it's hard to do, your competitors probably won't do it, which will be to your advantage. Third, having a team will help you overcome the traps of success. And, finally, teams help build individual leaders, and the more leaders you have who are focused on the right things, the more likely you are to succeed.

There are several things you can do as a leader to help build a team in your company. First, since teams are made up of individuals, the people you choose to work in your business are very important. You should accordingly look for people who have leadership qualities, such as being proactive, being willing to take responsibility for their actions, and having a positive attitude. Second, teams need to have a common, meaningful purpose, and you can provide them with that purpose by making sure they know how you define success and what you expect them to do to help achieve it. Finally, teams need to be coordinated, that is, every department's objectives have to support and promote the overall company's goals, and supplying that coordination is one of your responsibilities as a leader.

In other words, creating a business team isn't just dependent on one thing, it's dependent on a number of things. There are two common denominators, though. One is that a team can be built only by a leader, and as the owner you must be that leader. The second is that results must be the focal point; that is, individuals have to know what is expected of them and produce it. If these two things don't happen, trying to develop a team will be pointless.

As at every level, at Level 4 building a team and developing individuals goes hand in hand. But it's especially true at this point in a company's life cycle. For example, at Level 4 most owners are getting tired, and a fairly large percentage of them are losing their passion and drive. So the more employees you have who can help with the heavy lifting of leadership, the better your results are likely to be. Similarly, a lot of successful companies outgrow their owners; that is, after a certain point, the owners' abilities are no longer sufficient to guarantee the company's long-term success. Developing people who have different skills and can pick up where the owner's abilities leave off can only be to the company's benefit. In addition, in the event that something should happen to the owner and he or she is no longer able to manage the company, developing other people who could take over if necessary can serve as a kind of insurance policy for the owner's family. At the end of the day, though, it just makes sense to develop individuals in your business because the more leaders you have pulling together for a common purpose, the stronger the company will be.

The key to developing leaders is empowerment, which is enabling leaders to work without the day-to-day interference of the owner and showcase their abilities. But empowering employees is a two-edged sword, because even though it lightens your load, it comes at the cost of giving up control. And after many years of running a business, that can be very hard. Some owners find it difficult because they have favorite things they like to do, and some because they have been burned in the past when they ceded control to others. But regardless of why you may be reluctant to give up control, if you want more leaders, you have to give them responsibility. It doesn't work any other way. Fortunately, there is one factor that should make relinquishing control somewhat easier. By the time you have reached Level 4, the chances are that you've already put sufficient controls into place to make sure that unpleasant surprises are unlikely to occur. And in the meantime, by developing multiple leaders and helping them learn and grow, you will have built your business into the strongest company it could possibly be.

For some owners, making an exit decision is very easy. They can't wait until they have enough money to retire, and as soon as they do they're very happy to wave it all goodbye.

But for many owners, the subject is one they don't even want to think about, much less discuss. And, to be fair, it's entirely understandable. Leaving a business, whether it's through sale, succession, or closing, marks the end of something owners are comfortable with, and moves them into a new area that may sound good but is still unknown territory. If that's not complicated enough, there is the question of which route they should take on exiting, as well as hundreds of others about the business that have to be answered. And to top it off, getting out of a business is something most owners know little, if anything, about. It's no wonder they don't like thinking about it.

To make matters even worse, deciding when it's time to exit is as far from an exact science as it could be. Most owners realize a business can lose momentum, become stagnant, and begin to stumble if they stay too long. Most also know that putting a business up for sale too early, if that's what they choose to do, can mean forgoing future profits and, possibly, a higher selling price. But it's not just a question of the best timing for the business—owners also have to think about the best timing for themselves. It's a difficult balance, a difficult decision, and owners have to face this reality the same way they have faced other difficult decisions in the past. Ironically, it's the same leadership skills that enable owners to power their way into ownership at Level 1 that are needed to power their way out at Level 5.

As I mentioned earlier, there are two unavoidable facts that every owner has to take into consideration as far as exiting the business is concerned. The first is that the best time to exit is when you don't have to. And the second is that if you don't pick the time to exit, someone or something else will. There is literally no escaping these two realities, which is why leadership is so important at Level 5. More to the point, after exhibiting leadership and exercising control for so many years, it doesn't make any sense to abandon your leadership role, give up control, and leave to chance one of the most critical business decisions you can make. Avoiding this, however, requires you to take two distinct and different leadership initiatives. The first of these is to continue leading and operating the business as you did at Level 4. No matter how you choose to exit, the timing of your exit will hinge at least partly on other people, and since you can't be sure of when it will occur, you have to stay focused and keep the business going strong until it does. The second leadership initiative you must undertake is to prepare yourself to set up the business for your exit.

Particularly at this level, being prepared and understanding what you're doing is the key, because selling a business, planning a succession, or closing down can be very unnerving, and you can easily end up way in over your head—and fast. Making these kinds of preparations and developing this understanding is something only a leader can do successfully. And the best way to do it is essentially by asking the right questions, making sure the answers are based on fact rather than emotion, and then using those facts as a basis for your decision making. Some of the basic questions you have to answer are the same whether you are interested in selling the business, passing it along to a family member, or closing it. Some, however, apply only to one or another of these situations.

Regardless of which kind of exit you are anticipating, among the questions you must ask yourself are:

• Who has done what I want to do, and what is the best way for me to seek guidance from them?
  
• How much is my business realistically worth?
  
• What is a reasonable time frame to get ready to begin the exit process?
  
• Am I exiting because it's a good time for me personally, because a sale is likely to bring in a particularly large amount of money now, or both?
  
• Who will I use for professional legal and tax advice, and how can they best help me structure the selling process to my advantage?
  
• How much money will I need to live out the rest of my life in the style I want to?
  
• Do I want a clean break, or do I want to exit gradually?
  
• What factors will determine the timing of implementing an exit plan?
  
• Do I want to sell the business outright, or do I want to implement a succession plan?
  

If you are planning to sell your business, you need to answer the following questions:

• What is the selling process and how can I maximize it and control it?
  
• Who will be my best buyer? That is, who will pay me top dollar, who will have the most to gain by buying my company, and who will have the most to lose if someone else buys it?
  
• What do I have to do to make the business worth the most in potential buyers' eyes?
  
• Would it be better for me to sell the shares of my business or to sell the business' assets?
  
• What are the tax consequences of a sale?
  
• What information do I need to show a potential buyer to get the top price for my business?
  
• How will I represent the condition of my assets so I will not be held responsible if a buyer later determines there is some kind of problem?
  
• What assets have to be fixed, painted, or replaced in order to impress a would-be buyer?
  

In the event that you are planning to implement a succession plan, the kinds of questions you have to answer include:

• Who will be my best successor? That is, which member of my family is most capable of stepping in and has the ability to operate the business over the long term?
  
• What kind of financial arrangements can I make for other family members to avoid a rift?
  
• What should I educate my successor about, and what will he or she have to figure out themselves?
  
• How will I integrate my successor into the business?
  
• Which key employees do I need to talk to in order to solicit their support and make the transition as smooth as possible?
  
• What oversight will I need to maintain during the transition process?
  
• What is a reasonable timetable for the total transition?
  

Even if you are planning to simply close down your business, there are a number of questions that you must answer, including:

• What current liabilities and long-term debt is the business responsible for?
  
• What are the tax and legal consequences of closing down?
  
• How long will it take, from a tax and legal standpoint, to close down the business once the doors are closed?
  
• Is it best to slowly ramp the business down or to pick a date and then close down all at once?
  
• Does the business's customer base have any value to a competitor?
  
• Do any of the business's assets have value?
  
• Do my skills have any value to a competitor or industry association?
  

These do not, of course, represent all the questions you must answer when you're planning to exit your business. They are, however, a good starting point and represent some of the large obstacles and issues owners will have to prepare themselves and their business for when planning an exit.

The Benefits of Leadership at Level 5

• Being a leader enables you to prepare mentally for the transition and at the same time prepare your business to be sold, passed on, or closed.
  
• Being a leader enables you to ask the proper questions and, in the process, slow yourself down so the decision you make is based on facts rather than emotions.
  
• Being a leader helps ensure that as little as possible is left to chance in the exit process.
  
• Being a leader makes it possible for you to keep your employees from losing their focus and dwelling on concerns about the future.
  

At this level, while it's extremely important that you keep the continuing success of the company in the back of your mind, planning and executing an exit strategy must be your main focus. The objective here, regardless of how you choose to exit the company, is to do it in as controlled and calculated a manner as possible. Like all important things, though, this is easier said than done. Perhaps surprisingly, the hardest part of the exit process is taking the first step. As discussed earlier, that first step is educating yourself and coming to grips with some of your soon-to-be realities. Not surprisingly, the more knowledge you have about your situation, the better your decision will be. For example, there is no point in contacting a potential buyer if you haven't made sure that after paying off your debt and paying taxes you will have enough money to live on. You would certainly not want to find yourself in such a situation. But the fact is that things like this happen more often than most people realize, and it's all because the owner didn't take the time to make sure what his or her situation was.