Succession Plans Take Time
The June 6, 2011 Wall Street Journal had an article on the five-year process to find a successor for the CEO of JP Morgan Chase. It’s not an easy task to find a new leader for any company, whether a huge public corporation or a successful small business.
In small businesses, the more specific the skills needed the tougher it is to find a replacement (who usually is a buyer of the business). We hear a lot these days about exit/succession planning and for good reason. The demographics (i.e. aging population) tell us that there will be a lot of ownership change.
Those business owners who can remove themselves from the day-to-day, make their job one of leadership and management and reduce any owner product or service dependency will sell for a higher price, to a better buyer and get more cash at closing.
If you, or someone you know, is thinking of selling in the next five years, now is the time they should be formulating their strategy.
“Think of a succession plan as life insurance for a [law] firm.” Rhonda Muir Esq.
(Avoid) Stupid Business Practices
Last summer I had a skin infection, a nurse friend talked me into going to the emergency room on a Sunday night instead of waiting for the doctor’s office to open on Monday morning and in doing so I generated a hospital and physician bill.
The hospital bill came and we paid it. We never got a physician bill. They had the wrong address. So they turned it over to collection, who sent me a statement, got it back in the mail and then called me. Very nice, not credit report issues, etc.
I asked why the doctor group didn’t pick up the phone and call me when the bill came back in the mail. I was told that they just don’t. They turn everything over to collection after one try. Talk about a stupid business practice. Collection agencies usually get about 1/3. It doesn’t take too many going to collection to fund an employee to collect receivables.
And I even asked, at the time of service, if I should pay the bill while there and was told no, we’ll bill you (why not take the money when offered?).
“Every wrong attempt discarded is a step forward.” Thomas Edison
Take Care of Your People
On May 9 my alma mater, Marquette, along with Seattle U held a networking event in Seattle. There was a panel discussion with executives from Costco, Nordstrom and Blue Nile.
I walked away thinking that there was really one common message from the panelists and that was to put people first, especially the customers. If you take care of the customers, everything else falls into place. Happy customers make for happy employees.
I’m often asked what my work entails most often and the answer is that it usually comes down to the people. People are the key issue in any buy-sell transaction whether it’s the buyer and seller relationship, the customers, the employees, the vendors or others.
People are the top factor when it comes to determining if a company is thriving or misfiring. I guess that’s why there are so many books on culture, people and how to improve performance.
Business is a built on relationships. Take care of the people you interact with and your success will go up.
“The goal as a company is to have customer service that is not just the best, but legendary.” Sam Walton
Work Together for Success
The May 12, 2011 Wall Street Journal had an article on the congressional hearings regarding the AT&T-T-Mobile merger. The article stated, “Congress has no formal role in deciding whether the deal is allowed or not.” On May 13 the WSJ had a short note about Congress questioning Facebook’s security.
It seems to me that these are day-to-day issues that have agencies assigned to regulate and monitor them. So why is Congress involved? Okay, that’s a rhetorical question because we know it’s for publicity.
Compare the above to a company or non-profit’s board of directors. (I’m very close to this issue as I take over as president of my Rotary Club on July 1.) Boards, in my opinion, should deal with strategic issues and tactical problems. When board meetings spend time simply reporting what they’ve done or discussing operations (not solving problems) they are not fulfilling their mission.
Owners and managers should handle the tactics. The board should work together with the owner/CEO to determine the vision and strategy so it can be implemented in the best way possible. Boards should not get like Congress, sniffing around and getting involved in areas others are handling (and better equipped to handle).
“Coming together is a beginning. Keeping together is progress. Working together is success.” Henry Ford
Boeing executives should have, “Kept their mouths shut. I’m sure their labor lawyers were banging their heads.” Charles Craver, labor law expert at George Washington University Law School. This was in reaction to comments Boeing execs made about the recent NLRB investigation about Boeing’s decision to open a plant in South Carolina.
In buy-sell transactions I see similar things all the time. People say things they shouldn’t; not usually devastating things but things that cost them.
When a business sells for more than the value of the assets the difference is called goodwill and goodwill is based on profits. When there is goodwill, it’s customary for the seller to provide transition training as part of the price. They are teaching the buyer how to run the business so it generates those profits. Twice in the last month buyers have said to sellers that they fully expected to pay the seller for his or her time training them. I’m guessing they said this because it makes sense that someone gets paid for their time and because these buyers are not experienced in business buying they don’t know different (or have forgotten it).
In another case the seller’s team put their foot in their mouth by suggesting a high amount for the non-compete agreement (ordinary income to the seller, not capital gains). While we were nice and pointed this out, it did open the door for the buyer to ask for some of that allocation to go to training (immediately deductible for the buyer and still ordinary income for the seller).
Be careful what you say are words to be heeded.
You don’t need to know everything; you need to know everything important. There’s a big difference between the two preceding phrases and it’s where business people and business buyers often get tripped up and/or fall into the analysis-paralysis trap.
In most situations you don’t need to know everything. In my first sales job I remember a fellow employee who wanted to know everything about a company before he called them (this is in the pre-Internet era and information wasn’t as readily available). Because of this he made a lot fewer calls than he should have and didn’t last long.
A business buyer client of mine, in the course of due diligence, said he wanted to find out what each employee did all day long. I simply asked him, why? He didn’t have a good reason, he just thought he should know. I pointed out that the company was doing well, the employees were getting their jobs done and asked what he would do with that information once he had it. He quickly moved on to getting important information.