One of the toughest things for a family business owner to do is hand over the reins. Beyond the fact that it’s their baby and it’s hard to let someone else take over, make changes, make mistakes, etc., we find two other very important areas of life that need to be addressed in order to achieve a successful transition: 1) can they live without a pay check from the business (and if not, how much will they need from the business, post-CEO, to live the lifestyle they want), and 2) maybe even more importantly, what does the next chapter of their life look like?
Many family business owners are so busy juggling the business, family, and ownership that they haven’t stopped to think that when they move out of the CEO seat at age 60 to 65, they likely have another third of their life in front of them.
According to the 2013 State of Owner Readiness Study completed by the Exit Planning Institute, nearly 75 percent of business owners regret their transition one year after leaving. How is it possible that owners are so disappointed just one year after what should be the happiest day of their life?
Most owners get the mechanical components of their transition in place (i.e., estate plans, successors, etc.), although I can tell you we meet many who do not have a will or haven’t updated it in 10 years. If you don’t take care of these details, you are going to leave your family with a mess, likely leading to tax problems, conflict and confusion. This might even destroy the business. This has to be an owner’s first order of business as he or she begins to prepare for transition.
But there is another side to transition: the emotional side, the tough stuff that we often ignore and think will somehow work out. Turns out there are three significant hurdles business owners need to overcome as they move to the next chapter of their life: loss of identity; boredom; and no longer feeling of value.
Many family business owners don’t think through the practical and emotional factors that can lead to disappointment after a transition, including things such as:
– Going from a life of management by objectives to free time. What will you do with all that time?
– Having the phone ring for you to suddenly no calls.
– All your friends are work friends, but now you are no longer there to chat with them.
– From where the buck stops at you, to you’re not the buck anymore.
– Spending a lot more time with your spouse.
– Following an initial boost in health, retirement increases your risk of clinical depression by 40 percent.
– Retirement raises your chances of being diagnosed with a physical condition by 60 percent.
– Not getting enough money in the transition to fund the lifestyle you want.
Owners who have been successful in their transitions have thought about their next chapter and how they are going to live. They see it is an opportunity to move from success to significance, with their health intact.
Pull or push?
We have found four drivers to a satisfying transition.
The first driver of a happy — and lucrative transition — is what we call “future vision.” Most owners get pushed out of their business but the happiest transitions occur when an owner has an equal or greater number of pull factors. Push factors would include things like the need to retire or a health scare. The happiest transitions involve owners who have something pulling them out of their business — a vision for something they want to do in the future. This could include a new position in the company such as chairman of the board, or outside activities such as pursuing hobbies, volunteering, mentoring or even starting a new business.
Our second driver of a happy and lucrative transition is called “structuring flexibility” which describes an owner’s willingness to consider multiple transition scenarios. A lot of owners make the mistake of approaching their transition with a rigid vision of how they see their transition. They imagine an acquirer (family member or outside third party) writing them a check in exchange for the keys.
As we know, this is virtually never the case. Most owners will have to stay on to help a new owner transition into the business. The more flexible an owner is as they approach their transition, the more likely a successful transition will occur.
The third driver of a happy transition is the degree to which the founder’s ego is dependent on his or her status as the owner of a company. Here we look at how long an owner has owned the business for, how much of it they own, and whether their name is on the door. All of these factors can lead to an owner becoming unwilling or unable to let go. For a happy transition, they need to have healthy life outside of their business.
The fourth factor that leads to a healthy transition is being proactive about how you want to treat your team as part of the transition process.
This is a deeply personal issue for owners, some of whom would prefer not to tell employees for fear of word getting out among competitors.
Others can’t imagine the duplicity of asking employees to join them in their business only to turn around and transition out.
But the fact is, everyone in the company knows you won’t be there forever, nor should you be. In most cases, they are excited for you and that you have the opportunity to enjoy the fruits of your labor.
If you don’t get out of the seat, you will likely stifle the company’s growth, and may even cause your best candidate(s) to leave the company because they don’t believe you will ever leave. Peter Drucker, the father of modern management, said, “The final test of greatness in a CEO is how well he chooses a successor and whether he can step aside and let his successor run the company.”
This next chapter of your life, whenever it arrives, can be very exciting. But you must plan for it, not assume it will just happen. Make a mindset shift from “I’m leaving something” to “I’m going to something new.” This will completely change your approach and open endless opportunities.
The next chapter is more like archeology than architecture. There are two parallel paths to this transition:
– What will I do next (the head journey)?
– Who will I become in this next season (heart journey)?
As you embark on this next chapter, surround yourself with peers where you can help each other’s progress on the journey. Smart people need a safe place among peers, to think their confusion out loud.
Enjoy the ride.
Tom Garrity is managing partner at Compass Point Consulting LLC in Hanover Township, Northampton County. He can be reached at firstname.lastname@example.org.