In a private company transition, one of the biggest issues is the pace at which the owner or exiting shareholder steps out of the business; it often delays ownership transitions. Some advisors think the successors need to push the owner out, while others feel that it is up to the exiting owner to decide. I think both sides should work cooperatively, but I am more in the exiting owner’s camp – with a significant twist.
Having worked with dozens of owners trying to figure out their exit, I’ve seen the way their emotional state can slow down the process. The business has become part of their identity, and for many, it has been their life’s work. This is particularly true for founders or second generation owners who have materially built the business. They have trouble seeing their life without the business, and separating themselves from it becomes a real issue.
These owners are often criticized for this mentality. However, the reason many of them don’t have significant outside interests is because the time and effort it took to build the business was all-encompassing. Plus, many of them just like to work. They often feel that since they built the business, it should be up to them to decide when they are finished. If you put yourself in their shoes, it’s hard to argue that logic.
However, a senior owner who is mentally unprepared and fails to plan for their transition can present a significant risk to the business, employees, and other stakeholders. Health factors alone are a cause for concern, but other unexpected issues can pop up at any time. One of the worst things for a business is to be in a situation where the owner is “going to die with their boots on” and there’s no plan in place. To be fair, the exiting owner has earned the right to walk away on their terms. But that does not mean they can be an immovable object standing in the way of a transition.
I mentioned a twist. At issue is that many owners equate their ownership transition with the end of their involvement in the business. It is a cliff they feel they are being forced to jump off, and they don’t like it. For these owners, there is another option. They can stay involved in the business in a different role, and be given time and space to adapt to the change. This is not easy and it requires planning, but setting a process in motion that more slowly transitions their role may help that owner move forward. At a minimum, it takes some of the risk out of the equation since there is a plan in place and the business still gets the benefit of the owner’s knowledge and support.
We have seen many successful situations where the owner stepped down as CEO and became the Chairman, or they gradually dropped their hours. These plans should have a great deal of structure both on the financial as well as on the human side. The exiting owner may just need time to think through what this option will look like and craft something that works for them and the business. Removing their assumption that their exit has to be a “cliff” may be enough to get some forward progress.
While this approach may not be perfect, it at least provides a roadmap for the exiting owner to adapt to their new life and for the successors to step more fully into their roles. It is certainly better than doing nothing, which puts the business and everyone involved at risk.
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