New Survey What It Feels Like to be a CEO Offers Exit Planning Insights

A newly released survey explores the human side of being a company’s chief leader and offers insights for CEOs and business owners on the challenges involved in getting themselves and their companies ready for exit or success.

The survey, The CEO: A Personal Reflection, was prepared by global leadership consulting firm Egon Zehnder. Over four hundred CEOs from a cross section of industries and countries participated. Topics addressed included what the job entails, the level of preparation CEOs felt they had received before taking the role, their succession planning process, and how CEOs lead and cope in these volatile times.

While the study addresses a wide range of themes and issues, it reveals some important insights that CEOs and business owners should take heed of as they move towards a future exit. For example, the study revealed that one in three CEOs (32%) indicated succession planning was underway with a clear process being followed. Almost half (44%) of the CEOs responded that either no succession planning had been initiated but needed to be, or some planning was underway but without a clear process or outcome.

The research study’s examination of CEO expectations versus reality should serve as an alarm bell. This section asked CEO participants which of their roles had turned out to be easier or more difficult than expected. Listed below are the top five roles that CEOs found more difficult than expected, along with the percentage of survey respondents who indicated so:

Driving cultural change – 50%

Finding time for myself and for reflection – 48%

Developing my senior leadership team – 47%

Balancing the short-term financial focus with the longer-term transformation of my company – 40%

Managing the impact on my family / personal life – 35%

As you review this bullet point list, consider what it takes to plan for and achieve successful exits: driving cultural change, personal time and reflection, building the team, transforming the company, and addressing the impact on one’s personal life. In other words, every one of the top five roles that CEOs found more difficult than expected are essential steps within the process of preparing for exit and reaching one’s exit goals.

It’s also important to note that about 80% of the CEOs participating in this survey lead organizations with revenue of $1 billion or greater. Most privately held companies are significantly smaller, and thus have flatter organizations with fewer leaders and arguably more demands on the CEO. Thus, if about one-half of these CEOs from very large companies found these roles to be harder than expected, C-level leaders and owners in small to mid-sized companies could reasonably expect to have even greater difficulties.

This survey’s findings point to the key theme in how to be successful at exit—start preparing as soon as possible. Now is best. Many owners and CEOs wait too late to get started and deny themselves sufficient time. If you desire to exit in five years or less, you are already in the final stretch and there’s likely a lot to get done.

Visit the Egon Zehnder website  to learn more about this study and download a copy of the full report. Also, download our free ebook “Your Last Five Years: How the Final 60 Months will Make or Break Your Exit Success” to get started with your exit planning.

To discuss your unique business, and how to plan for and achieve a successful exit,  Call 772-210-4499  or email Tim to schedule a confidential, complimentary consultation.

Unhappy with Your Business Partner? Here’s Why.

Note: This material is adapted from A Tale of Two Owners: Achieving Exit Success Between Business Partners, by Patrick Ungashick, CEO of NAVIX.

By Charles Willi, Sep 20, 2018 11:15:00 AM

Leadership speaker and guru Brian Tracy has been quoted as saying, “If you like a person, you say, ‘Let’s go into business together.’ Man is a social animal after all, but such partnerships are fraught with danger.” He’s right. Countless men and women have said “let’s go into business together,” become partners, and built successful companies. Often, these partnership relationships launch with enthusiasm and excitement, aligned around a common vision of company growth and success. Yet many business partners wake up one day to realize they are unhappy in this relationship “fraught with danger.” The change can happen shortly into the relationship or curiously can occur years or decades into a harmonious relationship. When you are unhappy with your partner, the potential dangers include slowed company growth, a tension-filled office environment, a divided company culture, and lowered profits. If left unchecked, unhappy partnerships can lead to unhappy or failed business exits. So why do some partners become unhappy with each other?

Many business observers have commented that being in a business partnership is akin to being in a marriage. This is partially accurate. Like a marriage, for a business partnership to be healthy and last it must be rooted in shared values, effective communication, and mutual respect. However, company partners have different goals for their business relationship than those that exist within a marriage. Also, the tools used to sustain a healthy marriage are different than the tools used in a healthy business partnership. When the proper tools are not applied, the danger of an unhappy partnership rises. In our experience, owners fail to use many of these tools, typically because they either don’t know they exist or don’t know the role these tools play in maintaining partnership alignment and harmony.

The six most common tools that get overlooked or under-utilized in partnership relationships are:

1. Written Job Descriptions

Partners working in the business often exempt themselves from this common employee management tool under the premise that the document is unnecessary because they are owners first and employees second. However, it is difficult for partners to achieve and maintain alignment if their roles and responsibilities within the company are unwritten and thus left up to individual interpretation and application.

When partners do not have current written job descriptions, a common byproduct is the blurring of decision-making authority and accountability. This, in turn, reduces efficiency and increases partner tension. It is easy to envision the problems created if every company decision and issue were subject to a vote of the partners. Not all partners can be—nor should be—involved in all decisions. Some issues are ownership-level matters that require discussion and input from the partners. Other issues are management-level matters dealing with day-to-day operational and tactical areas. Yet without written job descriptions, which partner has input and authority to make which decisions and in which circumstances remains unspecified. This ambiguity invites partners to interpret the answers for themselves—not a method that leads to alignment.

Partners can rely on precedent and ad hoc efforts to fumble their way through this ambiguity for a surprisingly long time, as long as their goals are in alignment. But, when exit draws near for one or more partners and their goals change, partners are left to reinterpret their responsibilities and reevaluate their priorities as they see fit. At that point, the lack of written job descriptions can cause significant partner difficulties and inhibit creating exit-goal alignment.

2. Job Performance Benchmarks and Evaluations

Like with written job descriptions, partners working in the business often exempt themselves from defined job performance benchmarks and periodic evaluations against those benchmarks under the premise that the exercises are unnecessary given that they are business owners. In situations where the partners are equal partners, they may also find it difficult to evaluate one another’s job performance and hold one another accountable for performance, given that they see themselves as peers rather than subordinate to one another. Each partner is left to individually interpret not only his or her responsibilities and performance, but also each other’s. This fuels misunderstanding and a lack of accountability.

3. Compensation Tied to Market Rates

Partners with identical ownership percentages (i.e., two partners with fifty-fifty ownership) often take identical compensation, rather than using the tool of tying compensation to market rates. Equal partners usually aspire to treat themselves equally, and therefore they agree early in their relationship to allocate everything equally, including compensation. In the beginning, this seems advantageous. While the business is small and cannot yet afford to pay market-rate wages to the partners, taking equal below-market compensation evenly spreads the risks and burden. Once revenues and profits increase, the partners usually enact identical wage increases, even though the partners’ positions within the company evolve.

If this continues unabated, the partners end up with wages grossly inconsistent with market rates for the position each occupies. Even the most good-natured and selfless underpaid partners may come to resent the imbalance. Grossly overpaid partners often come to resent even discussing the matter; in fairness, they are adhering to an arrangement that all the partners willingly entered into years earlier. Few issues can leak into a relationship and erode happiness like the issue of frustrations with take-home-pay.

While it would be easy to conclude that the solution is for the partners to simply adjust compensation to be consistent with market rates for their positions, this is easier said than done. Once this genie is out of the bottle, it is difficult to get it back inside.

The proper place for business partners with equal ownership to treat themselves equally is with profit distributions. Profits are surplus earnings to either be reinvested or distributed for the benefit of the business’s owners. When distributed, profits are usually shared in direct proportion to ownership (unless their ownership structure or a prior agreement dictates otherwise). Wages, on the other hand, are different. Wages are payments to people for services rendered to the business. Wages should be consistent with market rates for similar positions and for persons with similar skills and experiences.

4. A Written Strategic Plan for the Company

Many businesses manage to achieve significant revenue and profit growth without formal long-term strategic plans. Therefore, to some owners, strategic planning and plans seem unnecessary, a misuse of time, and potentially counterproductive if the process creates rigidity in the company. However, this tool helps preserve partner happiness. An effective long-term strategic planning process requires partners (and their leadership team) to debate and determine a unified course of action for the business. Their decisions are summarized in a written document—the strategic plan—to share within the organization to increase buy-ins and enhance accountability. Without an effective planning process, partners often find themselves pursuing individual initiatives and ideas, pulling the organization in different directions and undermining or outright sabotaging alignment. It’s fairly easy to become unhappy with somebody who is continuously rowing your boat in a different direction than the one you want to follow.

5. Financial Budgets

Just like many companies can grow without preparing business plans, many companies can grow and many partnerships can be happy for an extended period without preparing annual budgets. However, a well-thought-out and actively reviewed budget is an important tool to maintain good partner relations. Just as with a strategic planning process, the budgeting process requires partners to debate and determine how they will annually allocate and prioritize financial resources. The finished product—the written budget—serves as the financial song sheet for the partners (and their leadership team) to sing from. In organizations lacking a healthy budgeting process, partners likely find themselves engaged in an ongoing tug-of-war over the next surplus dollar and discretionary expense.

6. Regular Partner-Only Meetings

Partners of small- to medium-sized businesses are notoriously inconsistent about conducting regular meetings for just the company’s partners. Many partners are comfortable dispensing with the formalities of regularly held meetings, especially if all of the partners are actively involved in the business. When partners work inside the company, they may see little need for dedicated meetings for the partners separate and apart from the business’s leadership team, because they likely know most of what is happening within the company and are busy dealing with pressing issues and priorities.

Making matters worse, since the 1990s and 2000s, the limited liability company (LLC) has become the most prevalent legal form for businesses within the United States. Before then, the most common legal business form was corporations: regular C and subchapter S corporations. Corporations must have clearly designated boards of directors and officers and must hold regular owner (i.e., “shareholder”) meetings at least once per year. In contrast, LLCs usually are not legally required to name boards of directors and officers, nor are they required to hold meetings among owners (i.e., “members”). Thus, business partners today have even lower sensitivity to the need to hold regular partner meetings than was true in the past.

Without a regular, predictable, and safe forum to discuss partner-level issues, too often partners fall into the destructive pattern of leadership by committee. This blurs relationships, erodes accountability, and undermines trust. Regular partner-only meetings are the proper place to address partner-level issues. For example, “Should we sell the company?” is a partner-level question. In contrast, “Do we upgrade our photocopy machines?” is probably a management-level decision that not every partner needs to be involved in. It is difficult to maintain trust and good relations among partners if they lack regular, predictable opportunities for ownership-level conversations.

Conclusion

There are other ways in which business partners may grow unhappy with one another. Sometimes values fall out of alignment. Personal circumstances may change, spilling over into business relationships. However, the six tools discussed here are familiar and commonly recognized business tactics that too many partnerships overlook or skip past, wrongly concluding that these best-practices are unnecessary. Without these tools, the partnership relationship is weakly supported. Over time, cracks develop and compound, until finally one day you wake up unhappy and wondering what happened to the good times.

Download: “The Five Major Exit Goals Most Co-Owners Disagree About” eBook

To discuss your unique business, and how to plan for and achieve a successful exit,  Call 772-210-4499  or email Tim to schedule a confidential, complimentary consultation.

The Organized Mind Book Review

Periodically, I share a favorite book review from Readitfor.me.

There is never enough time to read all the latest books – this tool is a great way to learn and to stay on top of the latest topics and new ideas.

The Readitfor.me tool has grown into a great resource for both personal and team growth, offering book summaries, micro courses and master classes. Check out this link: Readitfor.me. See how these tools can help build you personal and Team Strength.

Here is a summary of the Book
The Organized Mind by Daniel Levitin.

There are many arguments for having a place for everything and keeping everything in its place.

Read on to learn how to use your mind – the most powerful tool you have – to focus on the work that’s most important to your success.

The Organized Mind 

by Daniel Levitin

5th Annual Consultation Offer

Are you thinking more and more about your future exit and realizing you have more questions than answers? Do you know what you want out of your exit but are unsure of the best plan to achieve your goals? Are you wrestling with your ideal time to exit? Unsure how to talk to your employees? Worried about your business partners? And what can be done to minimize taxes?

These are just some of the questions we commonly hear during the confidential, complimentary 45-minute consultations we hold with business owners to help them get ready for exit. For the fifth year in a row, this month we are standing by, ready to schedule a free consultation with you to answer your exit questions.

Feel free to watch this short video to learn more. Or, schedule your consultation here or by calling 772-210-4499.

Seven Signs You and Your Business Partner Are Not on the Same Page

 Register Now

If you have one or more business partners, you know it’s critical to be in alignment on your plan for the company, and your goals for exit. But many business partners are not on the same page, especially around what they want to happen at exit.

This webinar explores:

• The seven signs that might indicate you and your partner(s) are not on the same page
• How lack of partner alignment hinders or derails exit success
• Steps to take to get partners on the same page for exit

Check out our archive of all past NAVIX exit planning webinars:
Click here to view now

To discuss your unique business, and how to plan for and achieve a successful exit,  Call 772-210-4499  or email Tim to schedule a confidential, complimentary consultation.

Five habits and misconceptions that commonly hinder owners from achieving successful exits

Dear Business Owner,

You might not like this letter. Reading it could help make you a large amount of money, save irreplaceable time, and avoid an inestimable amount of stress. But you still might not enjoy reading this because it contains some facts you may find hard to hear.

Our company does exit planning – we help business owners define their exit goals and then design and implement plans that achieve those goals. In our work, it’s common that one of the major obstacles to the owner achieving exit success is the owner him- or herself. Yes, often fr comprise a large part of the problem. We usually don’t say this so bluntly because getting fired for tactless speech helps neither the client nor us. But the common reality is you – or more specifically, your habits and misconceptions – are a significant barrier to exit happiness.

Before explaining how and why you may be making your own exit harder, please know that by pointing out these issues, we are not criticizing your effectiveness as a leader nor overlooking your company’s accomplishments. You’ve built a fine company, otherwise you would not be reading this. However, building a business is a different process than exiting from a business. And just because you have built a strong company does not mean you will have a happy exit. If the reverse were true, every successful owner would have a successful exit; clearly, this is not the case. The root issue is that many owners unknowingly do certain things (or don’t do certain things) that undermine or even block their own exit success.

So what habits and misconceptions commonly hinder owners from achieving successful exits? Review the list below to spot the ways you may be hindering your own exit.

1. Remaining involved in day-to-day operations – If your company depends on your skills, knowledge, and/or experience to get the daily job done, that dependence will become a serious problem when you try to exit. Your company must be able to run smoothly without you most of the time, otherwise it will likely be worth less to a buyer and/or may not survive your exit. Undoubtedly you are good at what you do, and perhaps in the past you had to be inextricably involved in daily operations to ensure the company’s survival. But that’s in the past. To exit successfully, you must create and lead a team that can handle most operational issues without your supervision.

2. Remaining involved in business development – If your company cannot find and acquire new customers without your help, that, too, will present a problem when you attempt to exit. Your company’s sales power cannot walk out the door when you do, otherwise the company’s value to a buyer decreases and/or the company might not survive past your exit. Just like with operations, if you are currently involved in sales, it’s probably because you are good at it and perhaps even like it. But prospects and customers must have a whole team with whom they can do business, not just you. Extracting yourself from business development, all the way from lead generation to closing the sale, is imperative to exit success.

3. Not talking about your future exit with your top employees – Many owners treat their future exit like a “dirty little secret” (as a client once called it) and feel pressured to hide it from their top employees. That’s understandable because your exit has the potential to be a “I-win-you-lose” situation – you exit happily while they struggle with career uncertainty. The conventional wisdom, therefore, is to withhold your exit from your team until the last possible moment. That approach limits honesty, feeds paranoia, and hinders building company value. The better method is to identify your trusted co-leaders, find the win-win, and engage them in the process. This restores honesty, builds trust within your team, and creates alignment with everybody working to achieve a successful exit.

4. Not tracking performance against financial and operational metrics – When you go to exit, your future buyer or successor will want to see that the company has performed well over time and can be expected to continue doing so. Perhaps the best way to create confidence for buyers or successors is to show positive results in writing against key leading metrics and compelling goals. Examples of ways to define and track key results include:

• Creating annual budgets and measuring performance periodically throughout the year
• Building operational or sales dashboards and keeping score every week or month
• Publishing long-term strategic growth plans and tracking performance against the strategic objectives each quarter or year

Many companies do not do this work, in part because it takes commitment and resources. Another reason some companies skip these steps is because their owners feel these efforts are unnecessary. Many owners are entrepreneurial at heart, and while they enjoy the creative challenges of leading a company, they do not enjoy the regular responsibilities that come with managing a company. Examples of tasks more managerial in nature include defining company goals, identifying leading indicators, diligently tracking results, and holding individuals and teams accountable. Consequently, if the owner(s) do not focus on this work, often the rest of the organization overlooks it as well. Carry this oversight to your exit, and you may find it hard to get maximum value and achieve a stable exit if the company’s ability to perform well is unproven or unclear.

5. Waiting too late to start your exit planning – Too many owners put off preparing for exit, often waiting until perhaps a year or two prior to when you would like to exit. That’s too late. Many of the accounting, tax, legal, and business exit tactics that can enhance success take years to implement and reach their full effectiveness. Plus, preparing for exit takes a considerable amount of time. If you cram all of the required work into the final 12 to 24 months prior to exit, you risk taking your eye off the company’s performance exactly when you can least afford it.

It’s common sense that the less time you have to prepare for exit, the lesser your results may be. Once you reach the point where you intend to exit in the next five years, serious exit planning and preparations must commence as soon as possible. To better understand the time and effort typically required to prepare for exit, download our free ebook, “Your Last Five Years: How the Final 60 Months will Make or Break Your Exit Success.”

Congratulations on completing this open letter with an open mind. We wrote it out of a genuine desire to help you achieve a successful exit. Realizing you may be part of the problem clears the way to implementing a winning exit plan.

Sincerely,

Your Exit Planning Team at NAVIX

To discuss your unique business, and how to plan for and achieve a successful exit,  Call 772-210-4499  or email Tim to schedule a confidential, complimentary consultation.