Letting Go Without Giving Up Control
What happens to your blood pressure when someone asks you about your "exit strategy"? Oftentimes, the term "exit strategy" stirs up emotions and fears tied to giving up control and "what's next." As a result, the question and necessary discussion are often ignored, leaving you as the business owner in the exact place you are hoping to avoid - vulnerable. As uncomfortable and overwhelming as it may seem to be, strategically discussing an exit strategy along with business vision and growth goals actually puts you in the driver's seat. Sort of like athletes retiring at the top of their game - you are now in control by choice rather than by chance. Just as the building of your multi-unit franchise business happened over many years, the most effective exit strategy is deployed over time and is unique to your personal and business interests such as:
- Creating flexibility to develop new business ventures
- Space to mentor and develop talent
- Opportunity to explore personal interests while remaining involved in the business
Exit strategies usually involve selling or gifting stock; which generally can bring on a wave of emotions related to giving up control. Selling or gifting of stock fulfills many strategies such as retaining key talent, reducing estate taxes, or simply transitioning ownership to next generation successors. Whatever the purpose, if you are struggling with the fear of letting go of control, consider the following:
By identifying a vision, mission, and developing a culture to support strategic goals, you ensure your influence continues to shape and point the organization in the direction you want it to go - whether you are developing new markets, new businesses, or taking time to enjoy personal hobbies.
Do you have a 3- to 5 -year strategic vision for your business? If so, are you actively reviewing and ensuring you have the necessary resources to support your goals? Do your process and procedures support or create roadblocks towards strategic goals? Is your strategic vision promoted throughout the organization - instilling a strong culture towards fulfilling the mission and vision of the organization?
Develop Operating, Management, and Organization Covenants
Covenants are developed through a process of identifying reasonable expectations to support whatever level of ongoing involvement or operational/managerial control you choose such as:
- Exiting day-to-day management but continuing to have operational final say;
- Entrepreneur's retirement: participate when you want to, and delegate decision-making power to an individual successor or board of directors.
Whether you choose to retain any actual ownership control or not, establishing covenants creates clear expectations regarding critical business functions such as chain of command, decision making, approach to communication, and operating protocols.
Operating covenants facilitate effective interaction between owners, family, and key management by confirming reasonable expectations regarding individual beliefs and practices about business operations. As such, they:
- Define communication procedures and timelines
- Define responsibilities (if any) for any non-participating partners (family members)
- Confirm decision making process
- Establish reasonable levels of accountability
- Establish agreed upon core values
- Define the management structure and areas of authority
Operating covenants provide you the opportunity to set the tone for effective interaction among all those who can or who are impacted by the business.
Management covenants, a set of agreements made among business owners, the management team, and employed family members, define and clarify management philosophy and culture. Much of the value of a business is in the management team who optimizes resources for the achievement of business goals. Empowering a management culture to achieve and sustain business success is a critical aspect of building a sustainable business, providing you a sense of control as you step away from the business.
Each management team member contributes to the development of management covenants. When completed, the covenants clearly state the manner in which individuals within the management team will:
- Interact through the chain of command
- Communicate information needed at each level
- Solve problems
- Confront each other and hold each other accountable
- Recognize the management structure and levels of authority
- Respect the management authority of assigned mentors and department managers (both from the owner and developing family members' perspective)
- Respect long-term values that put family gain above business gain
- Reaffirm the mission statement of the business and of the family business council
- Express mutual understanding that mistakes are learning experiences
These covenants are designed to express the relationship that is desired to be maintained in order to build and sustain a positive management environment. While not legally binding, these covenants empower everyone to take proprietary ownership, which increases the likelihood that they will be followed.
The adoption of organizational covenants is the ultimate initiative to bring teamwork to a closely held or family-owned business, even down to the newest employee. They set the stage for all employees to take an active role in establishing reasonable expectations for the organization, ownership, managers, and employees. The process of establishing these is similar to that outlined for management covenants.
Stepping away from day-to-day management or selling/gifting of stock does not necessarily mean you have to give up control. Your success in feeling comfortable to explore new business ventures, hobbies, or just get out, while ensuring your business is on track begins with establishing and building a culture around your vision, developing strategic action plans, and establishing foundational covenants. Strategically, stepping away from day-to-day management, developing and deploying an exit strategy puts you in control by allowing you to identify and develop a successor in the way you want them to lead. You will have provided existing and next generation owners, leaders, managers, and employed family members a road map for sustainable success.
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