Succession and Growth: Everything May Not Be As It Seems
"What are your goals?" is the common question I present to clients and prospects.
"We want to grow," is the common response I get from business owners who have found a way to make decent money in indecent times. And as though we were talking about buying filters for an air conditioner, they continue with, "and we would like to pick up a couple, three maybe four more locations. We know the management formula; all we need are the deals."
This has been happening so frequently that I rarely pursue dialogue on the subject as if I did, it would take up all my time. I just generally state, "That's impressive. Good luck, as I understand from first hand experience that growth can be fun, and growth can also be a challenge." In light of more pressing subjects on the agenda, I rarely press my opinion regarding succession and growth. So I'll give it a shot here.
I have been kicking around the patch long enough to know that buying more stores may appear to be fun and exciting from the sidelines, but in reality it can cause a great deal of stress. Adding new stores means that resources (time, people, and money) will be stretched, predictably pushing people out of their comfort zone and potentially creating shortfalls in the resources required to successfully operate the original, core business.
I contend that growth without appropriate forethought and planning can be bad. The fact is that an untimely or inappropriate stretching of resources in a highly competitive, unforgiving market place can jeopardize the continuation of success.
The fundamental imperative for growth is a strategic plan that aligns the perceived benefits of growth with the expenditure of resources and exposure to risk that the growth will require. Strategic planning is admittedly a general term so allow me to point you in the right direction. Give the following questions some forethought prior to jeopardizing your succession by reaching out to achieve what you perceive as a higher level of success.
- What is the purpose for your growth? What is the payoff for the stress and risk you will endure? Is this all about your ambition? In order for you to be successful at a challenge, you must have a purpose for the commitment that will impassion not only you to complete it, but also those you will depend upon to "pull the rabbit out of the hat." Just as a GPS can't get you to your destination if you don't enter an address, leadership has no direction without a purpose.
- Are you a very good or great operator? Are you a conscious competent that can replicate your operations across distances, franchises, and cultures? Or are you among the fortunate who have prospered due to circumstances? A truthful answer to this question could save a lot of headache, heartache, and succession trauma.
- Do you have the support of family and senior management to grow? Are family and senior managers willing to commit their resources or are they just patronizing your ego? Do you have the support of franchisors; would they approve you without reservation? It's better to figure out this support issue now because it is a terrible thing to buy a deal only to discover when you start pushing that you are the only one out of the wagon trying to make it move.
- Do you have the capital to grow? Do you have the excess capital that can be lost without handicapping your core business? Are you capable of putting in more capital if the growth is more costly than expected? Will an acquisition require debt? If you are planning to rely upon finicky banks to buy more deals you should strongly consider the merits of better versus bigger before you start up this rocky trail.
- Do you and your senior managers have the energy and emotional capital for growth? You must ask this question of yourself first before you ask it of others. If you're not in the game that could put your personal financial security and succession at risk, there's no point in asking others to be. What about your senior managers, are they too old or too set in their ways for the pace of growth? Do you and your senior managers have the energy to devote to building a new business?
- What is a reasonable location for growth? How far can you and your senior managers realistically travel and still fulfill reasonable management and oversight accountability? What impact will the absence of your senior managers have upon your current operations? Are your managers culturally compatible to this area or will you be dependent upon local yokels? Consider this formula: good performance + 100 miles = frustrating mediocrity. Is the risk and stress worth mediocrity?
- What size of deal can you realistically pursue? What size business do you know how to operate? Will an acquisition require learning something new or are you ready to operate the day you write the check? If you are talking about learning to operate a new size of business, the price of a new deal may be unrealistic tuition.
- Do you have the bench strength to grow? Will your core business suffer from diverting members of the supporting management team to the new deal? Who specifically will you rely upon to make this deal work? Will you be relying upon a disciple who shares your core values and policies or an employee who will be experimenting with your money?
- Do you have formal processes and procedures that will be relied upon in your new acquisitions? Could you have an expectation that all of your stores would be operated in the same fashion? Would your processes and procedures include "non negotiables" that define the organizational character that will be representing you and your legacy?
- Do you have the technology to effectively supervise and facilitate the operations of a distant business? If not, should you plan to master this new technology before you buy or is this something you can learn on the go? When you buy a new deal you will have plenty to do besides figure out how you are going to measure performance and control the money.
It does appear reasonable that when success is achieved, it is natural to seek growth and improvement. From my perspective, many of the criteria for succession and growth are the same. However, as discussed above, there are conflicts of interest between succession and growth. Therefore, forethought regarding the issues to growth is a key to success.
Loyd H. Rawls, President/CEO of The Rawls Group, has specialized in succession planning for closely-held, family owned businesses since 1973. For more information, visit www.rawlsgroup.com.
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