by Bill McBean
Planning and People at Level 5
At Level 5, as with every level in your business’s life cycle, in order to get what you want when you want it, you have to make plans. That means you have to gather the appropriate information, analyze it, develop the plan, and then implement it, just as you’ve always done. Interestingly, in some ways the exit plan you develop at Level 5 is similar to the plan you developed at Level 1. This is because both plans are about creating an opportunity for yourself—at Level 1 it’s about buying, and at Level 5 it’s about selling. The big difference is that by the time you’ve reached Level 5 you will have become very skilled at the art of planning, and that gives you a real advantage. Your understanding of the process not only gives you an edge with a buyer who may be less skilled, it also provides you with the kind of knowledge you need to pick the right successor.
It’s important to remember, though, that even while you are making your exit plans, you must continue to make sure your visibility is high by watching over the monthly business plan and objectives, applying pressure where necessary, and seeing to it that your managers are appropriately focused on the day-to-day blocking and tackling to obtain the overall results you want. This is essential because no matter how carefully you make your exit plans, they often take longer to work through than you expect them to, and in the meantime the business has to keep operating at a high level. If you neglect the ongoing operation of the business, you are likely to find the company going off course in the absence of the leadership and input your staff has come to depend on. And the longer the exit process continues, and the more your employees—especially your key employees—feel your detachment and lack of focus, the more the business will drift off course and the sooner it will begin to slip backward.
As at all the other levels, people are important at Level 5. However, at this point the most important people are not the company’s employees. Rather, they are the people the owner surrounds him- or herself with as the exit process moves ahead. Foremost among these are attorneys who have experience handling business buy/sell contracts or legal succession issues, and accountants who can provide tax advice and tax planning. The importance of these professionals and the advice they can offer should never be minimized, as they can protect you from both heartburn and heartache well beyond the sale or succession. For example, as a seller, you have to protect yourself from any problems the buyers may have after the sale, and you will want strong legal language in the agreement guaranteeing that you will be held harmless in whatever the new owner may get involved in. Similarly, having an accountant work with you before and during the sales process, and then filing your tax returns, will usually lessen the chances of a battle if the government tax collectors want more than you paid.
Some owners also hire brokers to help them find buyers from outside the local area, price the business, negotiate the transaction, and keep it quiet and relatively rumor free. Some owners also hire experienced negotiators or mentors to help them set up the negotiations and get them started, while others rely on their own skills to price the business, pick the best buyers, negotiate the sales contract, and so on. This is usually a personal decision based on the owner’s comfort level. But what can’t be understated is that once the business is sold, it’s gone, and a serious mistake during the negotiations or in the contract will be very difficult if not impossible to undo. That means the people you surround yourself with to guide and protect you through the process should be of the highest caliber you can find or afford. This is true for both sales and succession scenarios, but in some ways it’s even more important in the latter. That’s because in a succession family dynamics are at stake, and, as with selling, sometimes things can’t be undone, and sometimes family members will neither forgive nor forget.
Marketing and the Customer
When you’re in the process of selling your business, it can be tempting to back off on marketing and advertising. After all, once you’re out of the business you don’t have to worry about the future, so why not let the new owner worry about it. However, until the money is deposited in your banking account, your business hasn’t been sold, and since any number of things can keep that from happening, why take the chance? Moreover, it’s important for the buyer to see, as reflected in your financials and sales figures, that the business isn’t slipping backward. Not surprisingly, a buyer is likely to see a business that’s falling off in a less positive light, and may start looking for ways out of the deal. And if you are planning a succession, since the objective is to make a transition as seamless as possible, backing off on your marketing would not, under normal conditions, be considered a wise thing. In fact, in some cases ramping up marketing may be the best way to go, using it to promote the fact a new generation is taking over.
Selling a business, turning it over to a successor, or closing it down is never easy and always has emotions attached to it. The fact remains, however, that eventually it will be your time to move on. The choices you will have are simple—do it under your terms or have it forced on you one way or another. But choosing the way to make your exit and when it should happen are important decisions, and ones for which you should seek professional advice. If it’s done right, it’s a great feeling, but if it’s done wrong, it will haunt you. In the end, it’s a decision that only you can make, but if you prepare yourself so you know the road ahead, and where the bumps and curves are, it’s much more likely the choice you make will be the right one for you.
As you can see, the five levels of business that every successful company goes through are not only progressive in nature, they also serve as building blocks to create a strong foundation for the company. It’s this foundation, carefully built up one layer at a time, that gives a business the kind of strength it needs to not only become successful but to stay successful. As an owner, understanding this concept provides you with a scorecard that enables you to recognize where your company is in the business life cycle, what you can expect to happen, and what you have to do to develop and maintain success. It also enables you to understand that although the Facts of Business Life in themselves don’t change, how they are applied changes as the business moves from one level to another. And that is essentially what the remainder of this book is about.
Chapter 3
Fact 1: If You Don’t Lead, No One Will Follow
The words leader and leadership have become part of our everyday language. But as common as these words are, the reality is that among businesspeople, real leaders and leadership are very uncommon. Leadership is one of those things everyone believes a successful business has to have, but few people understand why, or what leadership actually is. The bottom line is, if you’re an owner or about to become one, with money and pride on the line, you have to know what leadership is, and be ready to put it into practice. If you don’t, the likelihood of your business’s surviving is slim. And even if it does survive, at best only a small percentage of your business’s potential will be realized.
Of course, leadership is not only a business issue. One extraordinary example of leadership is the story of Apollo 13, the NASA moon mission launched on April 11, 1970, and later chronicled in an Academy Award–winning film. When an oxygen tank exploded two days into the mission and the crew was put in grave danger, it was flight director Eugene Kranz and mission commander James A. Lovell who stepped up and provided the leadership needed to save them. When Kranz insisted that “failure is not an option,” it set up a leadership chain of events, from properly analyzing the overall situation, to focusing on the right issues, to picking the best of the worst choices, to solving each problem in an orderly fashion. He pushed people to their limits, stood firm in the face of adversity, and motivated and challenged the NASA crew to do what some thought was impossible. Commander Jim Lovell, on board the command module, picked up the flight director’s lead, and despite the crew’s dire circumstances, remained optimistic, refusing to give up. Leading by example and maintaining a firm resolve to overcome every challenge
and setback, Lovell continuously worked to find ways to save the mission. In the end, it was these two men’s leadership that enabled NASA to get the crew safely back to earth.
Unfortunately, many businesses wind up being “lost in space,” often because, unlike Kranz and Lovell, their owners don’t step up and provide them with the leadership they need. What’s worse, these businesses frequently end up being replaced by other businesses that also lack leadership, and they fail as well. And the cycle goes on. However, when a leader takes on an ownership role, things change because leaders are willing to make the hard choices, stand by their beliefs, and fight and win the battle for success.
The fact is that leadership is important not only in business but in any endeavor that depends on a group of people working together toward a common goal. Whether you’re talking about a space mission, a business, a sports team, a nonprofit organization, or a church, no matter how skilled the employees or players are, or how devout the congregation may be, they all need direction, coordination, discipline, and someone to make the hard choices so they can move forward and flourish. Without a leader who can create order out of chaos, will be accountable, is able to prioritize and select a path, and can separate the “must have” from the “like to have,” an organization will simply cease to move ahead. This is the essence of leadership, and the better the leader, and the more leaders an organization has, the better the outcome. And in a business, if the owner doesn’t lead, no one else is in a position to do it. As in every other kind of organization, everyone in a company looks to the owner to define what the future is and to take them there. And this is one of the roles that an owner cannot shy away from.
The good news for owners is that leadership isn’t genetic. It’s a self-taught skill that people can develop, and the more one uses it, the more honed his or her leadership skills become. That is, the skills get better the more you exercise them, and combining those skills with increased business and ownership experience can provide an individual with an extremely powerful business tool. I have known a lot of successful individuals who are great leaders, and none of them started out intending to be leaders. Circumstances and their career choices forced the leadership ability within them to surface, and they had the courage and self-confidence to exercise it. In fact, in his book On Becoming a Leader (Addison-Wesley, 1989), Warren Bennis wrote, “More leaders have been made by accident, circumstances, sheer grit, or will, than have been made by all the leadership courses put together.” That’s not to say, of course, that leadership courses aren’t important, but that leaders often emerge when circumstances demand it rather than as a result of formal training. This is a very significant point, and one that is usually forgotten when leadership is discussed.
But it’s one thing for a business owner to know leadership is important, and quite another to know how to implement it in his or her business. The first step toward doing that, though, is developing a working definition of what leadership is. In Managing for Dummies (IDG Books, 1996), Bob Nelson and Peter Economy distinguish between managing and leading by saying, “Managers push their employees to achieve the goals of an organization,” while leaders “challenge their employees by creating a compelling vision of the future and then unlocking their employees’ potential.” They also say, under a section titled “What Leaders Do,” that leaders “inspire action, communicate,” and “support and facilitate.” In my own mind, leadership means defining the future, clearly stating the goals, and taking everyone there, and then, when they arrive, redefining the future and starting all over again. Leadership is, of course, much more than a definition, but it has to start with your defining what it means. You can borrow a definition from someone else or create your own, but regardless of where you get it, you must know what leadership is before you can go out and do it.
There are essentially five characteristics of great leaders. The first of these is being flexible. Not everything goes as planned. Competitors change tactics, governments force new regulations on business, strikes stop the flow of products, and, occasionally, natural disasters occur. And at times like these, leaders have to be able to change course; that is, first make sure their businesses will survive, and then find a new way to reach their goals. The second characteristic is being able to communicate. Some leaders are great orators, but speaking well isn’t all that’s required of a leader. As we all know, there are lots of people who talk a great game but deliver nothing. Leaders who communicate well are those who not only share their thoughts with employees, but also let their strength and personal character show through in their communication, and empower those who work for them by defining the company’s goal and showing how to get there. A third characteristic of great leaders—or, perhaps, group of characteristics—is having courage, tenacity, and patience. Having the courage to stand alone, the tenacity to not succumb to pressure, and the patience to keep fighting until you win the day—and sometimes being able to do all three at the same time—is something you will have to develop if you want to be a true and successful leader.
The fourth necessary characteristic is the combination of humility and presence. Acting aloof, or above your employees, does not make a leader. Leaders have to be able to talk and listen to their employees on all levels of the company. At the same time, they must have the respect of their employees, the kind of respect that’s earned by being honest, having integrity, and being tough but fair. The fifth and final characteristic of a successful leader is being responsible. A business owner has to realize that, as the saying goes, “A skunk stinks from the head down,” and a business does too. This means when there is blame to be accepted, the owner must be the first one to accept it. But it also means that when accolades are appropriate, they should be spread out among the employees. And when this happens, a leader is born.
The Benefits of Leadership
Being a leader enables you to be effective and efficient in determining your company’s destination and creating a team that focuses on getting it there.
Being a leader means defining and exhibiting moral and ethical courage and setting an example for everyone in the company.
Being a leader helps you teach leadership skills to your employees, who will then help do the “heavy lifting” of moving the company from where it is today to where it needs to be in the future.
Being a leader enables you to recruit, hire, and promote employees who demonstrate leadership abilities.
Being a leader forces you to analyze your own strengths and weaknesses, as well as those of the company, and enables you to develop a good sense of reality.
Being a leader helps you dictate appropriate employee conduct while, at the same time, preventing employees from being too tough, ruthless, or mean to other members of the staff.
Being a leader helps you emphasize the value of the company’s customers, how they are treated, and the importance of their returning.
The Realities of Leadership
Your company can meet the goals you establish only if you lead the way by motivating and encouraging your employees to become a coordinated team focused on the destination.
When you are leading your company into a “New Frontier,” because neither you nor your employees have been there before, mistakes, miscues, and inexperience add to the challenge, and your leadership is key to meeting that challenge.
You have to understand and be good enough at leadership to teach it to your employees, both by example and by coaching. The more leaders you can develop, the stronger the business will be, and the less you will have to worry about how the business is operating.
In exhibiting leadership, there are essentially three things you must accomplish if you hope to make the company a success. These three things don’t represent every facet of leadership, but they do form the foundation on which leadership is built and are an integral part of leadership at every level. The first of these is achieving the objective. This is not something you, or anyone, can do alone, which means you will have to work with ot
hers to accomplish it. The second is building and maintaining the team. Saying you need a team to accomplish something is one thing, but developing one, and consistently encouraging and motivating it, is something else, and something you must do. The third and final thing you have to do is develop individuals within the company. In order to accomplish this, you must lead by example, teach employees what leadership means so they can teach their direct reports, establish an environment for success by eliminating excuses, recognize when jobs are well done, have the courage to make the tough calls, and encourage empowerment within certain parameters, among others.
Leadership may mean different things to different people, but in a business, leadership must always start with the owner, who has to define exactly what leadership means to him or her, and then decide what success means to the business. However, being a leader also means articulating that vision to everyone else in the company, convincing them of its importance, and encouraging and motivating them to work together to achieve it. And while doing so may come more naturally to some than to others, it’s never easy. In fact, as Vince Lombardi, the legendary Green Bay Packers coach, once said, “Contrary to the opinion of many people, leaders are not born. Leaders are made, and they are made by effort and hard work.” If you want to give your business a good start toward success, it has to start with leadership, and leadership has to start with you.
Level 1: Ownership and Opportunity
Leadership is, of course, usually thought of as one individual providing guidance and/or direction to a group of other individuals. At Level 1, though, because there is no business yet, and there are no employees, there are no individuals other than you. That does not mean, however, that leadership doesn’t play an important role at this level. In fact, it plays a critical role, because if you do not exercise leadership, there will never be a business. It’s leadership, in the form of what I refer to as ownership and opportunity, that ultimately leads to the creation of a business.
