At some point you recognize it’s time to get out of the business. Maybe you’re tired of the work or maybe you’re tired of the stress or maybe you’re just plain old tired. Regardless of the reason, it becomes time to get out. And although there are generally two paths to take, sometimes there are three.
The first path is to sell your company to an outsider or a strategic buyer. The upside of this approach is that you typically walk away with a check for the majority of the price (often you won’t get all up front) and you get to walk away from the business. The downside is that you put your hard-won business in the hands of a stranger to do with as they like – including changing the business and letting people go.
The second path is to sell your company to an insider – one or more individuals (family members or key executives) already in the company. The upside of this approach is that you’ll be leaving the company in the hands of someone who already knows the business, is aligned with the culture you’ve established, and is known by the people you employ. The downside is that you’ll almost never get a check for the value of the business and will have to rely on future cash flow in order to get paid. It also requires you to keep tabs on things (as best you can) to ensure they don’t go too far astray. Of course, there are several other approaches to handing your business off to insiders, such as an ESOP, but not every company is a good candidate for them.
But for some companies and owners there is a third path to take. The third option is to keep the business, have someone take over the running of the business so you can step away, and draw out the value of the business over time. The upside of this approach is that you retain full ownership and control of the company, the culture and the people remain intact, and you get paid in full over time. The downside, of course, is that it requires you to have/find someone to run your company with having ownership in it. Typically, they’ll need to be well-rewarded for doing a good job – which cuts into your profits but leaves you free from all but the most important decisions.
The challenge is that frequently, that key person doesn’t yet work for you. So, in order to use this third option, it becomes imperative to find and develop that key person. Here’s what you can do to accomplish that:
Step One: Develop an Ideal Successor Profile
Become clear on the competencies and personality traits needed in order to successfully lead your company. Competencies can be developed, but a person’s personality is what it is.
Step Two: Find and/or Attract the Best Candidates
Write a “job” ad that reflects the personality and cultural fit you’re looking for, not just years of industry experience. Sources of candidates can be recruiters, job boards, social media, and competitors. If you’ve crafted a position description well, you’ll attract great candidates and not just people looking for a paycheck.
Step Three: Evaluate and Assess Traits
Much of what you’re looking for won’t appear on a resume, so you’ll need to ascertain a candidate’s fit by a) asking good questions, b) listening well, and c) being observant. In addition, it can be helpful to conduct a social style profile assessment to help you determine their personality traits.
Step Four: Assess and Develop Competencies
Once you’ve chosen a successor, it’s essential to objectively determine their leadership strengths and weaknesses. A 360 assessment will reveal areas needing improvement. Competencies can generally be improved within 6-12 months. This development is best done by someone who is unbiased and objective, such as an experienced executive coach.
If you’d rather not sell your company to an outsider, the best thing you can do to maximize the likelihood of success is to become clear on what kind of person is needed at the helm and then objectively assess them, so their weaker competencies can be improved.