In Part I of The Go Beyond Exit, we introduced our blend of the Go Beyond Way and the Exit Planning Institute’s (EPI) Value Acceleration Methodology.  We explored three of six guiding principles: embrace the truth, empty your cup, and a chart a course. This post examines the three remaining principles: do the work, eat your cake, and share the blessings. 

Review of the first three principles

Embrace the Truth is a clear-eyed examination of yourself (strengths, weaknesses, motivations, etc.) as well as your financial and business situations, taking all internal and external factors into account.  You must take off the rose-colored glasses, stop engaging in wishing thinking, and accept the facts for what they are.  

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Empty your Cup is a mental, psychological, and spiritual exercise to free yourself from misconceptions and preconceived notions about the economic value of your business and the process of transitioning.  The process also strips away self-assigned labels that chain you to the past and limit your thinking about the future.  A full cup has no room in left it for fresh learning or encountering Divinity. This step prepares you to receive new knowledge and the help you will need to have a successful transition from business ownership. 

Chart a Course asks you to envision the preferred future for your life and your business.  Note that your life comes first; the business exits to support the owner’s hopes and dreams, not the other way around.  Imagine what things will look like if you take no positive action; then think about the way things could be. Examine the difference and determine the actions necessary to arrive at the desired future state.

Do the Work

“Plan your work and work your plan.”  Napoleon Hill

During the previous steps you discovered that your company’s financial statements only tell part of the story and that intangible factors, such as human capital, customer capital, structural capability and social capital account for about 70% of the value of your business.  With your Value Advisor and Wealth Manager you developed a personal financial plan to determine how much money you will need for retirement and legacy goals and the steps necessary to protect and grow your personal wealth. With your Value Advisor, you developed a prioritized action plan to protect and maximize the enterprise value of your business.  Now it is time for the action part of Action Planning. 

“Without relentless execution, all your plans are pointless,” Chris Snider in Walking to Destiny.

When I was a young Army officer, I learned to look at a piece of terrain and visualize an unfolding battle.  Given my knowledge of the terrain, weather, friendly forces, my mission and the missions of higher commanders, and my understanding of the doctrine, tactics, weapons, and intentions of the enemy, I would consider the most likely and the most dangerous enemy courses action. The most likely enemy course of action was usually obvious, the most dangerous one – the one that would be most potentially devastating to my unit and my mission – required some imagination.  The former had the highest probability of occurring and the latter had the greatest potential negative impact.  Both demanded careful attention and diligent preparation, so they would be the first things for which I and my unit would prepare.  Time permitting, we would prepare for other potential enemy courses of action, working our way down the list from next mostly likely and next most dangerous.  Later in life I learned that all risk is a function of probability of occurrence and magnitude of impact.  A smart business owner prepares diligently for low-probability, high-impact threats to his personal well-being and the success of his business, as well as for high-probability events, such as death and taxes.

“Working hard is important.  But more effort does not necessarily yield more results.  ‘Less but better does.’”  Greg McKeown

In Essentialism: The Disciplined Pursuit of Less, McKeown introduced the idea of Minimum Viable Progress:  What is the smallest amount of progress that will be useful and valuable to the essential task we are trying to get done?  To help make his point, McKeown quoted John Maxwell, “You cannot overestimate the unimportance of practically everything,”

Will and energy to work hard by themselves cannot produce the results you seek.  First, it takes disciplined thinking to figure out what is essential, then results come from disciplined action. In his landmark book, Good to Great, Jim Collins introduced the concept of a “culture of discipline” consisting of disciplined people and disciplined action.

The transition to a culture of discipline “begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place.  Next we have disciplined thought.  You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness.  Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept.  Finally, we have disciplined action…. This order is important.” 

Collins explains that “disciplined action without self-disciplined people is impossible to sustain, and disciplined action without disciplined thought is a recipe for disaster.”

In conducting research for Great by Choice:  Uncertainty, Chaos, and Luck – Why Some Thrive Despite Them All, Collins and co-author Morten T. Hansen discovered a concept they came to call the 20 Mile March, hitting stepwise performance markers with great consistency over a long period of time.

“The 20 Mile March is more than a philosophy. It’s about having concrete, clear, intelligent, and rigorously pursued performance mechanisms that keep you on track.  The 20 Mile March creates two types of self-imposed discomfort: (1) the discomfort of unwavering commitment to high performance in difficult conditions, and (2) the discomfort of holding back in good conditions [so as not to become overextended.” 

Elements of a good 20 Mile March include a performance marker, self-imposed constraint, appropriate to the enterprise, largely within the company’s control, a Goldilocks time frame (not too short, not too long), designed and self-imposed by the enterprise, achieved with high consistency.  Top performers adopt a 20 Mile March, others make excuses of missing their targets in difficult times and overextend themselves when conditions are benign.

The Ugokashi (Setting Things in Motion), which EPI calls the Triggering Event, provides clarity in the form of a strategic enterprise valuation and prioritized action plans (one for the owner’s personal/financial goals and one for the business).  Prioritizing these actions ensures the owner and his team do the right things at the right time and in the right order.  In his chapter Relentless Execution, Snider urges business owners to get into the details:  who will be responsible, what are the options, what are the deliverables, where will the resources come from, what are the risks, what are the milestones that will demonstrate progress.  The order is important, first de-risking, then strategy and business model, then efficiency, growth, and culture. Other well-known value advisors have different ways to categorize these priorities, but they generally follow the same order.   

The Go Beyond Exit has a built-in 20 Mile March component.  The owner and his team relentlessly execute three to five actions off the personal/financial and business action plans in 90-day cycles. Snider calls them “sprints.”  Taking on more than five actions would overextend the teams assigned to them, especially given their continuing daily responsibilities in operating the business. Less than three actions per quarter would not accomplish the action plans quickly enough.  The consensus among value advisors is that 90 days is the Goldilocks time frame. Most of these projects will be too difficult to complete in less than 90 days, and longer cycles would slow progress to an unacceptable pace.

After the Ugokashi but before the 90-day sprints begin, the value advisor facilitates a series of workshops designed to educate and prepare the owner’s team for what’s about to happen.  Getting the team on-board is of major importance.  Many owners want to keep their transition plans secret, but management teams usually are not clueless.  Especially in businesses owned by aging Baby Boomers, key managers and employees probably already are making assumptions to fill for the information the owner is not sharing.  Owners usually want secrecy because they fear employees will opt to depart early; however, the risk of that approach is that without information, key employees may become frustrated, nervous, or both and do the very thing the owner seeks to avoid – leave for other opportunities. In fact, sharing information with key managers and select employees strengthens the owner’s hand because he can incentivize them specifically for their commitment to cooperate with his plans and to remain in place before, during, and after the transition. 

Eat Your Cake

Eating your cake begins with reclaiming your time as your own and investing it in non-work aspects of life.

You have worked hard, taken risks, and made sacrifices to make your business a success.  Why not enjoy the fruits of the investments you’ve made?  People usually think I’m talking about rewarding themselves financially, but that’s only part of eating your cake – and not the most important part.  Time is the one thing we can’t make more of.  You can always make more money, but you can’t make more time. Once a day, and hour, or a moment goes by, it is gone forever.  Eating your cake begins with reclaiming your time as your own and investing it in non-work aspects of life.

If you are one of those owners who feels like they can’t take a vacation, it is time to build and prepare a team that can keep the business operating smoothly without you.  In truth, doing so will make your business both more valuable and more salable.  You might need to make some staffing changes.  Collins discovered the “first who, then what” rule while doing the research for Good to Great.  Get the right people on the bus, and the wrong people off the bus.  The right people will be self-disciplined and self-motivated.  Get “self-disciplined people who engage in very rigorous thinking, who then take disciplined action within the framework of a consistent system” designed around your company’s carefully selected arena.

If you are running out of time, or don’t feel you can make all these changes, John M. Tepper — author of Walk Away Wealthy: The Entrepreneur’s Exit-Planning Playbook – suggests, “hire a COO and walk away.” He goes on to explain, “Find someone brilliant whose ideas are different from yours. Train him or her in every aspect of your company’s operations, and then turn the new boss loose – and stay out of the way.”  Perhaps a little drastic, but this is a definitive way to get yourself the space you need and to prove to potential buyers that the company can stand on its own without you.

Once you have the right team in place and working smoothly, start taking some days off.  Try taking long weekends or a regular day off during the week.  Experiment with being unavailable for consultation during these times.  Work your way up to taking a vacation of at least two weeks away from the company. Then invest that reclaimed time in something that builds up your identity outside of the business.

In Your Exit Map: Navigating the Boomer Bust, John F. Dini makes a few key points about stepping back from the daily running of your business:

  • “Take some time to seriously consider how you will spend your days.  It is more important than thinking about how you will spend your proceeds from exiting, although obviously the two are intertwined.”
  • “Business owners live in, with and for their businesses.  The absence of the daily stimulation of decision making, crises averted and small victories can leave a substantial emotional vacuum.” 
  • “The time to begin emotionally withdrawing from your business is as soon as you start planning.  Make a list of your tasks and responsibilities and identity areas that can be delegated.  Training subordinates to assume your roles not only helps prepare you for the transition, it makes your company more valuable to a buyer.”

Tepper dives a little deeper into the importance of stepping away with a great analogy, “If you think of your business as your child, then think about this:  Every parent’s job is to raise children who, one day, can go off into the world on their own and be successful while living independent lives. The alternative is having your forty-five-year-old “kid” living in your basement.  Your job as an entrepreneur is to “raise” a business that can run independently from you.”  Owner dependence drags down the value of a business, and it can be a deal killer.  Tepper adds, “… if you can’t find a way to take two weeks off from running your business (and I’m talking about being completely out of touch, not taking meetings via Skype from your beach lounger), you don’t have a business that can be sold on the open market.”  If you want to eventually harvest the value of your business, you must first give yourself space from the business and the business space from you.

Tepper suggests taking “concrete steps to become less involved in the daily operations of your business.”  The object is to make yourself expendable so the profit-generating activities that now depend on you can be outsourced to others.  “Your goal should be to become anonymous, no longer the face of the company.”  Stop thinking like an entrepreneur, and start thinking like a CEO.  Start engaging in only those kinds of activities a CEO would engage in.  Do only those things that only you, the CEO, can and should do.   Spend your time on the 20-percent of activities that are essential.

According to EPI’s State of Owner Readiness Survey, three of four former owners (those who were part of he successful 20-percent who sold their businesses) expressed dissatisfaction twelve months after the transaction.  Some of them had unrealistic expectations concerning how much money they would get from the sale of their business.  However, most of them were unhappy because they had failed to take care of one of three legs of their exit strategy.  According to Peter Christman, one of the co-founders of EPI, exit planning is achieved through developing a business transition plan that address three things:

  • maximizing the value of your business,
  • ensuring you are personally and financially prepared, and
  • ensuring you have planned for [life after business ownership]. 

The second and third legs require you, the owner, to establish some emotional distance between you and the business.  A major part of Eating Your Cake is stepping back from the business and setting yourself up for a future of financial independence and of personal, emotional, and spiritual fulfillment.  Pay attention to personal matters. Advisors can help:  a wealth manager or financial planner, an estate planning attorney, a life coach, personal trainer, and a spiritual director (minister, priest, rabbi, imam, or guru).  Of course, your Value Advisor is also a coach who takes a holistic approach to helping you prepare all three legs of the stool. 

Eating your cake is profoundly owner-centric.  Our holistic approach is designed to produce a satisfactory transition for the business owner in every dimension: personal, business, and – of course –financial. Now that you’ve done all the work to maximize the value and salability of your business, we want to ensure that you select the right transition option for you. 

Sit back down with your financial planner/wealth manager.

If you did your homework at the start of the process, you envisioned your preferred life after business ownership and estimated the funds required to see you through to your 100th birthday.  You examined your current assets and made investment decisions based on the advice of your professional wealth manager and your risk tolerance.  (Hopefully, you’ve been socking away a little more every month, paying your future self even before you’ve paid your bills.)  Then you, your wealth manager and your Value Advisor performed two gap analyses.  The wealth manager told you the net proceeds from the sale of your business required to fill the funding gap between your envisioned life after business ownership and the most likely future state of your financial assets. Your Value Advisor provided a strategic indication of value for your business and a path forward for growing the value to where you need it to be.  Now, sit back down with those advisors and do the analyses again.  Armed with these updated estimates, come up with a ball park number you’d be happy to walk away with. 

Keep or Sell

Time for a Keep or Sell decision. If your Value Advisor has been on his game, he’s been asking you to make this decision periodically throughout his engagement with you.  Does the latest valuation meet or exceed the estimate of what you will need?  If it does, good for you. The decision should be easy.  If not, you can decide to keep growing the value of the business — if you have the time and stamina.  Otherwise, you can decide to transition as soon as possible, but you will need to revise your expectations for life after business ownership.  That’s a completely viable and worthy option, if you’ve done everything to make/keep the business salable. If you decide to transition, it’s time to review your options with an eye toward getting the best deal you can.

Transition Options

Transition options basically come in two flavors:  inside options and outside options.  Inside options include transition to family members, sale to business partners, management buyout, and sale to employees — in particular an employee stock ownership program (ESOP). Outside options include sale to a strategic buyer (a competitor or somebody trying to enter your market or leverage your intellectual property) and sale to an economic buyer (such as a private equity group).  Initial public offering (IPO) is an external option, but it’s not realistic for most main street or middle market businesses.  Orderly liquidation is another outside option, but it’s usually the option of last resort.  All the options have pros and cons.  Chris Snider has a great summary of each option in Walking to Destiny.  Other authors, such as Burlingham, Dini, Long, and Tepper provide lengthy discussions of each option.

Of all the options, a strategic buyer would probably offer the highest sale price.  The next best option in terms of proceeds from a transaction would be sale to a private equity group.  Given that 80 percent of lower middle market businesses that go on the market never sell, most transitioning business owners likely will have to settle for an inside deal, which generally results in a lower sale price. However, the point of the Go Beyond Exit is you to experience success whatever transition option you ultimately go with. 

You can also sell part of the company, maintaining a controlling interest or not.  Give yourself a pay day, promote yourself from CEO to Chairman of the Board, and guide the business to further growth – “taking another bite of the apple” when the company is ready to attract a buyer with deeper pockets.

Keep this in mind. A deal consists of more than the sale price.  Greater satisfaction with your transition likely will come from hammering out the best possible deal terms rather than going for the biggest offer.  Regardless of the option chosen, it will have to meet criteria only you can define. 

In the late 1980s, I was commanding an infantry company in Germany.  My good friend Wolfgang was commander of a nearby German infantry company.  One day he shared with me a personal and professional dilemma.  He had to decide whether to continue in his military career.  If he left the military, he’d be expected to return home to manage the family farm. He was feeling considerable pressure to do the latter.  I told him the same thing I would tell you.  “You must choose the option that will enable you to look back in ten years without kicking yourself in the ass.”  It was with great joy that Wolfgang called me a few days later, “Tom, Tom! I have decided. I will be a soldier!” he exclaimed.  It was the joy is his voice that assured me he had made the right decision for himself.

Share the Blessings

From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked. (Luke 12:48 NIV)

A common thread in most of the world’s major spiritual traditions is that people are held responsible for what they have.  If we have been blessed with talents, wealth, knowledge, time, and the like, it is expected that we use them to benefit others.  Every person has the right and responsibility to pursue their own well-being.  That’s what eating your cake is all about.  Nonetheless, they have a moral obligation to do so, in so much as possible, without harming other people.  Moreover, every person has a moral obligation, in so much as possible, to act in ways that will benefit other people as well as themselves.  The basis of these obligations is respect for others, one of the pillars of the Go Beyond Way. 

Nothing is of any use unless it is for the benefit of others.

The cornerstone of the Go Beyond Way is love, unselfishly acting for the well-being of another. It goes beyond the Golden Rule of treating other people like we would like to be treated.  The moral obligation to use what we have for the benefit of others grows in magnitude with the level of blessings we enjoy. Those who have been “gifted” above the common level, should give more of themselves.  Support for this way of thinking extends beyond Judeo-Christian religious tradition.  If we delve into the teachings of philosophers and leaders such as Plato, Socrates, Jefferson, and Carnegie, we find strong affirmation of the position that the more one has in terms of things valued by human beings, the greater one’s responsibility to use those assets to the benefit of others.  In the major forms of Buddhism, generosity/ giving of oneself is a chief virtue.  In Zen Buddhism, generosity is not limited to money or material goods.  You can be generous with anything you have that you are able to give.  In fact, Zen teaches that nothing is of any use unless it is for the well-being of others.

Balancing generosity and self-interest before, during, and after the transition

Eating your cake and sharing the blessings, may seem mutually exclusive but they are not.  Most situations in life do not require jumping on a grenade to save another person’s life.  We all should strive to be mentally, emotionally, and spiritually prepared to save a baby from a burning building, but there is room in most situations both for being generous and engaging in enlightened self-interest. 

In Built to Sell:  Creating a Business That Can Thrive Without You, a parable about creating a sellable business by John Warrillow, successful serial entrepreneur Ted Gordon advises protagonist Alex Stapleton against acting on his impulse to issue stock options to incentivize his management team to help sell the business and to stay on after the acquisition.  “Instead, offer a simple stay bonus that offers the members of your management team a cash reward if you sell your company.  Pay the reward in two or more installments only to those who stay so that you ensure your key staff stays on through the transition.”  Ted points out that selling the business to a larger company will already benefit the key managers in the form of improved career opportunities and a better long-term incentive plan.  Sharing the blessing doesn’t require making an already complicated and difficult situation, i.e. selling a business, more complicated and difficult.  Simplicity remains an important concept.

You can’t take it with you.

After transforming your business from potential into actual wealth, you now have the challenge of doing something intelligent and meaningful with all that cash.  My good friend, William Boone Finnerty heads a wealth management practice for ultra-high net worth families.  Like me, he is a certified exit planning advisor (CEPA).  Will advises his clients to divide their assets into at least two buckets.  Lifestyle assets are managed like a pension fund in low cost and low risk vehicles. These assets provide a regular cash flow to fund the living expenses of the client out to life expectancy.  Legacy assets are managed like an endowment and invested in such a way that they will grow over the long term.  Legacy assets are destined to benefit others, most likely family members who will inherent them after the client dies.  At Go Beyond, we strongly recommend that business owners seek out an estate planning attorney and seriously consider establishing a revocable trust in addition to having a will.  Correctly crafted, a revocable trust will provide orderly distribution of your assets according to your wishes, keep those assets out of probate, and provide privacy for you and your heirs.  

Thinking beyond bequeathing wealth to family and friends, a portion of your legacy assets can be segregated for philanthropic purposes.  You can establish trusts or foundations that benefit the groups, organizations, and causes that are important to you, during your lifetime and afterward. Part of the Go Beyond Way is understanding that every action has consequences that ripple across time. The ultimate measure of a legacy is how will your life positively affect the lives of other people who will never know your name.

Final Thoughts About the Go Beyond Exit

The Go Beyond Exit is a fusion of the Value Acceleration Methodology and the Go Beyond Way.  The Value Acceleration Methodology, created by Chris Snider and promulgated by EPI, is a proven, practical, and effective framework for thinking about and navigating the process of creating what fellow CEPA Sean Hutchinson calls a Transition Ready Business.  It is an owner-centered approach to unlocking the wealth trapped in a business. Rightfully so!  The owner took the risk, built a business, and deserves to receive a return on the blood, sweat, tears, time, and treasure that they invested in the business.  The Go Beyond Way is a distillation of ancient wisdom about the nature of human beings and modern research about leadership and business.  It is strongly influenced by my own life journey and spiritual development.  The Go Beyond Way is other-focused — based on love, respect, trust, and teamwork in pursuit of a clear and compelling vision.  Bringing the two approaches together creates a recipe for improved business leadership, successful business transition, personal growth, and a happier life during and after business ownership.  You don’t need to be a Christian, a Zen Buddhist, or an adherent of any organized faith tradition to apply the Go Beyond Exit to your exit planning and value building program.  You just need be open to win-win thinking and to the idea of doing well while doing good.

To begin a discussion, please contact us.