Your ingenuity, passion, processes, and a little bit of luck are likely the elements that allowed you to build a successful business. When you’re as deep in the weeds as many business owners are in running their businesses, it can be easy to ask, “Why would anyone do this differently when my way works so well?”
But as you begin planning for and approaching your inevitable business exit, you are likely going to confront successors who have very different ideas about how to run your business successfully. It may be easy to disregard these ideas and point to the way you’ve done it as the way for them to do it. However, this attitude can create more problems than it solves.
Let’s look at a fictional but representative example to illustrate why it’s so tempting to resist new ideas, how business owners can become more comfortable with giving up control, and when business owners should feel compelled to stick to their guns.
The New Way of Working
Marcy and Mateo Maggio were coming up on 30 years of owning their boutique investment-consulting business. The Maggios instituted a highly formalized, “old school” business style for their employees: in office, arrive early every single day, no excuses for not meeting deadlines and expectations, and grueling work hours. Over 30 years, this allowed the Maggios to build a tight-knit workforce with minimal turnover because potential employees who weren’t good fits were filtered out early.
But recently, the Maggios began to sense a change among their intended successor, their son Giuseppe.
As the Maggios gave Giuseppe more responsibilities in running the business, they noted differences in how he intended to run the business after they left it.
Giuseppe made it no secret that he wanted to modernize the business’s culture. He began to encourage less formalism throughout the workday in favor of an attitude that said, “I don’t care how you do it as long as it gets done legally and properly.” He proposed ideas that were anathema to his parents: opportunities to work from home, more casual dress in the office, and a less stringent performance review process that gave employees more leeway in fulfilling their work obligations.
Giuseppe’s desire to modernize the business also included introducing strategies to attract younger clients that the Maggios did not trust or did not understand. For example, Giuseppe wanted to explore partnerships with popular prediction market companies, arguing that “Gamblers need financial advice too, and this is a way to get our name out there.”
As time went on, the Maggios began to wonder if transferring the business to Giuseppe was the right decision. They approached their Advisor Team to determine what the next steps should be.
Passing the Torch Without Losing the Flame
It’s possible, even likely, that the successor that you choose for your business will do things differently than you did them. That’s because once you begin transferring ownership in your company, you are essentially giving up control.
For business owners who have been the hub of their business for a long time, giving up control can be a monumental challenge. However, it’s important to consider how your successor’s leadership style can affect your own successful exit.
In the example above, some of Giuseppe’s business modernization ideas made sense in context. For example, his desire for more flexibility in where people work aligned more closely with the younger cohort of employees that Giuseppe was looking to hire. It would position him to attract good, young talent early, and build his own stable of next-level managers, just like his parents had done over the last 30 years.
But his other ideas, such as pushing for his investment firm to partner with prediction market companies as a means of advertising, were indeed things that could have done irreversible damage to the business’s image, trustworthiness, and performance.
Situations like these create opportunities for business owners to leverage their Advisor Teams for their experience and objectivity.
Giving Up Control Without Compromising Too Much
The gut feeling that the Maggios had was to not transfer ownership to their son because he wanted to do things so much differently than they did. So, they asked their Advisor Team if they should reconsider Giuseppe as their successor.
Their Advisor Team helped them overcome their resistance to some of Giuseppe’s modernization ideas. For example, the advisors presented the Maggios with studies that showed how flexibility in where people work can improve their performance, open a wider pool of high-quality employees outside the business’s physical office space, and reduce employee turnover.
When the Maggios argued that their method already produced low turnover, the Advisor Team explained that there can be different ways to reach the same successful conclusion, and this was a good example.
However, the Advisor Team also reassured the Maggios that some of their concerns were valid. This was the case with Giuseppe’s idea of partnering with prediction market companies. The Advisor Team explained to Giuseppe why it would be so risky and why it would not be worth any benefit to take such a tack with the company’s advertising.
“Your clients tend to be extremely responsible with their finances,” they explained to him. “If they see you advertising to people who are financially irresponsible, it may affect how much they trust your company, whether it’s fair or not.”
Building Your Legacy Gracefully
You should expect that you will not agree with every decision that your successors make regarding your company. But that doesn’t mean that you need to choose a different successor or take back control just because you have a disagreement.
Instead, with the help of your Advisor Team, you can implement strategies that guide your successors toward success, away from strategies that can cause undue harm to the business (and your post-ownership plans), and still allow your successors to make decisions as business owners.
This is where your Advisor Team’s objectivity is especially valuable. A successor may not want to hear from a current owner, “You shouldn’t do it this way.” They may interpret that as a resistance to new ideas. On the other hand, an Advisor Team, which has a duty to act in the business’s best interest, may be able to better frame this as prudent business advice rather than an outgoing owner trying to impose their will on the business even after they leave it.
An Advisor Team can help guide you through these difficult conversations with successors, helping position you to achieve your goals in the context of transferring your business to a successor who may do things differently from how you do them.
Conclusion
Sometimes, successors will do things in ways that you would never consider. In order to truly exit your business, you may need to come to terms with the fact that there is more than one way to achieve success.
This doesn’t mean that you necessarily need to accept every change that a successor wants to make. This is especially true if you intend to transfer your business to family. That’s because in transfers to family, you will likely receive payment for your company over time, based on the business’s profitability. So, if the new ways of doing things negatively affect profitability, it would be in your best interest to prevent those new things from being implemented.
But just because a successor wants to do things differently doesn’t necessarily mean that they are doing things wrong. The advantage of an Advisor Team is that they can look at your successor’s strategies objectively and help you determine whether those differences will do harm to your business and post-exit goals.
Although transferring business ownership is ultimately about giving up control of something that you’ve likely controlled for a very long time, it’s also a way for you to cement your legacy.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.
All scenarios and names mentioned herein are purely fictional and have been created solely for educational purposes. Any resemblance to existing situations, persons or fictional characters is coincidental. The information presented should not be used as the basis for any specific investment advice.