Exit Planning--Structured Financial Partners: Building value for your company's tomorrow ℠

CEOs Must Work Hard to Retain Key People

We've said it here many times, but it can't be reiterated often enough. Whether a $10 billion business or a $10 million business, your Key Employees are critical to your value and your profitability.

In an interview with business guru Ram Charan in the December 27, 2010 issue of the Wall Street Journal, Charan drives the point home. He says less than 10% of CEOs are focused closely on profitable growth and suggests quarterly reviews of people the way the CEOs do quarterly reviews of numbers. He also believes that in addition, to financial rewards for profitability, key people should be rewarded for how many other leaders they produce.

Here is a list of Ram Charan's biggest talent-management mistakes:

• Leaders not held accountable for developing talent
• Performance assessments without candor or focus on developmental needs
• Failure to drill deep enough to know best staffers well and put them into "stretch" jobs
• Top management's serious lack of time commitment and energy
• Placement of loners in leadership jobs

So, why all this in a blog about Exit and Succession planning? Charan's work is with Fortune 500 companies and our work is with companies under $150 million in revenue, most of them between $10 and $30 million. What can we learn from Ram's teachings? Owners of these small Middle-Market companies want to get the best price when they sell their companies. Sometime before they sell they either have made or will need to make the transition from and entrepreneur–led to a management- led company. The development of their Key employees and their ability to develop leaders within the organization will add tremendous value down the road.

 

 

Like in Football, the Time Clock Matters in Exit Planning

Now that we are nearing the end of football season, a lot is still up in the air, but certain things have been decided. Those teams that got off to lousy starts and lost too many games early have been mathematically eliminated from making the playoffs. When the announcers talked about "do or die" games for those teams, they didn't.

When you look at the teams that are leading their divisions, they are great at the "two-minute drill." When the clock runs down, they have a plan to move the ball toward the goal line. They spend a huge amount of their practice time on perfecting execution of what they will do when the game hangs in the balance.

Business isn't always like football, but sometimes, we see parallels in our exit planning practice. In a perfect world, clients would come to us in their early 60s or earlier when they assume they have two to five years left to work with full vigor. But in reality, most wait until later, they wait until the two-minute warning.

Fortunately, in the transitioning out of one's business, it's not about winning or losing a game, but in preparing for the exit event, time gives one options.

We have recently taken on two client companies where the owners are 88 years old. For each of them their age causes similar problems:

• They want more for their companies than they are worth in today's market environment
• They are set in their ways and don't want to do anything differently to improve profitability and value
• They don't have time to ride out the market cycle and wait for sales and profits to improve and multiples to (potentially) improve
• One has recently had a heart attack. The other is in good health and his younger (80 year old) brother runs the day-to-day operations and is in good health, but come on…

Many business owners want to work as long as they can. With Exit Planning, that can be worked into the plan. But one can't go into Sunday without a game plan. Even Brett Favre  gets knocked out of a game one day.

For most business owners, a prudent game plan dictates beginning this process earlier so they can reap the fruits of their labor from a easy chair before they are to beaten up to enjoy it.