No. 9: That Point Where You Start to Throttle-Back…Building on Lesson No. 25

A properly executed Succession Plan changes everything about how and when you retire. In contrast to selling the business all at once to an outside buyer, your internal Plan gives you a lot more time to work and benefit, and it gives you more choices. I learned from experience that some of those choices and the timing elements can be challenging and need to be carefully thought out.  

The message in Lesson No. 25 comes down to this: You can and should let go of much of the work, over time, and still maintain control over the direction of your Business if you understand the mechanics of the process. My personal advice in this Lesson to the G1s out there—hold on to 51% ownership of the equity for as long as you can, but not forever and not past about age 65. At some point, the Business has to move beyond the one dominant shareholder model to support a Succession Plan.

My book, Building With the End in Mind, offers more strategies and concepts to think about,  but I don’t want to overlook or understate the main message of this blog post. The point at which you start to throttle-back in terms of the time you spend in the office, from five days a week to four, from four days a week to three – matters. It matters in ways that you have to experience first-hand to really understand and appreciate. Here is what I learned when I retired on-the-job.

I think most professional service business owners will find that the road from being the sole founder and 100% owner down to a 50% owner to be fun, lucrative, and safe. I know that is how I felt. With a seat on the Board of Directors, the title and authority as President, and experience and knowledge gleaned over decades, I felt in full control or at least I had a full say, and veto power over the most important decisions even as I began to pull back.

What I did not expect and did not enjoy, was the trip from a 50% owner down to a 0% owner. That part of the ride, I would handle differently. If I had to do it over again, I’d sell the first half of my equity more slowly, and I’d sell the last half of my equity more quickly, even, perhaps, all at once when the time came. This also means you probably need to start your first Tranche sooner than later, giving you that extra time to work with.

Learning to be a good 30% owner with a seat on the Board, for example, didn’t come as hard for me, I think, as having a new majority owner, or group of owners. They had no more experience being fair and just majority owner(s) as I had in being a minority owner. I did not enjoy the experience and I’d bypass this route the next time out and just get it over with – and put the proceeds of the sale in my bank and move on. If the Successor Team is ready, willing and able, trust them and get out of the way.

When consulting on this point, I often ask the G1 or founding owner(s), how long has it been since you were someone’s employee, or did not have control over your future? The answer usually starts with a nervous laugh. For most, it has been a long, long time. When you don’t do something in a long time, you don’t tend to be very good at it. Not to say that this facet of the process can’t be made to work – it can – but most owners don’t and won’t know that until the event is upon them.

I have had the opportunity to work with some amazing professional service providers. I’ve seen one generation reach across the aisle and watch out for the next generation, and vice versa. I’ve also handled enough succession plans to realize that this isn’t the norm. There just is no way to avoid the elephant in the room, which is the money element, as these buy-ins and buy-outs are expensive. These are lifetime investments that have plenty of risk and involve lots of hard work for your key employees or children who seek to take over. As a friendly transaction, or not, it does come down to the spreadsheet modeling at some point. Hopes and dreams will yield, almost every time, to the cold reality of the math and the money and the lender.

For me, I think I’d rather have taken a lump sum payout from a bank financed transaction and then continued to help my former business associates voluntarily (I don’t mean without compensation – I mean in an at will relationship). If I had what I’d earned in the bank, I would have cared less about the company’s new direction and all the changes that come with new, larger owners (than me). I like to think that that is the final and best role for a founder – to be a mentor who guides and suggests, but not a continuing investor and an authoritative commander; even worse, a former commander with no real authority. So many lessons to be learned in this fascinating succession planning process!  

As a timely reminder in the implementation of your own Plan, be fair. Be honest. Take what you’ve earned, not what you deserve, and teach all who follow to do the same.  When the founding role is over and you no longer work the hours that the younger owners do, head for the exits, check in hand. That’s what I’d do differently the next time.   

Thanks for reading,

David Sr.