Volume 16 | Issue 2 | Year 2013

When a new venture is just a twinkle in their eyes, most business founders don’t realize that their leadership assets likely won’t meet the changing needs of their expanding enterprise.
Realities of leadership and ownership succession were clear in the observation of one specific company.

Richards Corporation: An Example
Take the Richards Corporation, for example. Sustained success brought this family-owned aerospace products manufacturer to a critical juncture.

Stan Richards, who was chairman and a long-term owner of the business, foresaw the need to transform the leadership team to sustain the organization’s growth and better position the company to accommodate his family’s eventual, successful exit. This included an agonizing acknowledgement: A positioned leadership team might not be the right team.

As such, Richards hired new executives – to enhance the close-knit staff (a big asset). On an exit note, Richards observed, “It was important for me to deal with my real value in this changing enterprise – as non-executive chairman.”

This involved a hard realization. “Going forward, I knew I was not the right guy to be CEO,” he says. “Sure, it would have been easier to stay the course. But playing the right game with the wrong team would have eventually forced us to the same decisions, but on someone else’s terms.”

From that recognition, The Richards Company engaged new executives who repositioned the business for accelerated growth. Subsequently, the company became an appealing property for a business suitor who acquired the company on mutually beneficial terms. Additionally, the new executives were retained (and even through the recent recession, the unit’s profitability was sustained).

Facts Hard to Face
The Richards Company and its former owners are exemplary in their growing, positioning and selling a closely held business. Conversely, many business founders find it difficult to acknowledge and forthrightly plan for their eventual departure. Consciously or unconsciously, many resist the recognition that their personal leadership assets may no longer be best for their expanding enterprise.

Developmental Stages of a Successful Business
When addressing the intricacies of positioning a company for succession, it’s essential to understand foundations. Winning businesses generally go through a life cycle. Let’s look at each phase:

Origin – A business at its origin looks nothing like it will at maturity. In making this journey, each owner’s dream and stated mission will be continuously challenged by realities (operational and market).

  • Advice: In this phase, as the new enterprise is conceived, there should be a plan for how to build it into a business;
  • Caveat: Yet for embryonic companies consumed by mission, the more immediate focus is commonly on designing offerings and then figuring out the steps to position introduction;
  • Game Plan: To reach a sustainable operation, companies need to look forward: first to structuring and then to the end game.

Introduction – As businesses move into this phase, dreaming and designing must begin to accommodate customer desires, quality of the offerings, and the hunt for essential resources.

  • Qualifications: This phase involves commitments to building a supply chain to assure timely delivery: shepherding financial and non-financial assets; and meeting the requirements of an investor or bank. Internal focus must be tempered by external complexities;
  • Vision vs. Reality: Passion and dreams must marry commercial realities. As the budding enterprise begins to engage the right talent, it can’t settle for talent that’s “good enough for now.” The owner-entrepreneur needs to select leaders who are right for what the business is but also for what it can be. In their expertise, the right leaders will, in some respect, be better than the owner – and will complement and extend the owner’s skills and experience, and challenge the enterprise.

Progression – In the origin and introduction stages, much of the entrepreneur’s focus was on the tactics to get the business off the ground. But keeping it aloft requires focus on the longer term.

  • Planned execution: Guide by planning;
  • Re-evaluation: Prized styles, products or services will need to be re-evaluated to stay ahead of emerging expectations and competition;
  • Major Tests: The limits of the founder’s expertise will be tested;
  • Observation: During Progression, a business leadership team should begin to emerge. In addition to their business acumen, they must also fit the owner’s personality, with the culture they want to build, and with the chemistry of the other key players to be retained. The positive impact of a cohesive team, compared to a collection of individuals, is stunning.

Maturity – The enterprise will now have to be led through a somewhat slower growth rate while the pace of change and challenge will not let up, while the leadership will embrace the right new operating and market opportunities, and manage unexpected cost shifts.

  • Need: A guard against complacency, arrogance or commoditization will help lead to continued success;
  • Want: Leaders with a capacity to pursue and embrace new markets, customers, products, styles and technologies remain critical;
  • Observation: The maturity stage is the time to get serious about planning for the inevitable transition and exit from the business. This milestone is getting closer. It will come, even if only through the owner’s death.

Transition – The best opportunity to exit can arise at any time. Sarah Coffin, former CEO of Aspen Growth Strategies LLC, acknowledges that as her firm considered acquiring businesses that were for sale, it also strategically approached “businesses who didn’t know they wanted to be sold.”

  • Observation: Waiting for some future date to maximize an enterprise’s value could sacrifice the chance for a best transition;
  • Strategy: An optimum exit, like a successful operation, requires planning and execution.

Owner as Leader
Myriad functions that make up the commercial, operational, financial and strategic pursuits of a business are highly complex. It’s the very uncommon owner who is best to lead every stage of a company’s development. In the Richards Corporation case, the leader may boldly bring in a great CEO and other new leaders. As any business is daily confronted by needs to adjust its operation or approach, it can bolster the future of the business by bringing in new enterprise or functional leaders – people with the right leadership style, proven track record, and a fresh perspective.

Many businesses have stalled or derailed at some point in their life cycle. One industry association president relates that, for current business leaders who had been successful in starting or building their businesses and have now hit a rough patch, they need to recognize that “It’s so much harder to start a business than it is to improve an existing one. Owners don’t realize how quickly they can turn it around.”

Indecisiveness in making leadership decisions could mortgage a company’s future. “It’s not what [the] organization should do tomorrow,” once observed Peter Drucker, the late dean of American business. “It is ‘what do we have to do today to be ready for an uncertain tomorrow.’”

Author Stanley H. Davis is founding principal of Standish Executive Search, LLC (www.standishsearch.com), the executive search firm advising mid-size and smaller companies. He also chairs the Boston Exit Planning Exchange (XPX). He can be reached at sdavis@standishsearch.com.

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