You've worked hard building a family business that's created a legacy for generations to come, and you have finally decided that you're ready for the next phase of life. The question is – what does that successful business exit plan look like?
The reality is that only 7% of businesses owners who have exited their business are happy with their exit. A key differentiator between these owners and those who have not had a good exit is that they have navigated through four distinct stages as part of their exit plan journey.
Traditional thinking tends to define business transition success as maximizing the money realized through the sale of the business.
Unfortunately, many owners on the other side of their transition discover too late that the money part of the exit is only one piece of the puzzle. As a result, they are left feeling unhappy, dissatisfied, displaced, and struggling to find their identity and purpose beyond their business.
How do you, as an owner, avoid the pitfalls of a bad exit and ensure a successful transition?
The 4 Stages of a Successful Exit
While writing Finish Big, Bo Burlingham interviewed many business owners who had been through exits – some successful and some not.
These interviews offered essential insights that helped explain the owner's experience before, during, and after this significant transition and the psychological and academic phenomena behind it.
Burlingham realized that his concept of a good exit was flawed. In the instance of business owners who had a successful exit, there was significantly more to it than a transaction-driven event designed to maximize the value of the sale of their business.
In the instances of business owners who had experienced successful exits, Burlingham identified four stages distinct stages they went through during their exit plan and execution.
Stage 1: Exploration
In many instances, the exploratory phase was the part of the exit process that took the most amount of time. During this stage, owners considered the kind of exit they wanted, building clarity about what mattered to them post-transition for the business, themselves, and their family. The process of doing this created the basis for the next stage of their journey – a clear vision for the future they could build a strategy to realize.
Stage 2: Strategy
The next stage consisted of developing and executing a strategy that would build into their business the qualities needed to allow the type of exit wanted by the owner or position the business to offer the owner different options when the time came to exit. This stage could typically last anything from eighteen months to whatever event horizon the owner had in mind and was most effective when enough time was available to complete the implementation of the strategy.
Stage 3: Execution
The execution stage is what most owners think of when thinking about exits. It begins when they call their investment banker, broker, or accountant and say they're ready to sell and ends when the transaction completes. However, for the owner, that's not the end of the transition. There is one final stage.
Stage 4: Transition
Burlingham refers to the fourth stage as the transition phase and identifies this as when the owner goes from the owner of the company everyone looks up to, to someone who is no longer present and visible in the company.
When considering the four stages from a psychological perspective, the entire process is a transition. However, the fourth stage takes on particular significance because it deals with the owner's adjustment to embrace their new normal and the next phase of their life. This stage ends once the owner is fully engaged in whatever they have chosen to do beyond the business.
The Importance of Exploration
Of all the stages identified, the most essential in terms of a good exit and the one most often skipped by business owners is the exploratory phase. The key reasons owners skip this phase are complexity, uncertainly and ambiguity stemming from:
Owner's lack of clarity on what to explore, how to explore it, with whom, and when. Simply put, they don't know what they don't know.
External advisors prioritize aspects in their discipline without appreciating the need for early input from other disciplines.
Relying on trusted long-term internal staff and external advisors (COO, legal, CFO, wealth management, management consulting) that do not have specific experience at points of transition (particularly sale and succession).
Conflict avoidance.
Leadership and business deficits being exposed.
Being unclear about WHY they want to scale, sell, or engage in family succession.
"Should, would, could" messages fostering a feeling of being forced into the transition (scale, sale, or succession).
Unclear future for themselves, family members, and staff.
Blind spots combined with high levels of emotional attachment.
Clinging to what worked in the past, long after it no longer works.
Conclusion – The Key to More Successful Transitions
Recognizing this, Orange Kiwi has developed the M3 framework, specially designed to help owners embrace the exploration phase.
Consisting of three domains, My Business, My Money, and My Self, and 22 variables in those domains, the M3 framework allows owners to do a robust exploratory process.
This results in owners developing a set of guiding principles that capture what they do and do not want in their transition. They can then communicate this to their advisors, ensuring that they can help them effectively move through the strategic and exit phases. At the same time, the owner can build resilience for the adjustment phase.
The outcome – owners who find lives of satisfaction and significance beyond the business, which translates to being happy!