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This past year has been a wake-up call for a lot of business owners. COVID-19 has shifted priorities and forced owners to take a step back and re-evaluate what they want for themselves, their family, and their business. Family businesses often take their ownership as a given and rarely ask the question, “are we (still) the right owner(s) for our business?” If you listen, your business will often provide you with the answer. This blog will discuss 5 signs that your business may be telling you it may need different owners.
Your risk profile no longer matches the opportunity profile
If the business is growing and in need of investment but your ownership group is no longer willing to take on new risks—either because you’re getting to the end of your career, or you no longer want to risk capital—your risk profile may no longer match the opportunity profile of the company. When there’s a mismatch between the two, you could be inappropriately holding the company back when there’s a potential for another owner willing to come in and make the necessary investments to move the business forward. Additionally, if a market turndown is feared or expected (they are inevitable), and you know you can’t weather that next storm, the business may benefit from a new captain.
Unwillingness—or inability—to explore growth opportunities
Oftentimes companies will have the opportunity to grow—whether that means expanding to overseas markets, integrating vertically, or developing new technologies. This means added complexity, risk and time, and new expertise. If you are either unwilling or uninterested in seeking out and exploring these opportunities, you could be holding the business back and affecting its future ability to succeed. Moreover, when these opportunities present themselves, they beg the question of if it’s time to sell to a larger company with the global infrastructure and complementary product lines. If there are other, larger companies with the capabilities in place to take your product or service to the next level more efficiently than you can, they might be a better fit to own your company.
It’s also important to note that some companies are just built to sell at some point. If your company has a small product line with regional distribution, or which requires significant manufacturing scale to continue to stay competitive, it may simply have a limited lifecycle and a sale may be inevitable and necessary for the company to grow and succeed.
The next generation isn’t active—or interested
If a business leader no longer has access to a trusted staff to continue running the business well, perhaps because the next generation is uninterested in the business, it may indicate the need for new owners. Businesses with limited capitalization often necessitate owners to also be managers. For many small companies, the financial benefit of ownership is, primarily, the job itself. Trying to retain ownership when you retire while funding the salary of your replacement may strain the business, and new blood may make for a better owner. Additionally, if your inheritors are uninterested and won’t be actively engaged owners, or if finding new executives proves difficult without them having an ownership stake, the business may not succeed and it may be time to search for a new owner.
The passion has faded
Maybe your business is thriving, stable, and its lifecycle is fine—great! But are you still passionate about the work you’re doing? If you have lost a passion for the industry or lost your entrepreneurial edge, your business is the one that will suffer. When owners stop thinking like entrepreneurs and start thinking like caretakers, they’re no longer doing the business justice. Most companies—including your competitors—are run by entrepreneurs. At least, you should assume that. Running your business as a caretaker rather than an entrepreneur puts your company at a competitive disadvantage.
Lack of understanding of technology
In today’s day and age, technology is a crucial part of the way we live, work, and even the way we run our businesses. If you’re falling behind in your understanding of technology or unwilling to learn about new technologies, you’re not doing your business any favors. An owner who is interested in learning and utilizing the latest and greatest technology will be better for the business in the long run.
So, what can you do if you notice one of these signs?
First, be sure to evaluate all of your options and don’t underestimate the challenges of transition. Change is always hard, but especially when it’s a change in one’s livelihood. It’s also a good idea to look at the company from the perspective of the company and ask, “do I (meaning the company) have the right owners?” Depending on the answer to that question, you can then ask yourself “what can I do to become the right owner?” or “how can I find the right owner?” Becoming the right owner may mean taking more risks, investing more money, or letting your executive team have the authority and responsibility they need to propel it into the future.
How we can help:
Whether it’s time to find a new owner or you’d like to become the right owner, it’s beneficial to have an independent set of eyes and guidance for this most important decision. If your family is no longer happy or enjoying owning and working together, we can help you make the right decisions for yourself, your family, and your business.
We help families with double-down strategies and succession strategies when they or their heirs desire to continue owning the business. For other families that are looking for an exit, we help create exit strategies that honor the legacy that built the business, leave the business in good hands, and provide the family with a new direction. Remember, selling your company is something you will likely only do only once in your life, but the buyer will likely be buying companies like yours several times a year. The power imbalance in this transaction is huge, so it’s essential to have the right advisors on your side.