Can Entrepreneurism Help Your Business Survive Succession? Ten Questions to Ask

Starting the Business Succession Conversation.

Business owners often find it challenging to move forward with ownership and management transition. In 2015, U.S. Trust/Bank of America released Insights on Wealth and Worth. That survey identified the top five reasons business owners fail to establish a succession plan. The top two reasons were:

1. 39% of respondents have no intention of retiring any time soon;
2. 30% have not made decisions about the change of management required after retirement;
Business owners with no plans for retirement and no decisions on management succession face significant hurdles in the transition of their enterprise. Accepting the inevitability of exiting the business and creating a successful management transition framework are vital processes for any business owner.

Fred Dawkins is a seasoned manufacturing, retail and import/export entrepreneur in Ontario. He is also the author of a series of entrepreneurship books entitled “The Entrepreneurial Edge” including “Ageless Entrepreneur”, “Family Entrepreneur” and "Everyday Entrepreneur". Fred believes that a purposefully cultivated sense of entrepreneurship is going to be essential for business growth and survival post-2009 recession.

I asked Fred to reflect on the critical need for an entrepreneurial culture in business leadership and the benefit this adds to a successful succession process:

Chris: Fred, can you discuss why entrepreneurship is so essential in 2016?

Fred: Well Chris, it goes well beyond founding a business. Bernie Sanders has labelled our economic environment a ‘rigged economy’ and in some ways he’s right. Globalism and Technology have combined to reduce the demand for labour while increasing the supply of it. Labour rates are under duress and will be for some time. Coincidentally free market capitalism has moved into a period of corporatism where ‘too big to fail’ reflects the control that large corporations have over the global economy. Factor in the pressure of constant rapid change and absolutely all of us have to become much more resilient and adaptable, essential qualities of an entrepreneur. The 21st century requires us to trade in stability for agility which means accepting the fact that you are your own brand and you must manage that brand like an entrepreneur by becoming a problem solver and being proactive about your career.

Chris: Many business owners worry about the value of their business because it represents such a significant portion of their net worth and will fund their retirement. How does an entrepreneurial spirit add value to a business?

Fred: Entrepreneurs are great at finding niche opportunities in the economy, in good times and in bad. By harnessing their energy and drive they create opportunity for others and in doing so build wealth. The near future offers limited upward mobility for employees. Most people link entrepreneurship with super success and building large companies. For most it’s really about self-determination and achieving control over one’s life. That aspect has never been more critical. We are facing an attack on the middle class. Being an entrepreneur, solving problems and being extremely adaptable are going to be essential for creating individual wealth and opportunity. Being flexible means having the foresight to take your business in new directions in the face of the pressure of change and finding new opportunities which will be created through technology.

Chris: Successful management transition is essential to business succession. How does a vital culture of entrepreneurialism enhance the process of management transition and leadership development?

Fred: Conventional wisdom used to say that entrepreneurs were starters and often needed to hand over control to others to build systems and manage more effectively. In today’s climate where ironically change is the one factor we can count on, entrepreneurial thinking remains critical even as the company matures. Your reference to a ‘vital culture of entrepreneurialism” is bang on. If our biggest challenge is change we need to break with tradition about structure and rigid systems and recognize that change is a factor at all levels of your company and encouraging your team to think outside the box will make for a much stronger organization. There is a lot of discussion on concepts like ‘intrapreneurship’ or bringing entrepreneurial ideas inside of large entities. That won’t happen easily which means large companies will grow through acquisition and achieve flexibility through contracting out both of which will create niche opportunities for entrepreneurs.

Chris: I read an article in the Harvard Business Review suggesting that a culture of intergenerational storytelling is a key indicator of entrepreneurship levels in a family business. Does that surprise you?

Fred: No. Entrepreneurship is a philosophy anchored in achievement. Entrepreneurs are not created by taking risk, they are molded by getting results. The second generation observes this very closely and they hear all about both the trials and successes around the dinner table. They share in the sacrifices and the rewards. That entrepreneurial philosophy dominates a household and either attracts the next generation in or scares them away.

Chris: Your books are rich with examples and they hint strongly that you feel mentoring, multi-disciplinary professional teams and peer advisory groups are important underpinnings for successful entrepreneurship. Is that a fair statement?

Fred: There is an ongoing argument about whether entrepreneurship can be taught. I believe that it can but most effectively by mentors who have lived the life and share a common approach. I enjoy being a mentor because as a serial entrepreneur I know that if you embrace the philosophy of finding a way you can accomplish great things and you can do it over and over again. The first time is the most difficult and having a mentor, or a solid peer advisory group supplemented by the right professionals greatly increases the chance of success that first time around. The idea that failure is an essential element of learning is a crock. Avoid failure if you can, learn from it if you must but ditch that stubborn streak that many entrepreneurs have and build an effective support group beyond your family.

Chris: In the family business setting, understanding, developing and harnessing an entrepreneurial spirit is essential to a successful transition of ownership and management. Can you elaborate a little on that?

Fred: The transition of ownership of thousands of companies in North America is going to happen in the next ten years as the baby boom generation hits retirement. It will be a buyer’s market which means suppressed valuations. At the same time opportunity for young people is in decline. Building a young team of tech savvy entrepreneurs in your management team will strengthen your company and possibly provide your best option for a buyer from within through an earn out scenario. Companies that don’t bring tech effectively into their niche markets are going to be pushed out by those that do. Being entrepreneurial means embracing change. If you want your company to survive and retain value harnessing entrepreneurial thinking is the only option.

Finally, I asked Fred to share five questions pertaining to the importance of entrepreneurship that he would ask business owners to consider as they consider their own retirement and business leader transition:

Questions:

1. Are you better to transfer your business to your children or the wealth created by your business?
2. How far ahead of your targeted retirement should you begin working on your exit strategy?
3. The life expectancy of businesses in general is in decline. Do you see a medium term future for your business without you leading it?
4. Do your children want to take over your business? Are they capable of running it?
5. Do you think your business is a cash cow that can fund your retirement as well as meets its own cash requirements?
6. Can you become an effective mentor to an evolving entrepreneurial team during a period of transition?
7. Can you develop an advisory board of mentors and professionals to assist with the transition either to the next generation or to employees on an earn out basis?
8. Do you understand the nature of an earn out sale and what advantages that mechanism can offer?
9. Is sustaining your business a critical part of your succession/transitional goals?
10. Can you divorce your interests from those of the business?