LEADERSHIP STRATEGY: SECURING CORPORATE VIABILITY IN SMALL TO MIDSIZE BUSINESSES

business owners who "play by ear" are vulnerable

“To start a business, the CEO must be everything.  To grow a business, process and the people who work within it must be everything.  As a growing entrepreneur, one of the hardest concepts for me to understand was thatthe value of a company is inversely proportional to the dependence of that company on its CEO.”  
Mike Shrenk, CEO
New Millennial Homes

post by Art McNeil LSI Managing Partner

Radically shifting markets, a plethora of price challenging products, ever changing technology, and the unrelenting hand of time are making the aging owners of small to mid size businesses (SMBs) vulnerable. For many of them, this is a new and uncomfortable mindset. Fiercely independent, hard working, and resilient, the majority of SMB owners  have always been at the center of operations and can’t even imagine their life’s work surviving without them—all too often, this becomes a sad reality. 

 The largest wealth transfer in history is about to occur. SMB owners who continue managing by instinct and personal authority, will find their life’s work bypassed by potential buyers who won’t be interested if the company’s operating smarts exist largely in the head of an owner.  Also, a significant percentage of the next generation of family members want no part of their parent’s hectic life style–always on call, wrestling with cash flow problems, and worried about government regulation, and coping with global competition. 

“Head-centered” management not only robs SMB owners of a personal life, it limits growth and impedes profitability.  More importantly, it eliminates or reduces the transfer value of their business.  Owners who manage their company like a jazz band (playing by ear) rather than an orchestra (playing the music of business…process) are leaving employees and themselves vulnerable. There will be a glut of SMBs for sale over the next ten years. Only those with a strong management team, disciplined processes, and the capacity to operate without the day to day involvement of the owner/founder will transfer equitably. An immediate threat to SMB baby-boomer owners is the unforgiving hand of time.

 Why SMB vulnerability is increasing:

•  There are 9.1 million small to midsize businesses (less than 1000 employees) in the USA—not including home-based operations.
•  Privately or tightly held SMBs hold the lion’s share of the nation’s wealth
•  70% of existing SMBs will change hands during the next decade
•  Over 66% of SMBs will not transfer to the next generation (Family Business Institute)

Conclusion:  

 During the next few years, a glut of baby boomer owned businesses will hit the selling block.  Only well prepared SMBs will command an equitable times earnings ratio…many will not find buyers at all. The best prepared will be businesses that are not dependent on the CEO/owner.   Personality driven businesses are worth less than businesses with inspired leadership, strategic thinkers, process discipline, and a strong management team. Shifting from the use of personal authority to managment by process discipline is essential if a company is to grow effectively and increase its value to shareholders.  Process discipline allows for the effective transfer of wealth (to new owners) and wisdom (promoting job security for employees).

This posting is sponsored by the Baton Management System