Much like parents hope their children will have happy lives when they leave the nest, most business founders hope their business will be able to survive them. Not necessarily survive their death, but rather survive diminished involvement. I will cover different exit strategies from a company in the next chapter, but right now let’s look at one that may require the most time, namely succession planning.

While often this is simply a replacement of the founder or CEO upon retirement, there are smaller, partial successions that need to take place over the lifetime of the business. Most companies in the US with revenues over $500,000 are founded by two people who have slightly different skill sets but who have to be able to do everything the business requires. If they are successful and the company grows, then they can hire employees to take on some of the tasks they have been doing themselves. So in a sense succession planning should continuously be happening in a growing business. As the business grows, fewer functions should be done by any one person, with new employees being hired to specialize. Where this gets tricky is usually when there are ten employees in the business. By that time all of the repetitive, menial, tedious, and simple tasks have been handed over to someone else. As the company continues to grow, the complexity of work that needs to be done by the founder keeps increasing. Succession planning continued below.

So how do you, as the business owner, get to the point of needing to hire a COO or even a CEO to run the company? Shouldn’t that be your job as the founder? How can you trust someone who didn’t start the business to keep growing it and making it more successful? If you can answer those questions, you are well on your way to having a succession plan. If not, keep reading.

I want to emphasize a clear distinction between leadership roles within the company. For example, the executive officer and ownership overlap when the founder runs the business, but they do not at all have to be the same people. As a founder and CEO of a business, you work hard to increase its value. The salary you pay yourself is in “compensation for the work of the CEO” which you are doing on behalf of the company. Any dividends or profit disbursement you pay yourself are the partial compensation for your ownership in the business. When you sell the business, you receive the bulk portion of your “compensation for ownership.”

So let me ask this question: If you had someone else do the administrating work of the business, while you work on creating new products or services, could that be a better use of your time to increase the value of the company? Keep in mind that the person hired as the CEO should be someone who is excellent at the administrative running of the business to ensure fewer operational mistakes and therefore faster growth. The result would be a company run by someone whose skill set is focused on the operations of the business, allowing you, as the founder, to focus on where your skills have the greatest impact. If your skillset happens to be the same as what is needed for a CEO, then it’s a perfect fit. But I’ve met very few founders who make good CEOs. They are too creative, too interested in marketing, or very good at product development to be only focused on the CEO role.

Conversely, if the above scenario sounds horrible to you and you would never let anyone run your company as long as you were alive then you probably have a lifestyle business. Now I’m not trying to insult you, but instead make the distinction between businesses that predominantly exist to provide a great lifestyle to the owner and businesses that are focused on increasing their value for an eventual sale. Quite often the difference between the two is whether the company has partners or investors (Angels, VCs, Institutional Investors). Investors have no interest in running the company and do not get a salary and dividends are usually small, so they look for an eventual opportunity to earn back their investment.

So what is wrong with running and growing my own business? Why would I need to hire someone else to do it when I’m the one who has successfully grown it this far? Those sound like reasonable questions, so let me explain the benefits of moving to a role you have the best skills for in your business, with time. I spent quite a bit of time in my previous book talking about the changing needs of a growing business. This change happens at all levels. The jacks-of-all-trades employees you needed to succeed when the company was a startup, will hold you back as it grows. The need for you as the founder to be involved in every interaction in the business, which was so vital to keeping your clients happy at the beginning, is a detriment to growth at a later stage of business.

In my last book on this topic, I said “You’re now running a different type of organization. You’re now the conductor of an orchestra, rather than the first violin.” To use this analogy, the business starts as a solo, grows to a duet, then a quartet, a chamber orchestra, and finally a full orchestra.

The skills that got you to where you are today are not the skills you need to get to the next level. So adapt to the business in leadership, learning new skills, letting go of the need to be as connected with the day-to-day inner workings of the company, and allowing people to make mistakes that you would not have made yourself. Or find someone who can do that for you while you remain the owner but focus your sights on some non-operational aspect of growing the company. Many founders have taken on roles as Chief Scientist, Chief Researcher, Chief Marketing Officer, or Chief Disruptasaurus – yes that last one is a real title from a past client! Letting someone run your company starts to feel much better when the value of your company goes up faster!

But if your passion is operational leadership in a changing organization – then congratulations, you are one of a very small group of people who can adapt at the pace required to not just run a company, but to keep growing a business from its humble startup beginnings to a billion dollar company. If you choose to stay in the leadership role, your success or failure will be very evident in the growth of the company. Continual growth year over year is a good bet that you are able to modify your skills to provide the leadership the business needs. On the other hand stagnation in sales, a drop in bottom-line profit, and a loss of market share all point to a lack of the type of leadership the company ultimately needed. You as a founder will always be an owner until you sell the business, but you do not have to be the person who is running the company day to day. In fact, as the owner, or the chair of the board of directors, you have the power to hire and fire the CEO. So if that job is not best suited to you. Hire someone for whom it’s a perfect fit and start your succession planning.

I guess what I’d really like you to remember about this topic is that the operational leadership needs of the company go through a substantial change between a startup and a $250 million business. It is entirely okay to hire leadership at different times within that range rather than having to hold the burden of leadership for the entire duration.

Just remember you can always replace a CEO as the owner, but it’s much harder to replace yourself even if you should.

 

Excerpted From The Original

Beyond Sales: 50 Business Problems Every CEO Needs to Solve

Foreword by Roy H. Williams

Gene isn’t a journalist, but he is most definitely an investigator.
I was talking to a friend who employs about 250 people in 3 different companies when he mentioned that he had hired a specialist to figure out what was wrong with a company that was underperforming.
“Who did you hire?”
“A fellow named Gene Naftulyev.”
“He’s going to figure out what’s holding you back?”
“Yeah. He’s famous for it.”
“How famous?”
“Procter & Gamble. American Express. Kraft Foods. Target. They’re all clients of Gene’s.”
“What does he do, exactly?”
“He improves profits without spending money.”
“But how?”
“Process re-engineering, operational optimization, making business units autonomous, negotiating employee and consultant contracts and a hundred other things like that. It just depends on what you need. He refines the core of your business so that you become more efficient, have fewer frustrations and make more money. Naftulyev can always spot the problems and his fixes are famously quick and easy.”

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