Tuesday, May 23, 2017

EXIT STRATEGY. A business white paper

I learned from Dave Sullivan, the business consultant who for years taught the Course for Presidents at Aileron, that in business one should never start an enterprise without at the same time designing an exit strategy. Dave Sullivan wants you to ask yourself: ‘How do I extract myself when it does not pan out, when I find that I have more important things to do, when it is time for me to retire, or when calamity strikes? More precisely, how do I extract myself without doing harm to the business, its stakeholders and my estate?’

The typical small business owner has a large part of his/her net worth tied up in the business and is relying on the value of that investment to fund his/her retirement.

The exit planning, we are dealing with in this white paper, has to do with the exit from control over the management and operation of the business, not necessarily from the ownership of the business. These two may, but not always do, coincide.

As Dave Sullivan points out, exit planning should not wait until you begin to feel ready for retirement. In fact, business owners would do well to separate exit planning from retirement planning. Otherwise the presumption is built in that the business owner will not, voluntarily or involuntarily, exit from the business until retirement. The exit planning Dave Sullivan is talking about is having a plan for what to do with the business when the owner falls away or when the business no longer meets the owner’s goals, whether these goals are of a business nature or a personal nature. This can happen at any time in the owner’s life cycle and in the business life cycle.

Such exit plan should look at all alternatives for the business, including liquidation, retaining ownership but leaving the day to day operations to others, becoming a silent owner, selling, transitioning to the next generation, turning it into an employee owned business, merging it with another business, you name it.

Not all of these options may be valid at every stage of the business development or under all circumstances. Therefore, the exit plan should be written as a “what if” scenario:
·       What if I find that, in the foreseeable future, I cannot achieve my return on assets goal?
·       What if the Lord takes me away?
·       What if my health fails me and I no longer have the stamina to lead the show?
·       What if I come across another business opportunity with higher earnings potential?
·       What if I want to go back to school or change careers?
·       What if a family member needs my full time attention and care?
·       What if I discover that others are better equipped to run the show than I am?
·       What if I want to retire?

A carefully considered exit plan is an indispensable business and personal planning tool. It will stimulate the business owner to maximize the value of the business independent of his/her level of participation in the business.

It is also an expression of good governance, as it protects the value and continuity of the business for other stakeholders, particularly heirs, employees, customers, suppliers and –if applicable – minority shareholders.

A good exit plan is a direct reflection of how the owner sees his/her role in the business. If he/she is a veritable entrepreneur, the plan will focus on scenarios that will call for an early exit or distancing from management as other opportunities arise. If he/she is a business owner for the purpose of having job security and making a decent living, the plan will focus on retirement. If he/she wants to be the Chairman of the Board but not the CEO, the plan will focus on separation of powers.

For small business owners wanting to create an exit plan there is plenty of professional counsel available. The first source to go to is The Exit Planning Institute (E.P.I) www.exit-planning-institute.org . The institute is responsible for the certification of “Certified Exit Planning Advisors”. Its web-site is a treasure trove of information on the topic of business exit planning.

E.P.I. points to the damage owners can do to themselves, their heirs and the business when failing to have a well designed and implemented exit plan:
·       Undervalue your company leaving hard-earned wealth on the table
·       Pay too much in capital gains and estate taxes
·       Lose control over the exit process
·       Fail to realize your personal, financial, or business goals during the exit process.

A good exit plan is written with the input of professional counsel. My experience with small business owners is that too many are living dangerously without a good exit plan. They do so at their own peril but they need to be aware that, in the process, they are also exposing all stakeholders in the business, particularly their employees, suppliers and customers, to unnecessary risk and harm.

As stated above, the content of the exit plan will, in large part, be determined by the owner’s vision for the purpose of his business. In the world of small, privately owned business, I have met all sorts of entrepreneurs with all sorts of motives for being in business:
1.       Quite a few owners, when they are honest with themselves, will see their business simply as a tool to earn a decent living for themselves and their families. They would probably have great difficulty working for others and are driven by the desire to be their own boss. When they have had enough and can afford to retire they may simply wind down the business, close the doors and be done with it.
2.       Many owners will see their business not merely as a tool to provide income, but also as a tool to accumulate wealth for themselves and later generations. They will work to maximize value in the business and – when it is time to retire – sell it or transition it to the next generation.
3.       Others see their business in the first place as a societal tool offering useful products or services to the public and employing a large number of people. They will not exit without making sure that the business survives them and that continuity is guaranteed for the employees and the consumers.
4.       Yet others, entrepreneurs included amongst them, have a desire to create something immortal that will last for the ages and will be a monument to their creativity. These are the brand builders who will only let go if their legacy has been secured and their brand has become unassailable.

A good exit plan should be able to withstand the litmus test of leaving no gap between what the owner wants to see happen with and in the business upon his departure and what actually happens if, by an act of God, the owner is unexpectedly removed from the business. Only owners who meet the description of 1) above can live happily without an exit plan. Without them, there is no business and that is exactly how these owners want it. All other owners fail the litmus test, if the reality of the business after their departure is different from the design. All of them should do some hard introspection and ask themselves if they have properly planned for the business to survive them, regardless of timing and circumstances. If the answer is ‘no’, exit planning should be moved to the top of the agenda of strategic steps to take for the business. Dying in the saddle is sad; dying in the saddle without an exit plan for the business is criminal.

Human nature keeps many of us from planning for our exit, whether it is our exit from life or our exit from business. ‘I am not ready for it’ or ‘it is way too early for me to think about retirement’ is what I hear a great deal of in my conversations with business owners. But these arguments ignore the difference between (voluntary) retirement and (involuntary) exit from the business. Exit planning is intrinsically different from retirement planning. Exit planning is a business process with personal consequences, retirement planning is a personal process with business consequences. Exit planning should be done regardless of the owner’s intent or lack of intent to relinquish control of the management and operation of the business. Retirement planning should include a plan for the future: What will I retire to? What am I going to do with my time, my energy and my expertise?

I have seen too many people being lost, miserable, without a place to go to every day, issue the orders, and direct people and operations. Most small business owners realize this and that is exactly why they drag their heels, when it comes to retirement planning. My counsel to them is to first plan for the next phase of their life before exiting the business by way of retirement. Retirement will only be good for you as a business owner if you retire ‘to’ something new, rather than ‘from’ something old. Retirement from your business will be a happy, fulfilling, time only if you have first determined what you want to do with the rest of your life and what you still want to achieve. Then go for it!

Wednesday, May 17, 2017


I know that we are only four months into the Trump Presidency, but I also know that I have seen enough in that short period of time to categorically state that it is time to admit that we have picked the wrong guy.

I detested the way he ran his election campaign and I cringed, louder than I had ever done during the worst moments of ‘W’ rambling utterances, every time he went on his rants to whip up the emotion of the crowds attending his rallies. But, after he got elected in spite of all of that, I felt that we all had to give him a chance to prove himself in his Presidency. After all, he was legitimately elected under the rules of our constitution and I have always felt that, in our governance system, enough checks and balances are built in to keep a President from doing any irreparable harm. But now I know that, unthinkingly or subconsciously, I have always presumed that any President who has taken the oath of office will act maturely, rationally, and always with the best interest of the nation, and not his huge persona or his business empire, in mind.

I now believe that I was wrong making that presumption.

This is not a matter of political preference. I have no qualm with major elements of the Trump agenda:
·       I do agree that Obamacare did not cure the ills of our healthcare system and needed a major overhaul, if not a repeal. It was ill fated from the day President Obama decided that he could push a bill through Congress without support of a single Republican.
·       I do agree that a tax overhaul is long overdue (so is entitlement reform).
·       I do agree that immigration reform should be high on the nation’s priority list.
·       I do agree that, after 25 years, it is time to reevaluate NAFTA and try to bring it up to speed with the changed global environment and the altered needs and realities of the American labor force.
·       I do agree that over-regulation is stifling our economic growth and putting up unacceptable hurdles to the renovation of our infrastructure.
·       Nothing wrong with waking up NATO to the new threats to our liberal order and making sure that the burden of preserving freedom is proportionally shared.

I do think that the solutions the Trump administration is proposing for addressing these issues are not necessarily the best choices, but if they can withstand the scrutiny of Congress, the media and the judicial system, they deserve to be taken seriously. It is true that elections have consequences and it should be that way.

But, just like it happens that the Browns pick the wrong guy with their first draft pick, so can it happen that the voting public of the United States of America picks the wrong guy as well. And when that is the case, we may as well admit it and face up to it. Because, just like the failing draft pick gets his shortcomings unmercifully displayed on TV for all to see, so do we get confronted with a failing spokesman for and leader of the nation every day and every time we turn on our TV.

How long can capable and responsible Americans like Rex Tillerson, James Mattis, H.R. McMaster or John Kelly stand at the podium to clarify or rectify the utterances of the commander in chief, only to be undercut and contradicted by their President? How long can Paul Ryan and Mitch McConnell keep their troops from turning their backs on disaster and run for safety?

With every word he utters, if it isn’t written for him by some competent staff writer, he opens our great nation and system up for ridicule or worse. The transcripts of his recent interviews with Associated Press https://www.apnews.com/c810d7de280a47e88848b0ac74690c83 and The Economist http://www.economist.com/Trumptranscript show a picture of a man, so incoherent, so self-aggrandizing and so rudderless, that it is hard to understand that the White House allowed these transcripts to be released to the media. A picture that is brought in sharper focus by the barrage of, mostly bizarre, tweets coming daily from his uncensored communication devices. A loose cannon for sure, as Representative Sandy Levin characterized our President in response to Trump’s sharing of classified information with his Russian visitors in the Oval Office.

His fumbling of the ball when it was time to admit that he had made a mistake picking Mike Flynn as NSA, his maneuvering of Steve Bannon in and out of the National Security Council, and his unceremonious dismissal of James Comey, who was investigating him and/or his team for crimes potentially committed against the national security, are all signs of flawed judgment and boundless overestimation of his own capabilities and authority.

Most worrisome of all is his complete disregard for the sanctity of his office, demonstrated by his refusal to build an unbreachable wall between the White House and Trump Tower (as the seat of his business empire). It is evident that Trump sees the Presidency as a tool in the toolkit for the marketing of the Trump name and organization and as a place where he can deploy his usual antics of bluster and intimidation. But he and his entourage conveniently ignore that the conflict of interest is undeniable and undermining the integrity of the Presidency. Bringing his daughter and son-in-law into the White House has further exacerbated this blatant disrespect for his professed ‘America First’ motivation.

This is the man we have entrusted with the awesome responsibility to lead and defend our nation and its people.

It is time we fess up to the fact that we have made the wrong choice and that we do everything within our power and our legal means to correct our error. The mid-term elections of 2018 will provide us the tools to remove the political shield he currently enjoys and abuses. Hopefully we can bring up the patience to let the democratic process play itself out. The longer rope we give this President the better chance we have that he will hang himself (if he hasn’t roped up himself yet by his interference with the Russia investigation and his dealings with James Comey). He is likely to give us further cause as we go along. Let’s hope no irreparable damage gets done before we have a chance to execute the only ‘repeal and replace’ that matters. If everything else fails, we always have the tools of impeachment and the 25th amendment.