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Transition Options for Principals
by David C. Baker
It’s interesting to note when people think about transitioning. They can go for years without any serious consideration about what will happen next, and then some event triggers a reflective journey on what the future may hold. Just as there are certain parts of the world where “peace breaks out,” our normal routines occasionally yield to thoughts about the future.
WHY WE IGNORE THIS
As mentioned above, it’s actually quite rare to get people to think much about the next stage in their lives. In working with hundreds of principals, we’ve found a mix of the following five traits that seem to encourage a “heads-down” approach to the future:
I’ll live forever. Why do I need to worry about that right now? I feel great, business is good, and most importantly,
I can’t imagine doing anything else.
I’m great at winging it. I’m an entrepreneur, right? I’ll figure it out, because so far I have. And if I run out of good ideas, hard work solves everything.
I’m too busy. Yes, I really should think about this stuff. But if I don’t put out this fire, we’ll lose the client and I won’t have a future to worry about. For now I’ll do great work. I’ll worry about the future later.
I’m an optimist. How bad could it be? I’ve always landed on my feet, and I don’t have any reason to believe that things will be different when I’m ready to do something else.
I’ll sell it some day. Yes, I know I’m not setting aside all I should, but if I keep doing good work it’ll pay off.
WHEN WE FACE THIS
Just as there are patterns to why we ignore this, there are also patterns, or triggers, to when we face it. Significantly obese patients aren’t going to take weight loss seriously unless something happens, and it usually takes something out of the ordinary.
Tough times: You can still be optimistic in tough times, but it’s tougher to be blindly optimistic. For one thing, it’s tougher to believe that more of the same will get you somewhere. For another, it’s more obvious that you shouldn’t count on selling your firm.
Lease boundaries: There’s nothing like a major five- or ten-year commitment to give you pause. There is no other commitment related to your business that locks you in like a long-term lease. Employees can be dismissed, equipment can be sold and accounts can be won and lost, but a lease—especially if you guarantee it personally—forces the issue.
Exhaustion: If your firm isn’t structured properly, you’ll be solving the same problems every morning. It’ll be like running a business for eleven years, for example, but repeating that first year eleven times. At some point, you might realize that you aren’t making progress and you’ll wonder where all this is leading.
Awakenings: If you are subsidizing clients or employees, you’ll eventually tire of it. Like the ubiquitous airline safety warning, put your own oxygen mask on before putting one on the child next to you. Are you making more money than anyone else at your firm? Are clients eating into your personal time? Maybe some things need to be fixed. Maybe you’ll never get chocolate cake if you keep using a vanilla cake recipe.
You need more than a job. You need an investment that pays off, because every month you spend working for yourself could easily represent a month down the road when what you do now makes an enormous difference.
WHAT DO YOU WANT?
Before we talk about the eight major transitioning options available, you need to be honest and decide what you want. Only then will you be able to make good choices about the transition options that might meet those goals.
Do you want to settle-up and move on? There are quick ways to cash out (close the business) and ways to maximize the process (sell to a larger entity), but in the end, is the cash really what you want, if only because it’ll help you pay for what you want to do next? Be honest with yourself, even if it’s not politically correct.
Do you want your firm to outlast you, preferably with your name still part of the company? It seems a little difficult to reconcile this with the realities of running a small service business, but it can be a legitimate goal, however illusive it may be.
Do you feel a responsibility to your employees after you scale back your involvement at the firm? Sometimes this is expressed through the purchase of a large insurance policy, the proceeds of which will be used to fund ongoing operations (albeit without a leader, which does not bode well for the long-term viability of your firm). Sometimes this desire to care for your employees is little more than the extension of the mothering they’ve been showered with during their tenure as employees, when in fact they are quite capable of finding work on their own—or should be, anyway.