Michael Beck

How to Improve a Successor’s Competence

Simply knowing how the business runs doesn’t qualify someone to be the head of a company. It also takes leadership, vision, and good judgment. Without strong leadership skills, a leader will simply get compliance from his or her team and results in mediocre performance. Without vision, the business stagnates and only grows incrementally. And without good judgment, poor decisions that may put the company in jeopardy.

Improving Ownership Competence:
Owners and employees think and act very differently. Employees tend to think narrowly, focusing on the task at hand and/or on their specific domain of responsibility. In contrast, owners need to consider the bigger picture and how their decisions impact each aspect of the business. Employees tend to think short-term and their focus tends to be on current matters, current revenues, current expenses, and current profits. Owners, on the other hand, need to consider both short-term and long-term success.

Owners understand that their business is their life and they think about it at all times, no matter where they are. Owners also feel a responsibility to provide a livelihood to the company’s employees. They understand that their decisions not only impact the bottom line but impact the people who work for the company.

And finally, employees know that if they make poor decisions or the business doesn’t do well or they become dissatisfied or they lose their job, they can always find a new job elsewhere. Owners understand that failure is not an option. Generally, there is no “Plan B.” They understand that the business is their only future, and this understanding colors their decisions and their actions.

Here are three things you can do to prepare a successor for ownership:

Help them become knowledgeable about all aspects of the business.
They don’t need to be an expert in all areas, but they do need to be knowledgeable enough to carry on a conversation about any topic related to the running and the success of the business. Important areas are production/operations, sales/marketing, and finance/accounting. For example, if they’re going to be successful at growing the business profitably, it is essential that they understand why some marketing works and some doesn’t, and they need to be able to understand and interpret the company’s financial statements.
Help them study the competition.
It’s important for a successor to not only be aware of economic and industry trends, but also of what competitors are doing and how they are responding to the marketplace. Have them read trade publications, make note of competitors’ advertising, and pay attention to comments (both good and bad) made about the company and the competition by both customers and prospects.
Help them develop a vision for the future.
Employees tend to think about how they can improve on the existing business by maximizing revenue, profits, efficiency, and quality. And while those are all important, they generally produce only incremental improvement. Help your successor develop a vision for the future that is different and better than what already exists. It is essential they become good at this. It is the only way to make significant improvements.

Improving Leadership Competence:
In order to be effective, an owner must also be a good leader. Leaders guide the organization, inspire the organization, and bring out the best in people. A successor must earn trust and respect, reinforce the company’s culture, learn to influence others, think strategically, and develop others.

Here are five things you can do to prepare a successor for leadership:

Earn Trust and Respect.
It is essential that the successor earn the trust and respect of those around them. Make sure they act with integrity and that they show respect for others. It will help them become accepted as the new owner.
Reinforce the Culture.
The culture of a company is made up of the values and behaviors it embodies. By going out of their way to speak and act in alignment with the company’s culture, it demonstrates that a successor is well-aligned with it, that they believe in it, and that they expect others to live by it as well.
Become Influential.
Mastering the ability to influence others is critical to the success and effectiveness of a leader. An influential leader has the ability to sell his or her ideas and get buy-in throughout the organization. A strategy, no matter how well thought out, will only get mediocre results if there isn’t strong buy-in. Help the successor learn how to shift people’s perspectives. Help them to use questions and analogies effectively in order to persuade people.
Think Strategically.
The ability to think strategically is essential for leaders guiding an organization. Development of a proper strategy allows a leader to prepare an organization for faster growth and profitability. A good strategy addresses an issue or problem and provides a direction for the company. However, a misguided strategy can cause a decline in growth and profitability. In order for leaders to develop a good strategy, they need to uncover what the underlying problem is and not react to the symptoms it causes. Help them to become good at uncovering underlying problems.
Develop Others.
One of the most important responsibilities of a leader is to develop the people around him or her. Study after study has shown that an important factor in driving employee engagement is having the opportunity for professional growth. Given the impact and far-reaching implications of developing others, it is critical for a leader to adopt a “coach-like” approach when developing people.

What does a coaching style of leadership look like? A coaching approach is to ask rather than tell. Instead of starting off by telling people what to do, a leader should ask them what they would do and how they would do it. It not only demonstrates that the leader has an interest in what the person has to say, but their answers will reveal their level of insight, judgment, and problem-solving abilities. Asking good questions will help a successor understand how to help and guide people. Help your successor learn to ask good questions.

Conclusion
These essential leadership and ownership competencies don’t come naturally to most people. Plus, leadership skills aren’t trained. They’re developed over time – usually a six to twelve-month initiative. Utilizing the expertise of an experienced executive coach is the perfect solution for grooming a successor.

When properly coached, they’ll be able to leave poor habits behind and form new, more effective ones. They’ll have their blind spots revealed so they can expand their thinking. They’ll have an unbiased sounding board, so they’ll make better decisions and sharpen their judgment. And they’ll gain a deeper understanding of people, along with how to engage and inspire them. By getting outside perspective, they’ll accelerate their leadership and ownership effectiveness, and the business will thrive.

New Research Shows an Unusual Problem on the M&A Horizon

Everyone’s heard about how Baby Boomer business owners will be retiring, and the wave of business successions/exits that will occur as a result of those retirements. But there’s a problem that almost no one is discussing. Our research clearly shows that there aren’t enough buyers for all those businesses. Here’s why and what you can do about it.

The SBA reports that there are roughly 6,000,000 small employers in the U.S. Of those 6 million businesses, approximately 3,600,000 are owned by people over 50 years old (Baby Boomers) and about 2,400,000 are owned by people 30-50 years old (GenX). Based on the US Census population statistics, this means about 4.5% of Boomers own a business and about 3.0% of GenX’ers own a business. Even if the inclination for GenX’ers to own a business (3.0%) rises to that of Boomers (4.5%), it means that there is going to be a significant lack of demand for all those Baby Boomer businesses coming on the market. It means that 2/3 of all Boomer businesses won’t find a buyer!

If a company can’t find a buyer and it isn’t attractive as a candidate for acquisition/merger, its only options are to facilitate some kind of internal sale (successor or ESOP) or sell off its assets. Given that finding any kind of external buyer will become increasingly difficult and companies looking for an acquisition will have the luxury of becoming increasingly selective, M&A professionals will need to change the way they conduct business if they want to leverage this wave.

Over the next 5-10 years there will be a significant uptick in the number of M&A opportunities. However, in light of the coming glut of businesses on the market, the percentage of deals that close will drop dramatically. The problem (as stated above) is that there won’t be a corresponding uptick in interested buyers.

At first, the surge in new opportunities will seem like a windfall. After all, a doubling or tripling of deals in your portfolio normally would lead to a doubling or tripling of profits. But the truth is that, for the most part, it will simply lead to a doubling or tripling of expenses with only a marginal increase in the bottom line. It will amount to a whole lot of extra work with little or no return.

Here’s what M&A professionals can do to successfully ride the wave…

When the market is robust, and supply and demand are balanced, M&A firms can afford to be transactional. If you throw enough deals into the mix you will find your share of buyers. But as the pace of businesses coming onto the market accelerates, that strategy will fail. Only deals for the strongest, most profitable companies will close. Therefore, for M&A firms to thrive in the coming market, they will have to take a more active role in helping acquisition candidates become more attractive.

Relational vs. Transactional
As an M&A professional, you know better than most what factors make a business an attractive target for a deal. Therefore, the key to closing a higher % of deals is to work with companies to make them as attractive as possible, rather than turning them away. It’s not that you need to become a management consultant, but rather, you need to assume the role of “quarterback”, pointing out their shortcomings and directing them to a variety of experts who can help them address the issues, drive up value, and increase the likelihood of closing a deal.

The key to success is to shift from simply being a broker of businesses to an M&A advisor, positioned to help them succeed in closing a deal – even if it ends up being a year down the road. Develop a stable of expert resources you can refer them to. It’s not that every company will magically become a good candidate, but enough will become good deals to have a significant impact on your success. By building and maintaining a relationship with these companies, they will become attractive acquisition targets and you will close more deals.

Here are some examples to consider:

WEAK EBITDA
A company has flat or below average earnings. Refer them to a qualified Business Consultant or business-minded CPA who can help them boost profitability.

WEAK BENCH STRENGTH
A company has a weak leadership team. Refer them to an Executive Coach who can help them assess and develop their bench strength.

CUSTOMER CONCENTRATION
A company is dependent on a few large customers. Refer them to a Sales Consultant who can help them secure a broader customer base.

PRODUCT CONCENTRATION
A company has too few products/services. Refer them to a Strategic Planning Consultant who can help them identify new, profitable lines of business.

MARKET CONCENTRATION
A company is in too few markets. Refer them to a Marketing Consultant who can help them break into new markets.

If any of your potential deals need to bolster the strength of their leadership team, please contact us. We specialize in leadership assessment and development. www.ElicitingExcellence.com

The Three Most Common Leadership Weaknesses

Over my 20+ years as an executive coach, I’ve worked with and assessed lots of smart, experienced senior leaders. And with each assessment I did, a pattern began to emerge. I noticed that there were several important competencies that almost always are among their weakest.

This pattern is interesting, because these leaders are very
smart, have many years of industry experience, and are responsible for many
millions of dollars of revenue and profit.
They’ve been CEO’s, presidents, owners, CFO’s, CTO’s, VP’s and
directors. And yet… these competencies
regularly show up as some of their weakest competencies. These three competencies are their ability to
coach & mentor, their ability to
influence others, and their ability
to resolve conflict.

Why are these competencies so often among the weakest? I believe it’s because the skills necessary
to excel at them don’t come naturally to most people – regardless of
intelligence or experience. Here’s why
these three competencies are so critical to a leader and how to go about
improving each one.

Coaching &
Mentoring

One of the most important responsibilities of a leader is to
develop the people below him or her.
There is tremendous opportunity and satisfaction as a leader in
developing others. By effectively
developing the people around us, we elicit excellence in a number of impactful
and far-reaching ways.

Study after study has shown that an important factor in
driving engagement is having the opportunity for professional growth. When a person becomes stagnant, they become
bored and disengaged. As a leader helps
someone expand their skill set and knowledge base, they make them more valuable
and more versatile. In addition, when a
leader coaches and mentors someone, they demonstrate their belief in them,
their abilities, and their potential, which nurtures loyalty and
responsiveness. One additional benefit
of developing others is that it allows a leader to groom someone to take their
place, thereby paving the way for the leader’s promotion.

Given the impact and far-reaching implications of developing
others, it is critical to master this important function, and adopting a
“coach-like” attitude and manner is the fastest and most effective
means of accomplishing that.

What does a coaching style of leadership look like? Coaching embodies a number of competencies
and strategies. Many of us, in an effort
to help someone “get it right” (and in the name of expediency), tell
others what to do and how to do it. And
while this does get the work done, it does little to develop the other person,
their skill set, and their confidence.

The alternative – the coaching approach – is to ask rather
than tell. Instead of starting off by
telling them what to do, ask them what they would do and how they would do
it. This strategy serves a number of
very important functions. Firstly, it demonstrates
that you have an interest in what they have to say. When you listen to someone, it acts as a sign
of respect because it demonstrates that you value what they have to say. The next benefit of asking is that their
answers will give you a sense of how they think. The answers will reveal their level of
insight and judgment and will illustrate their problem-solving abilities. And lastly, listening to the answers to your
questions will provide clues as to how best to help them develop. It helps you understand which aspects of
development they need help and guidance with.

Influencing

Mastering the ability to influence others is critical to the
success and effectiveness of a leader. A
strategy, no matter how well thought out, will get mediocre results if there
isn’t strong buy-in. A leader will
always get compliance because of his or her authority. But compliance and commitment are two
different things.

If people are compliant, they will generally do just enough to
keep from getting fired. The consequence
is that a strategy will get results, but not nearly to the level of a strategy
executed by a committed team.

How do you influence people?
How do you change their perspective so you get buy-in? People “buy” emotionally. It’s true whether you’re selling TV’s, cars,
ideas or strategies. They buy
emotionally and then rationalize logically.
There are two tools to employ in order to change someone’s perspective. They are the use of question-asking and the
use of analogies.

Asking good questions is an art. It took me many years to master it, with lots
of practice and plenty of missed opportunities.
I’ve found that there are two sets of questions that need to be asked. The first set of questions are those that
give you insight. They are curiosity questions that help you
better understand why someone sees things the way they do, thereby allowing you
to effectively change or correct their perspective. The second set of questions are those give them insight. They are questions that help them rethink
things.

The second tool for influencing people is the use of
analogies. Analogies are an excellent
vehicle for bringing someone around to your way of seeing things. Generally, you’ve been giving the issue at
hand far more thought than they have and therefore have a deeper understanding
of the problem and/or solution. Using an
analogy helps people “see” and “feel” the concept you’re talking about and does
it in such a way as to keep them from becoming defensive with respect to their
position. Once you’ve come up with a
meaningful analogy, it’s much easier for someone to shift their thinking and
their perspective.

Resolving Conflict

The ability to resolve conflict is essential to a leader’s
effectiveness. If conflict is allowed to
fester, it erodes engagement and erodes the respect a team has for its leader.

Workplace conflict tends to arise from poor communication, unmet expectations, differing perspectives, and stress. Ultimately, these each can be minimized or eliminated by improving interpersonal skills, setting clear expectations, shifting people’s perspectives, and helping to reduce stress. But the stage has to be set before the issues can be resolved.

The blueprint for resolving conflict starts with acting to
avoid further escalation. The more
frustrated and upset a person is, the more difficult it is to resolve a
situation. The next step is to
de-escalate the situation. I’ve found
that an excellent way to begin that process is to “state the obvious”. “Stating the obvious” means simply to
acknowledge that the frustration and/or disagreement exists. It’s often the perfect way to open the door
to resolve conflict. Just by starting
with, “Look… we’re both frustrated by this,” sets the stage for a
resolution. It acknowledges that you
recognize the other person is frustrated, it doesn’t point a finger at them,
and it implies that you’d like to work things out.

Once the stage is set for coming to a resolution, the next
step is to understand the other person’s perspectives and or motivations. As discussed above, the most effective means
of accomplishing this is through the use of good questions. In this case, a “good” question is one of
curiosity about why they feel the way they do, phrased and asked in a manner
that keeps them from becoming defensive.
A simple example of what a good question might be is, “What am I doing
that frustrates you?”, followed by, “Why does that frustrate you?” In contrast, a question that would cause them
to become defensive would be, “Why do you have to get so angry?” Once you gain insight into the underlying issues,
you can work together to resolve the conflict.

If you’d like help improving your ability to coach &
mentor, influence others and/or resolve conflict, please give me a call.

Leadership Development is Key to Business Value

Our research suggests that the pace of exits and successions will begin to increase this year. This conclusion is due to several factors. Life expectancy in the U.S. has risen above 80 years old, up from 72 several decades ago. Accordingly, the expectation of retirement age has also risen. When life expectancy was 72 years old, retirement age was considered to be 65, but now, because people are living longer, owners are waiting until their 70’s to retire. And the final factor suggesting increased activity is that the leading edge of the Baby Boom generation turns 73 this year.

As I’ve written in another article, the number of businesses that will hit the market in the coming years will far outstrip the number of interested buyers. The consequence of this excess supply is that only the most attractive businesses will find a buyer.

Although there are several important factors that make one business more attractive than another, a key issue is the strength of the leadership team. The strength of a leadership team not only impacts the value of a business but affects the likelihood that the deal will close.

Ken Sanginario, founder of Corporate Value Metrics and creator of the “Value Opportunity Profile” is an expert at valuing companies. He helps them increase their value and improves the likelihood they will sell. According to Sanginario, the strength of the leadership of a company will influence the value of a company by as much as 15-20%. By way of example, if a company has a capitalization rate of 20%, strengthening the effectiveness of the leadership team can realistically increase its capitalization to an effective rate of 17% – a significant boost in sales price.

Additionally, if a business’ leadership team is weak, the likelihood that a deal will go through diminishes dramatically. Tom West, author and president of Business Brokerage Press has stated that businesses with a seven-figure sales price will only close 25-33% of the time.

Therefore, if you (or your client) want to maximize the likelihood of selling a business and selling it at full price, the strength of the leadership team must be addressed.

Here’s what has to happen. The leadership competencies of the team need to be assessed so their strengths and weaknesses can be identified. Once the assessments are done, a program of leadership development should be undertaken to ensure the team’s effectiveness. Although development can usually be accomplished in about six months, this initiative should be started 2-5 years in advance of a transition. Because, just as one good year of EBITDA won’t impact a business’ value very much, neither will one year of strong leadership. You must demonstrate a pattern. Don’t wait until a few months before you go to market to address leadership issues. Start now, establish leadership effectiveness, and boost buyer confidence.

If you’d like help assessing and developing your leadership team, please contact us. It’s our specialty and our passion.

Peer Groups Aren’t Effective for Developing an Executive

If you’re a CEO or President of a company, a peer group can be a really valuable asset because it a) provides networking opportunities, b) provides outside perspective on strategy, and c) allows you to help others. But peer groups aren’t effective at developing an executive’s leadership competencies. There are a number of reasons for this.

The first reason relates to the fact that leadership competencies are developed over time. It takes regular focus to break ineffective habits and form new, effective ones. Meeting once a month in a round-table setting with big-picture discussions just can’t address someone’s specific development needs.

The second reason relates to assessment. Peer groups aren’t designed to assess a leader’s strengths and weaknesses. The group can only discuss issues that someone brings to the table, and of us are poor at assessing the quality of our leadership abilities. In fact, I’ve never met an executive who thought they were a poor leader. Yet, we all know many executives who are poor leaders! This reality makes leadership development in a peer group pretty much impossible.

The third reason relates to blind spots. We all have them regardless of experience, intelligence and/or education. Peer groups can help point out strategic blind spots, but aren’t very good at pointing out leadership blind spots. It really takes someone working closely, one-on-one with a leader to spot them and bring them to light.

A fourth reason that peer groups aren’t effective at leadership development relates to personal productivity. Group discussions can be good for high-level topics pertaining to business strategies, but they don’t lend themselves to improving day-to-day functioning. Leaders need objective input from someone who has insight into how they function at work in order to improve productivity.

What then, is the best course of action for leadership development? It used to be mentoring by fellow executives – getting insights and guidance from someone in the company who could share the benefit of their years of experience. Unfortunately, because of cost-cutting and increased work load, those days are gone.

Instead, many executives turn to executive coaching to provide the assessment, insight, and guidance needed to improve. Peer groups have their place, but for personal development, one-on-one work is the most effective. If you’d like help in developing your leadership effectiveness and would find a confidential, objective sounding board useful, please give us a call at 503-928-7685.