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From Paul Spencer of Second Nature Solutions, a conversation about the complexities and nuances of building resilient family enterprises, especially in the face of economic and political uncertainties that loom on the horizon. See more at secondnature.solutions.
Welcome to Resilience Talk hosted by
Paul Spencer of Second Nature Solutions.
Let's dive in.
Paul Spencer: So I hope you're getting
some value from the conversation that
we've had around the ownership series.
Um, we've talked about a lot of
different things and for, for me, I'm
hoping and expecting maybe it would
be a better word, I'm expecting all of
you to be taking some lessons from the
conversation that we're having and, uh,
to be applying a lot of those things.
Into your, uh, daily thoughts
into your daily work and then
into your, uh, strategic planning.
Um, I know I've heard from some
of you about, um, some things
might be a little confusing or
there there's a couple of Yeah.
Buts in, um, some of the conversations
that we've had so far, and that's okay.
Right.
Uh, not everybody is,
uh, exactly the same.
Not every scenario is exactly the same.
Not every industry or
business is the same.
Uh, we have, um, different
people, different cultures.
We have different processes, we
have different imposed inputs.
Um, and that's expected, right?
And so there could be some yeah,
buts, but I will tell you that even
though you may have some yeah, buts.
The principles and the thinking
around everything that we're
discussing is 100% valid, right?
And applicable for you
and for your business.
Now, you may be able to tweak it,
you may be able to apply it in
a slightly different way, right?
That's the point.
The point is for us to become aware,
to have some understanding and then
to be able to apply it, how it would
fit into our own environments, right?
So, um.
Keep coming with the thoughts,
keep coming with the, the emails.
Um, um, I get some different,
um, uh, whatever they're called.
They're not dms on LinkedIn,
but messages on LinkedIn.
Um, and yeah, keep those coming.
It's good conversation and
I'm here to help you, right?
So I'm here to serve you and if you have
questions or um, you have a particular.
Scenario that's playing out, I'm always
happy to to have the conversation.
So if we think about the ownership
series, we've talked about financial
performance, growth, potential key
dependencies, recurring revenue,
right to win, corporate structures,
what we talked about last time.
Today we're gonna talk about
key management and leadership.
And then the last one that we'll talk
about next time is owner involvement.
So today we're gonna talk about.
Key management and leadership.
This is one of the top three.
So we have to have, from a buyer's
perspective, um, these are the things
I'm gonna evaluate where you are and
what's the value of your business.
Um, but also from an owner of an asset.
Um, this is one of those key things, which
is I have to have a good foundation, which
is your financial performance, right?
I have to be able to
have some kind of market.
Which is the right to win.
And then I have to have some kind of
structure within my organization, which
is this key management leadership aspect.
Um, I will tell you that, um, this
one is, uh, lacking for a lot of
you, um, as family businesses.
Um, in that, let's see, probably in that,
that 4 million to even probably up to the.
30, maybe close to 40 million revenue.
Um, the idea of building out your
key management and leadership,
your executive team as I would
call it, um, is very immature.
And, um, and I mean that in a, in a
way that says that, uh, you haven't
spent a lot of time thinking about it.
You haven't spent a lot of time
experimenting with it, you haven't
spent a lot of time growing it
and in, in, um, building up the
capability within your executive team.
And so you're very lean
at that, at that position.
And most of the time, from my
understanding of how you operate
and the thinking that you have.
That's very intentional, right?
Um, it's family business.
Uh, we have a few people up here
that are, that are making decisions.
Maybe even the founder is
still making decisions.
And so that's intentional.
We let the, we let the staff, the
employees run the business and then
all manage everything else up here.
Um, that may be well and good for
some portion of the business, but as.
In the aspect or the lens of building
an asset, um, it's taking over, over
the long time, over the long period
as you get on the back end of either,
um, the, the succession of yourself.
So let's say you're 50, and that's
towards the back end of your
career of owning the business.
So now you've got say, 10, 20
years at the most to start to.
Build an asset, right?
To build your key management team.
And the longer that sits, the
longer you take to do that, the,
the less valuable your business is.
So the one of the key questions that
we ask is, does the business have
long-term key employees that can
operate and continue to operate the
business over a long period of time?
Right?
And so when we're thinking about that, um.
And if I'm to ask you that question,
you, if we have value in your business,
meaning your asset has value, you'll
very easily answer that question.
I have, uh, three, four, maybe even
five people who have, um, longevity.
Now, it doesn't mean that
they've been here for 30 years.
They could have been here for.
Five years.
Um, but they know how to operate
their, their section of the
business, and they also know how to
integrate with the other executives.
My ex, my other executive
leaders within the business.
And if I'm not around for two
months, three months, six months,
they, the business just runs.
Right.
I'm not, I'm not dependent on,
uh, they're not dependent on me.
Right?
So, so some of those questions
we have to ask ourselves is.
What is the capability of
my current executive team?
And I know a lot of you are going
to say what executive team, and
that right there is an issue.
That's a big problem and
you need to practice hiring.
It's not easy to hire, especially
at the executive level.
You guys are really good at
hiring at the staffing level.
You've been doing that for
for years, for decades.
What you're not good at is hiring an
executive who could be your, uh, right
hand person, your COO, and you don't
have to give them these titles, but
essentially they become an operating
manager or a director of sales, right?
Um, could be more of a, a vp,
a number two type position.
And this is really important because
you may not win on the first,
second, or third round of hiring.
An executive and it's gonna
take you some learning on one.
What, what, how do I, how do I
define this position to how do
I, um, qualify the people, the
interview process into this position?
How do I onboard this position?
How do I sustain this position over
a month, two months, six months?
These are all things that
you don't know how to do.
And you can't just snap your
fingers and assume that it's
going to work first time, right?
It's gonna cause disruptions.
It's gonna cha change the
way your processes work.
It's gonna change the way you work.
Um, all very important.
But once you get over that hurdle
and you hire the first executive,
now you have some learnings.
You can hire a second executive.
And when I call them executives, it
doesn't mean you have to have C-suite.
It just means.
That, uh, you're hiring leadership
within your organization
that can run the business.
So there's also a balance between tenure,
meaning years in the business, 20, 30
years, and, um, the amount of time they
have remaining in their career, right?
So again, when we're talking about
value within your asset, you could
say, well, Paul, the capability
of my executive team is very high.
I've got three.
Really high tenure.
Really very competent.
Been in the business for 30,
thir, some 35 years, and they're
a very strong executive team.
And then I get to say as the buyer, well
how many more years before they retire?
And that's a risk for me as a buyer.
So I need to have a balance.
You need to have a balance between tenure.
And then also the runway of the remaining
time span of their career, right?
So if I've been here for 10 years,
but I've got another 15 years in
my career and I plan on staying at
this particular business, that's
adding value into your asset.
Um, if, if my whole executive team,
again, using that same example,
20 is more like 30, 40 years in.
They're gonna retire
within the next five years.
I, that's, no, that's no value to
me as the, as a potential buyer.
So very important to have some mix
of seniority versus junior, but also
capability within the leadership
aspect of how, how the team is working.
Right.
Your leadership team, and
then what are the aspirations?
What are your aspirations?
And what are the leadership's aspirations?
So then when I ask you about the
executive team, and let's kinda
run through this and you're like,
Paul, we have high capability.
We have four.
Um.
Great executives, um, leadership
positions, management positions
that are running the business,
and they have a nice tenure, um,
remaining career balance, right?
So it's a good team, it's a good mix.
We have some legs, we have
some runway with that team.
And when I say, well, what are their
aspirations for themselves and for the
business, those have to also align, right?
Because as a buyer, if they say.
Um, that I really love working
with Paul, who's the owner.
And, uh, as soon as Paul leaves,
I'll probably look for something
else, or I have aspirations to
move on and do something else, and
do something different, or I have
aspirations to build this company
into something even bigger and better.
Those are all valid aspirations
for them, but they add or
discount value to the company.
If, if I'm a buyer and
you have a great team.
But their aspirations are beyond
this organization, meaning
they're going to eventually leave.
Um, then again, I'm losing my
leadership capability as a buyer.
So then let's talk about,
um, lean versus corporate.
So this is really important because family
businesses own, um, they don't own, they,
they have a mindset of running lean.
They're not going to be, they're not gonna
have lots of top heavy, um, high expense
overhead, um, indirect labor costs.
They just don't.
Um, and that's why they're very
successful 'cause they're very good,
uh, financially in that regard.
Um, but regardless of the size
and whether you, you run lean or
you do have more of a traditional
kind of corporate structure, um.
You have to understand where's
the cohesion of leadership?
And that's my term cohesion of
leadership at all the levels.
So if I was to evaluate your
organization and, um, and you look
at the staff, these are the, the,
the bare metal staff, the, the people
who are boots on the ground, um.
Hands doing the work, whatever it is,
whether it's a service or it's, uh,
more of a product, or you're building
in a, say a manufacturing company.
Um, those are the people, that's staff,
those are the people doing the work.
And then typically you have a management
layer that sits on top of them.
Those could be some, a leadership
aspect, and then you, as you
go up, um, the organization.
You have different levels of leadership.
So you'll, you'll branch over
into some operations things.
You'll branch over into accounting,
financial aspects, you'll
branch over into sales, right?
And then those start to have
different leadership capabilities.
So as I'm looking and listening and
maybe even interviewing the, the,
the folks in your business, I'm.
Trying to evaluate the cohesion
of leadership from bare metal
staff, the actual workers,
all the way up to the owner.
And you may have good cohesion
of leadership at the top, but you
may lack cohesion from say, a, um,
kind of a, a director of operations
down to the, to the staff itself.
And so that's a discount because I
need to have cohesion all the way up.
And so when I'm thinking about key
leadership and key management, I'm
thinking from bottom all the way up to
the top, and how is that all connected?
Now, it doesn't mean that I have to
have lots of managers at each level,
and I don't need to have this, this very
heavy and stuffy corporate structure,
but I should be able to answer, you
should be able to answer the question
as a buyer about how leadership is tied.
From the bottom all the way up, and
what does that flow actually look like?
And there's processes involved in there.
And then again, the question is asked if
the person at the top is not available,
how does the business function?
And the business should be able to
function for a period of time because
of the cohesion of its leadership.
So hopefully that makes sense.
Um, this is the.
Um, like I said, this is one of
the top three aspects of building,
um, value into your business.
So you wanna be thinking about
that financial performance.
How do I prove historically where we are?
Um, what's that right to win?
What's that differentiator
that I have within my industry?
And then what's my key
management and leadership?
The cohesion of leadership from the bottom
staff all the way up to the founder.