Business success is very hard-won. It is not easy to start a business, and it is even more difficult to scale it. But, many entrepreneurs wrongly believe that their work ends when they hand over their business to professional management, pass it down to their children, or step away from day-to-day management.
And, yet, this handover moment can be the most challenging for a business. According to research from consultancy KPMG, it is estimated that 70% will not survive into the 2nd generation and 90% will not make it to the 3rd generation.
So, what do you need to do to beat the odds?
1. Focus on culture
A large part of your success to date has been due to your active management of the business. You try your hardest to know everything that is going on in the business as well as oversee the strategy for the firm, whether that is pursuing new revenue streams or navigating challenges from competitors. You know what it takes to ensure the future success of your business.
But when you step away from the business, you will no longer be around to manage it on an active basis. Instead, you need to depend on a strong culture, which guides staff and management to do the right thing, even if they are not told explicitly what to do. A strong culture steers a company in the right direction wither explicit guidance.
For example, Google has a very strong culture. Even if the tech company’s founders stepped away, as they have done in the past, most employees would know how to act without them standing over them; they would instinctively pursue innovation, the development of new products, and strive to use technology in new ways. This is the power of a strong culture.
2. Strong financial controls
When you step away from your business, perhaps one of the biggest risks is lax financial controls starting to seep into operations. When you were leading the business, you might have approved all big-budget items yourself, and even small ones. But when you step away, suddenly small costs start to be added and, before you know it, these small costs collectively become big budgetary hits. And, three or four years down the line, you are suddenly running at a loss.
It is important to put in place very robust financial controls before you step away. One effective way to do this is to implement zero-based budgeting. This is a method of budgeting in which all expenses must be justified at the start of every new financial year. In effect, the business starts from a zero-cost base every year.
Zero-cost accounting adds discipline to a company and forces people to think seriously about whether spending is really required, even if you are not there. It also means that small, needless added costs are eliminated at the start of every financial cycle rather than hanging around for years into the future.
3. Think about your reputation
Finally, too often business owners and entrepreneurs think of continued business success in terms only of financial returns. But when you step away from the business, the company is often losing much more than just your financial acuity and business savvy.
The business is also losing your reputation too. If you have built the business from scratch, there is no doubt that the business is often very closely associated with you as a people. In fact, customers, suppliers, employees, and many other stakeholders may only be working with your business because of its association with you and your reputation.
Before you leave a company, you need to take the time to implement a proper reputation management plan. How can you pass down all the reputational capital and goodwill you have built up to the next generation of people who are taking over the business? How do you get those stakeholders to trust them as much as they have trusted you in the past?
Ultimately, stepping away from a business is a very stressful and anxiety-inducing time. Getting the process right will not only ensure the success of your business going forward, but it will also always mean that you can relax more when you go to sleep at night.