Business Concern

The idiomatic phrase – shoulda, coulda, woulda – conveys the feeling you as the owner of a business might have in three years. Ok, “Could've, Would've, Should've” is a Taylor Swift (and Aaron Dessner) song. But it derives from the phrase often written as “shoulda, coulda, woulda.” The combination of the meaning of each – should conveying correctness, could conveying possibility, and would conveying a thwarted intention – yields a meaning of the uselessness of looking back or looking for excuses. Pat Riley, President and former coach of the Miami Heat and the Los Angeles Lakers famously said: “There's no such thing as coulda, shoulda, or woulda. If you shoulda and coulda, you woulda done it.”

In my experience, three years is about the time it takes to prepare a business to be sold for the highest possible price. Most business owners are so concerned with the urgent matters of the business that they fail to pay attention to the important matter of assuring that the termination of their business interest results in a wealth-building event. This important strategy, which I call Prior Diligence, can result in wealth-building results but only if it is learned and utilized. I have outlined the Prior Diligence strategy in a series of posts on Substack called Owning a Business (rickriebesell.substack.com). The sooner it is implemented, the closer the wealth-building event.

If you are the owner of a business interest in a profitable small to medium sized business, your primary concern should be to realize the maximum value from that interest. To be precise, “realize maximum value” means receiving the most net cash for that interest thereby converting the value in the business interest from a high risk business ownership to a personal asset held at a relatively low investment risk. This is when the sale of a business interest is a wealth-building event.

Think down the road three years. What would it mean to be selling your business for the maximum value? For most profitable businesses it would be a wealth-building event. Think about the businesses that you are familiar with who have not been sold for maximum value but have been the subject of disputes among the owners, had an owner essential to the business leave the business, or for one reason or another been liquidated. There is a strategy to follow that in three years will have that wealth-building event more available to you. Or in three years you will be saying: “shoulda, coulda, woulda.”

The quote is from Mordecai Evans who is the Lead Advisor for Business Acquisition Advisors, LLC located in Augusta, Georgia. Mordecai went to work for a pharmaceutical company after graduating from Clemson. His passion for entrepreneurship and sales led him to becoming a broker with a business brokerage firm. Recently, Mordecai formed his own merger and acquisition firm, Business Acquisition Advisors.

Rick asked Mordecai to do a Zoom interview about his experiences with the small to medium size business market. What follows is a summary of that conversation.

Rick began by asking about what the broker’s response should be to a business owner asking about what is necessary to sell a business. Mordecai answered that after looking at the financial statements and the marketplace, he takes the buyer’s perspective and conducts a “pre-due-diligence investigation.” Also, he conducts a conversation with the seller about price expectations. For the highest price possible there may be some things that need to be changed, which might take one to two years. There is always the option to take the business to market without a price to better understand what the market price might be.

Rick observed that the diligence investigation Mordecai conducts is similar to what he recommends for the business owner with the strategy of Prior Diligence explained at his substack (rickriebesell.substack.com). Often, the reason owners fail with the strategy is that they fail to prioritize important tasks of planning and taking action while paying attention only to urgent tasks.

Mordecai mentioned that he had a friend who said: “The only reason to start a business is to sell a business.” The point being that a business owner should run the business like a business not a job. “Nobody wants to buy a job.” Business owners are often well advised to counsel with a business broker, understand the market for their business, and make the changes over time to obtain the highest price for their business.

Rick responded that where the owners of a business have received advice from a broker that to get the highest price there were some things to work on, that work might take as much as three years. The issue arises of an owner who might not make it to the end of three years for health or other reasons. In this case, the owners should have an owner agreement among them to provide a value, among other things, to a withdrawing owner. Mordecai provided some examples of where business sales were adversely affected by the absence of an owner agreement.

Mordecai cited a recent video he had done on identifying a business broker early in the sales process to obtain advice about what buyers are looking for.

Rick asked about the relationships of the professionals, such as lawyers, accountants, and appraisers, with business brokers. Mordecai pointed out that business brokers, like consultants, can talk directly to all the parties unlike the professionals who have client relationships involving advocacy and confidentiality constraints.

Rick and Mordecai discussed the difference between selling to an insider, such as an employee or other owner, and selling to a outside buyer without prior experience in the business. An insider will not pay as high a price as an outside buyer, because the insider already possesses the “good will” knowledge that an outside buyer will pay for. Notwithstanding an appraised value for a minority interest, that type of valuation is not available in the marketplace because there is no market demand for a minority business interest.

For those looking for a business broker relationship, Mordecai’s contact information is as follows:

Mordecai L. Evans, Lead Advisors

Business Acquisition Advisors, LLC

[email protected]

Office: 706-828-1483

Mobile: 706-631-2466

The video and podcast of the complete conversation is available on https://businessconcern.net.

If you are thinking about who is going to buy your business, you have already dealt with the significant core perception necessary for business strategic planning: that inevitably, voluntarily or involuntarily, with good results or bad, you will transfer your business interest. The reality check for the owner-manager of a business is the perception of and planning for the inevitable transfer of the business interest. Coming to this realization is the basis for the Prior Diligence strategy.

The owner and the business will separate, the principal unknown factor is when and what happens to business value. If you are the owner of a business interest in a profitable small to medium sized business, your primary concern should be to realize the maximum value from that interest. To be precise, “realize maximum value” means receiving the most net cash for that interest thereby converting the value in the business interest from a high risk business ownership to a personal asset held at a relatively low investment risk. This is when the sale of a business interest is a wealth-building event. The Prior Diligence strategy enables that wealth building event. The Prior Diligence strategy is described in a series of posts on the Substack called Owning a Business (rickriebesell.substack.com).

Business strategy cannot be effective if there is a denial about the inevitability of the transfer of the business. Once the inevitable transfer is acknowledged, even though the time may be impossible to know, the probable buyer and the terms of the transfer, may be envisioned. Business strategy should have a primary goal of formulating the transfer of the business to known and probable buyers for the highest possible price. This is the essence of being able to realize maximum value for the business interest of the owners of the business.

In finding a buyer, it is helpful to ask: “Do I know anyone who will give me cash for my business interest?” For most businesses, the logical purchaser is someone who knows the business and is capable of raising the cash to make the purchase. Very likely, this person is already a part of the business. Moreover, it will be easier to identify a buyer when the buyer is someone you know and someone who is familiar with the business. There is, however, a downside to selling to someone already involved in the business.

Someone in the business knows certain things that persons outside the business will pay to learn. Put another way, there are certain items of know-how or goodwill that an inside buyer will not pay for because the buyer already knows them. A person outside the business, a third-party buyer, will pay for this knowledge. Therefore, to maximize the price (the value received for the business) ideally the sale should be to a third-party buyer.

Do you know third-party buyers? Probably not. If you do not know a third-party buyer, then find one. But this search will take time, and the planning for it should be part of the strategic plan. What do you do in the interim? If you die or become disabled in this interim time what happens to the value in your business? How will it pay out to your family? For the interim, the probable buyers will be the only ones known, the ones already involved in the business and who may already be owners. There should be an owner agreement in place to assure a value for each business interest. For foreseeable trigger events (for example, death, disability, termination of employment, or withdrawal) there should be an enforceable sale at an acceptable price to provide assurance of value to each owner. The owner agreement, in addition to establishing an assured insider sale for interests in the business, also needs to provide for a transfer of a controlling, if not a total interest, to a third-party buyer. Most of the time, for all owners, receiving the maximum value for their business interests will be in the best interest of all.

To find the unknown third-party buyer, you need to role play. There are certain groups that usually contain buyers for a business: competitors, similar businesses in other markets seeking growth, and investors. Place yourself in their position, assume a requirement of rationality, and ask: “Would you buy the business interest?” If not, then ask: “Why not?” If the purchase of the business interest does not make sense, the first task is to meet the rationality test: the purchase of the business interest you have for sale must make sense for a third-party buyer. In making this determination you will be directed toward people who would have an interest. You need to interact with these potential purchasers to see if your role playing was accurate. Again, ask “Why not?” if there is no interest. This feedback is the most reliable feedback you will ever obtain about how well your business is managed.

As the owner of a small to medium sized business, there is no better way to plan and manage your business than with the contemplated buyer looking over your shoulder. Accounting must be current. Human resources records up to date and in compliance. All regulatory requirements must be met. Taxes must be paid up to date. The same diligence checklist a sophisticated buyer would use should be used to check the status of the business. This is an important part of the Prior Diligence strategy.

When you approach planning and management with the perspective of a potential buyer, you will see the things to do that make the sale more attractive. The business will become more valuable and will be sold for a higher price when the inevitable sale must take place. Rather than denying the inevitable separation of the owner from the business will happen, plan for the sale and provide for a transfer for maximum value to a third-party buyer. 

Who might this buyer be? Small to medium-sized businesses can be attractive acquisition targets for various types of buyers including individuals, private equity firms, strategic buyers, family offices, holding companies, search funds, and employees.

Individual buyers are often professionals with industry expertise looking to own and operate their own business. They may use personal savings, 401(k) rollovers, or SBA acquisition loans to fund the purchase. Individual buyers typically target businesses with under $2 million in profit. Individual buyers outside the business will likely be involved in the industry of the business and may even be known to owners of the business.

Private equity firms use investor capital to acquire businesses. While they usually focus on larger companies, some private equity firms look for "bolt-on acquisitions" of smaller businesses to add to their existing portfolio companies. They may consider businesses with as little as $5 million in profit. Identifying these firms involves finding recent transactions of small to medium sized businesses and understanding the basis of the transactions.

Strategic buyers are other companies, often in the same or related industries, looking to expand their operations, gain market share, or acquire new technologies or capabilities. Often a competitor is the strategic buyer for a business – to expand a market or consolidate operations.

Family offices manage the wealth of a single wealthy family and may invest in businesses related to the industry that generated the family's wealth. They tend to have longer investment horizons and take less active roles in management compared to private equity firms. Family offices often are looking for increased returns than could be obtained with traditional investments, but will also want stability and consistent profitability.

Holding companies are companies that exist primarily to own other businesses. They generate revenue from the dividends and earnings of the companies they own. Holding companies often look to synergy opportunities between the companies they own.

Search funds typically consist of an individual (often a sophisticated manager) backed by investors, looking to acquire and operate a business. A search fund is often looking for a project that involves an opportunity that can be pursued with an existing business structure.

Employees can gradually become owners of the business through Employee Stock Ownership Plans (ESOPs). An ESOP can work very well in the right situation, but these situations are not frequent and an ESOP that does not work can be disastrous to the future of the business.

Realize that it is inevitable that you will transfer your business interest. Keep a constant vigilance to recognize who might be a third party buyer of your business who will pay cash for the maximum value of your business interest. Use the perspective of a likely third-party buyer to better understand how to make your business more valuable. Practice Prior Diligence to assure proper financial documentation, accurately valued assets, and a management team in place. These factors can make the business more attractive to potential buyers, help ensure a smoother sale process, and accomplish a wealth-building event.

It is human nature to seek comfort and complacency, we tend to do that which makes us feel good. As most understand, this is not a recipe for success. In the arena of small to medium sized businesses, the owners of these businesses are often the founders of the businesses and the most productive elements of the businesses. Where the business has succeeded and consistently earned a profit, for the owner performing the role of producer and manager can be an ego boosting experience. Continuing to do this feel-good activity, however, assures that the owner will not realize the maximum value from the business when there is the inevitable separation of the owner from the business.

Chances are if you founded the business, you are the best producer for the business. In fact, it is also likely that you enjoy exercising your skill and ability. Those talents are a part of your self esteem and provide satisfaction to you.

As a business owner, the success of the business is likely attributable to your ability as a manager. You have built a team and established a successful business system with your management skills. This also is a part of your self esteem and provides satisfaction to you.

If you are the owner of a business interest in a profitable small to medium sized business, your primary concern should be to realize the maximum value from that interest. To be precise, “realize maximum value” means receiving the most net cash for that interest thereby converting the value in the business interest from a high risk business ownership to a personal asset held at a relatively low investment risk. This is when the sale of a business interest is a wealth-building event. If your concern is to receive maximum value from your business, you must forgo these feelings of self esteem and satisfaction. Much as your role as a skilled producer or a brilliant owner-manager means to you, it will cost you money. The less you stroke your ego, the more money you will receive from the sale of your business.

Put yourself in the role of a sophisticated buyer of a business. What is it you want from a business? Fundamentally you want an established system of profitable operation. If the most important part of that business, be it a producer, a manager, or both, is the selling owner who is going away right after you buy the business, that is a negative factor causing you to devalue the business or not purchase it at all.

When an owner who is an integral part of the business is selling the business, the critical question is what does that owner want to do after the sale? Will that owner continue to be an integral part of the business? Will the motivation of the owner remain the same? Does some part of the payment have to be withheld to insure the selling owner’s cooperation with the buyer? Will the owner who is an integral part of the business continue as an employee? A consultant? The more the selling owner is paid of the purchase price, the less motivated the selling owner is and the less leverage the buyer will have to compel cooperation. An owner seeks to sell a business to be less involved with the business or not be involved at all. Where the business forecast depends on the selling owner’s efforts, this is an item of tension for both seller and buyer.

Compare this to a business where the owner is not an integral part of the business, and the business structure will not change after the purchase. Which business would you want to purchase? For which business would you pay a higher amount?

Most owners do not withdraw from production and management roles because they enjoy the ego boost of doing that at which they excel. Many owners, even though they know they could fail to realize maximum value from their business interest, continue to be producers and owner-managers instead of owners.

If you want increased value and wealth for you and your family, adopt a strategy that will stop your productivity and management activity. That strategy should be the basis of a business plan that will cause that change to be made. That strategy is called Prior Diligence. I have outlined the prior diligence strategy in a series of posts on my Substack called Owning a Business (rickriebesell.substack.com).

Here is the way to begin:

First, gather the resources and information you need. Read about and understand Prior Diligence. Assemble information by listening to business stakeholders and those operating the business. Seek out those who have succeeded in leaving the production and management roles of businesses they own. Determine how the change was accomplished. Do not be reluctant to ask for help and advice.

Second, write out your Prior Diligence strategy and create a written plan with the other owners and the stakeholders of the business. State the goals clearly and establish mileposts for performance.

Third, understand that change cannot occur where discipline and focus are weak. If you are not disciplined against the seduction of the irrational notion that you are the only one who can do the production or management work in the business and if you do not continually focus on finding and training one or more people to do the tasks you are now doing in the business, the change will not occur.

Fourth, Take the change in steps over a time period that allows for the complete process to come into place and be effective. The right person with the right set of skills may be hard to find, or it may be necessary to refine job descriptions so that more than one person does those duties. Do not think that you can do it all at once, that it will be easy, or that it will be immediately successful. Citing early difficulties as failures to stop the change process is a failure of discipline – a way to go back to the fallacy that you are indispensable to the business success.

Fifth, be accountable. Make a written plan with the other owners. Let the other stakeholders in the business know what are the goals and how they are to be accomplished. Allow the other stakeholders in the business to help, but understand that if the process fails, it is you who are accountable for the failure. Owners often procrastinate or derail management change based on fear that they will no longer be able to control the business. This is less likely to happen where stakeholders are aware of the process.

The change from producer and owner-manager to owner creates wealth for the owner and the owner's family. It is not easy, but neither is founding and maintaining a successful business. Generally, owners who have created a successful business are quite capable of following Prior Diligence and executing a plan to create increased value for the business interest.

How do you accomplish what is important? It takes discipline and scheduling to accomplish tasks that are important but not urgent. These tasks are recognized as important, yet many people cannot accomplish important tasks such as becoming fluent in a language, learning to play a musical instrument, or writing a personal or business plan because they choose urgent tasks instead.

Here is an example. It may be important to you to stay physically fit. If you are fit now, it is because you have maintained an exercise program over time. Each exercise time was not urgent, but completing each exercise period over time was important. That meant you scheduled each exercise time and did the exercising at the appointed time. You also recognize that if you do not continue exercising, you will not continue to be physically fit. If you allow the “something that came up” to keep you from the scheduled exercise period, you will lose your physical fitness.

The steps: (1) identify what is important, (2) determine what actions are necessary to accomplish the important task, (3) schedule the time for the steps to accomplish the task, and (4) practice discipline to maintain the schedule.

First, what is important? Can you put it in writing? If you can, you have a strategy. A strategy is a narrative of what is important to you. If you do not have a strategy, then create one. But since we have only thirty minutes, let’s not overthink it.

Take no more than five minutes and a blank sheet of paper and list what is important to you. After five minutes, categorize what you have written. For example, you may have written the following list of what is important: “supporting my family, maintaining my health, contributing to the community, and leaving something behind for those who follow me.” These can be categorized into: “family, health, community, and legacy.”

Now take five minutes, look at your calendar, and review the last four weeks. On a separate sheet of paper, categorize the activities and list the average hours per week you engage in the activities. For example, in an average week of 168 hours, you might spend 49 hours sleeping. You might spend 21 hours eating. You might spend 14 hours on personal hygiene and care. You might spend 40 hours working. You might spend 4 hours exercising. You might spend 4 hours running errands. This leaves 36 hours. For most of us what we do with those 36 hours is based on a sense of urgency rather than a decision about what was important. Nonetheless, categorize the activities you did for that time. Notice if any of these categories match the important categories you listed before.

Start with a clean sheet and in five minutes answer the question: “What do I desire?” You should be selfish – list what you want most out of life in terms of what makes you happy or satisfied.

You now have three sheets of paper and we are fifteen minutes in. One sheet lists the first important items that came to mind, one lists what you have chosen to do with your time, and one lists your desires. Is there a coherence? Do the personal values you have as to what is important match how you spend your time? Is that really what you want? A strategy helps us put these things together by documenting your careful consideration of what is important and desired to enable better day-to-day decisions about how to spend your time. In the next five minutes again write down what you think is important but also list the tasks that are required to accomplish what is important. This is a way of articulating your values and is a written strategy.

During the ten minutes you have left, compute the time you have available in the average week and schedule the times you will devote to tasks that are important. The tasks should have reasonable milestones and timelines. The scheduled times should be times you can be focused and productive. You will probably not have enough time for all the things you listed as important. You must prioritize your important tasks (thus amending your strategy). Even if you only have time to complete the tasks for one important project, that is much better than not planning, responding only to urgent items, and failing to accomplish anything important.

In a half an hour you have now accomplished something most people never do. You have a strategy and a plan. Now you have the perspective and a reasonable method to accomplish the scheduled important tasks. The discipline of execution – actually maintaining the schedule and completing the tasks is not easy, but it is impossible without the strategy and the plan.

Keep repeating this exercise and revise your strategy and plan as needed. Hey, it only takes half an hour!

Celebrate reaching your milestones and goals. Enjoy the success and satisfaction that comes from accomplishing important tasks and projects.

Business risk is the risk that the business will falter and the entire investment of time and money the owner placed in the business will be lost. For most business owners the motivation for starting a business is that at some point there will be a wealth building event from business ownership. But it is a flip of the coin – half of businesses started will fail. If you own an interest in the typical small to medium sized business, there is a greater than fifty percent chance the business will fail in the first five years.1 The four most common reasons for failure: (1) poor marketing (forecasting and adequate budget), (2) inadequate management (founders understand production or services but fail to appropriately oversee employees), (3) financing (lack of working capital), and (4) lack of effective business planning.2 From my years of experience as a business consultant, I can tell you that if you engage in effective business planning, your business will not fail. If you are effectively planning, you will not make the mistakes involved in the first three reasons for business failure. Effective business planning, like most worthwhile endeavors, is not easy but for those who learn how it can be what makes wealth building possible.

The wealth building event occurs where the investment of time and money in the business is converted into cash in the owner’s personal account subject to investment risk not business risk. Compare business risk to personal investment risk. Business risk is inherent to the operation of a business – it is the uncertainty about whether a company will be successful and generate a profit. Where the business does not perform well, money and time spent on the business will be lost. For most small to medium sized businesses, the risk cannot be diversified over different markets and products. Investment risk is the risk that an investment will lose value. This can happen for a number of reasons, including factors like overall market fluctuations or inflation. However, a investment portfolio can be diversified and be managed to avoid loss of capital. While there is still a risk of loss with investment risk, as compared to business risk, the risk is greatly reduced. If money derived from the business is converted from business risk to personal investment risk, the possibility of financial independence over time becomes more likely.

The secret of planning is that you have to start at the end and work to the beginning. If you want a wealth building event in five years, envision what that looks like. For a business owner, it will most likely be a sale of the business interest for maximum value, removing the value built up in the business at business risk to cash in your personal account at investment risk. That basic strategy can be the beginning of the effective business planning that will make such a wealth building event possible. I call that strategy Prior Diligence, and I describe how to create and execute that strategy and business plan in detail at my Substack site Owning a Business (https://rickriebesell.substack.com/).

Prior Diligence is a strategy that is the basis for planning to accomplish the result of realizing the highest possible value from ownership of a business interest. The components of Prior Diligence are: separation of the owner from management, the presence of co-owners, the implementation of a buy-sell agreement among the owners, a sale to an unrelated outside buyer, and management of the business with dynamic planning. All of these components are described with more detail in the archives of Owning a Business.

You can begin the planning process at any time, no matter where you are with your business. The important thing is that if you are not planning now, you need to start. The sooner you start, the sooner you will experience the wealth building event.

1 https://www.jpmorganchase.com/institute/research/small-business/small-business-dashboard/longevity

2 https://www.chamberofcommerce.org/small-business-statistics/#:~:text=Many%20people%20think%20that%20small,their%20tenth%20year%20in%20business

There is a well-known Yiddish proverb (der mentsh trakht un got lakht) that man plans and God laughs. It makes you smile because even though you try to prepare for the future, there is always something unexpected happening. As we confront unforeseen obstacles, we are constantly reminded of how difficult it is to predict the future. Often this is cited as a reason not to plan. However, even though we know we cannot predict the future, there are many benefits to planning, one of which is that it enables the question, why did it not happen the way we thought? This is a very different inquiry than asking what will happen in the future. Planning will not help us be any better at predicting the future, but it does allow a better reaction when unforeseen events occur.

In a business, a plan implies a group. A business owner who plans by looking in a mirror will not create a successful plan. The essence of a business plan is the communication of the plan, and almost all the time that means the plan has to be written on some format that will support communication to the group. But the communication must go both ways. The decision-making must involve the group such that it is group decision-making.

The initial plan process is to set goals. For a business, the owners need to understand and be able to articulate their values and they need to perceive the values of the others involved in the business. These values will shape and define the usual goals of profitability and growth.

Setting the business goals will define the entire business plan, which will seek to take actions to achieve the goals. Setting the goals is a function of group decision-making. It is the totality of the actions of the group of individuals that constitute the business that will determine whether goals are met. If the goals of the plan do not make sense to some members of the group of individuals that constitute the business, it is less likely that the plan will be successful. The communication flows both ways where the sense of the group is communicated to the owners before the goals are set. We are defining what is desired as a group for the business. Note that we have not yet tried to predict the future!

The management of a business will create actions to reach the plan goals. These actions will be of varying degrees of innovation. Some actions will be tried and true, while others involve change and a new approach. These results of these actions must be monitored. The minute we rely on a tried and true action to produce results, it does not. Certainly, we cannot depend on new actions to bring reliable results. The actions taken do not have to have the result desired immediately, but the result that does happen needs to be detected as soon as possible so that if the desired result is not occurring, corrections and revisions can be made. Monitoring and revising are the hedge against unknown future events. So we are not predicting the future, but if future events affect results, we need to change our actions to obtain the desired results, the goals of the plan.

What should be the format of the writing that documents the decisions made to set the goals, to formulate the actions taken to meet the goals, to execute those actions, to monitor the effects of those actions, and to revise the actions to take into consideration unforeseen events? The format should communicate from the owners to the managers to the producing employees and back again as decisions are made. A format that supports this communication makes the planning process dynamic. A dynamic planning process eliminates the time delays involved with the traditional planning process. There are software programs that do this, but a simple spreadsheet can also serve as the basis for a dynamic planning process.

Is “strategic planning” an oxymoron? Asking that question and considering an answer gives us a clearer way to look at strategic thinking that will make our planning more effective and make our businesses more profitable. Strategic thinking involves considering the probability of future events, while planning involves detailed descriptions of actions to be taken with current resources to achieve certain goals. How do strategy and planning combine to form a strategic plan? Or do they?

An oxymoron is a figure of speech that pairs two opposing words. Examples of an oxymoron are: old news, deafening silence, organized chaos, friendly fight, completely unfinished, absent presence, and alone together. To reach oxymoron status, strategy must not just be different, it must be the opposite of planning – actions to be taken to reach goals.

Strategy is deciding what is important. It is determining where you want to be. Strategy asks: in what arena will you will do best? Strategy requires computing the probability of future events. None of this is planning. The plan narrative describes how to move toward where you want to be – how to take actions toward accomplishing certain goals – with resources that you now have.

What is important to an owner is determined by the owner’s values, and, for the business, the owner’s values with respect to the business. For an owner, the success of the business will not only be the profitability of the business, but also the receipt personally of the direct benefit of owning the business. An owner’s strategy will define what is important and what needs to be done to deliver the benefit of owning the business to the owner. A statement of an owner’s strategy might be, for example, to own the business not more than five years with a sale for maximum value of the business interest placing the sale proceeds out of business risk and into the owner’s investment account.

Yet, even when owners do strategic planning, which is not often, I do not find a statement of owner strategy in the strategic plan. There are goals, presumably based on strategy, and the “strategic plan” is drafted as a long-term plan for the business with stated goals based on unexpressed assumptions about strategy. Many times when I review such a plan, the goals reflect no strategy other than a purpose to be as profitable as possible. I think this lack of thinking about strategy occurs because thinking about strategy is hard to do. But it is well worth doing.

Creating a strategy need not take a long time but it does take some contemplative thinking – that is the hard part and the part that invokes procrastination. For the sake of clarity, I recommend taking things in order of importance. Start with the values of the owner. Can the owner articulate the owner’s values? If not, the determination of what is important becomes impossible. What are the owner’s values with respect to the business? These of course will be determined by the values of the owner.

Once the owner can make a statement about what is important about the business to the owner, the owner should share these values with respect to the business with the other owners. This sharing requires the other owners also to have the ability to articulate their values with respect to the business. This process of the owners deciding about what is important about what the business does and where it does it is strategy, not planning. Most of the time it is not done, because the strategy step is skipped and the initial step begins with the planning process. What appears to be urgent (“we need a plan”) is attended to while determining and recognizing what is important (determining strategy) is ignored.

Returning to semantics, where the phrase “strategic planning” describes a situation where there is no strategic thinking and a plan narrative is written containing goals based on assumptions, then the phrase is an oxymoron. There is no strategy in that strategic plan. On the other hand, in the sadly unique case, where strategy and planning are two separate functions and documentation of strategy is a prerequisite for setting plan goals, “strategic planning” is not an oxymoron.

Most of us do not wear our values on our sleeves. There are many reasons for this – most of them social. Regardless of social norms, in the arena of business ownership, each of the owners of a business should be able to articulate to the other owners their personal values with respect to the business principles by which the business is planned.

The planning process is well recognized. A business principle is determined by an owner from that owner’s personal values. Your personal values will control your business principles. These values with respect to the business, your business principles, are brought to your perceptions of the marketplace. From that examination, strategy planning goals are set. To implement the strategy, the planning goals are used to determine actions to accomplish those goals, initiate those actions, monitor the effect of those actions, and evaluate the results. As the need to revise the strategy and goals becomes apparent through monitoring, the process repeats.

What work needs to be done to define your values and determine business principles?

The strategic planning process begins with personal values. A value is a personal principle that informs and shapes thoughts, desires, feelings, choices, and behavior. A value is not a preference, but an enduring and essential attribute of character. Most owners are only vaguely aware of the standards and concerns that compose their personal value systems. Most unthinkingly embrace an array of normative standards to which they assume most caring and intelligent people adhere. Few have consciously attempted to resolve the tension that inevitably arises when those standards conflict with situations involving business principles and planning.

It is axiomatic that if you exercise personal choice in the development, management, consumption, and disposition of personal and community resources in harmony with your core values, you will likely experience a sense of self-fulfillment and personal well-being.

For each owner to agree with and support a strategic plan, the business principles identified from the owners’ personal values should appear to that owner to enhance the owner’s sense of well-being, including a sense of self fulfillment. Even if values that identify business principles are not articulated, owners will still have a sense of what they are. Plans which conflict with these values will not seem right and not be satisfying to the owner. To avoid this conflict and unease, it is essential for each owner to think about their values with respect to the business when identifying business principles and make these values known to the other owners. The initial and primary task of the owners must be to think about values and define their personal values.

For the corroborative effort of the owners to determine principles and plan based on values, they must engage in serious conversations and in so doing be able to articulate their values such that the principles upon which the strategic plan is based are considering each owner’s articulation of values. Doing this will provide a sense of personal well-being and self-fulfillment for all owners. For this to happen, there are two requisites. The first is that the owners have done the thinking to define their values. The second is that the owners can articulate their values to one another.

If an owner’s value system is to serve effectively as the framework for the formulation of the succession plan, the owner must do the thinking to define the owner’s values – to clarify and prioritize the components of the personal value system. To bring clarity and order to the owner’s personal value system, the owner should reflect on the circumstances and experiences that have informed and shaped the owner’s hopes, fears, and perspectives. The product of this reflection should be memorialized in writing. The writing should be reviewed and altered from time to time to reflect changing circumstances and perspectives.

Once there is a writing describing the personal value system of an owner, that system should be applied to the business and what it represents to that value system to identify the business principles. These business principles are the owner’s values with respect to the business and its specific activities. One owner may want to own the business for their entire working life. Another owner might want a family enterprise. An owner may want to build value and sell within a time frame. There are as many possibilities as there are owners.

Each owner should define that owner’s personal value system and be able to bring an articulation of that value system into conversations regarding the conduct and ownership of the business. Each owner should be aware of the principles of conducting a critical and difficult conversation so that those conversations result in increased understanding about the values and feelings of the other owners. With this competency in place, the initiation of the planning process becomes a source of cohesion among the owners and the basis for corroborative group decision making resulting in sustaining and effective business decisions.

What feeling do you have when you see something different in the workplace? What about encountering a new experience? What if someone suggests something that is “off the wall?” Is someone laughing when you do not know what is funny making you feel left out? Do you have an impulse to make fun of something that is new or different? Is your response to deride someone or something new or different? Realize that when your reaction to change is emotional and results in derisive actions, often that reaction is based on fear.

I once had a trial lawyer friend of mine tell me that he knew he was doing well in the courtroom when the opposing lawyer started raising his voice. He smelled the fear.

Wild animals are most dangerous when cornered and afraid. You can smell the fear. The remedy for the situation is to back off so the animal no longer fears being cornered. Most wild animals when given the chance will simply run away.

Many of the traits associated with arrogance, such as acting in a derisive manner toward people who are different or rejecting out of hand suggestions offered that are new, are actually ways of masking fear of inadequacy. Actions displaying arrogance often come from someone feeling cornered and attempting to hide concerns about one’s ability. You can smell the fear.

Contrast that with the actions of a humble person who has respect for the thoughts and feelings of others. The person who exhibits kindness and respect toward people representing change shows confidence and courage. These actions do not mean that there is agreement or acceptance of any given situation, but it does support an opportunity for dialogue that is necessary in a group decision-making environment. Where respect is the basis for communication, you cannot smell the fear.

When I am in situations where people are being derided or new ideas are being ridiculed, I can smell the fear. What I ask is: where is the fear coming from? What is the inadequacy that is being masked by abusive behavior? How can these fears be addressed? Realize that these actions are acts of cowardice and fear. Try to understand where the fear is coming from and address those concerns. Allow space for understanding by modeling the humility, courage, and confidence that should replace the fearful actions.

Unfortunately the reaction to boorish and aggressive behavior is often anger, which leads to a mirroring of the boorish and aggressive behavior. The urge is to be aggressive and corner the person who is acting out. It is better to recognize the fear causing the arrogant behavior and act in a humble way to allay it and foster future and more productive communication.