There are two major themes we hear a lot about regarding Baby Boomer business owners — they created huge numbers of private companies in the last 50 years, and there is a massive wave about to roll over us as aging Boomers need to sell their companies and retire. What is rarely discussed, however, are certain tendencies of that generation which, more often than not, threaten to destroy the value they’ve created.
There are plenty of value-destroying traps Boomers repeatedly fall into, and we roll these up into three major mistakes. Any one of these will seriously inhibit or destroy a company’s value if left uncured. Unfortunately, most Boomer owners are guilty of all three.
- Holding on too long
- Failure to transition from founder to CEO
- Blindness to the market’s point of view
Armies of buyers and professional advisors profit handsomely from unprepared Boomer companies. As a result, the hapless business owner almost never gets the memo. But the difference is enormous for those who have learned to make the transition and who work purposefully to avoid the three fatal mistakes.
Holding on too long
We all age. Boomers are moving into the stage of life where physical capacity — sometimes mental capacity as well — begins to decline. This ticking clock is no setting in which to negotiate a sale of your company. Time and gravity will ultimately do their thing, and a buyer wins this game simply by waiting. At the end, they will be all too happy to deal very kindly with your widow.
Building a valuable company takes excellent leadership and competent management. But excellent executives with the skills to take it to the next level will only wait so long. An aging Boomer who tightly holds all the cards — and equity — will find the best members of his team abandoning ship if not given the respect and opportunity to lead and the ability to profit from their contributions.
Can’t transition from founder to CEO
It takes grit and determination to start and grow a successful business. The only way is for the founder to own every detail in the early days, to take responsibility, to get it done when no one else can. But those very drivers of success become seeds of decline as the business grows and matures. Like shifting a car to the next gear, building a valuable company requires leadership that nurtures and encourages skills in others, where patience and vision is deemed a virtue and where tolerance of others’ mistakes is valued as an investment in developing leaders.
Unfortunately most private company owners don’t make the transition from hands-on founder to empowering / managing / leading CEO. Small companies that become big find a way to evolve their leadership model from the supreme doer to the leader and developer of other leaders. Failure to make this shift most definitely caps growth and valuation, though again, there are hordes of buyers with ample capital to buy these companies cheap and reignite growth by investing in a team of qualified, motivated leaders.
Don’t see their company as a buyer would
Builders of successful private companies tend to be insular in their view of the (business) world. After all, it takes single-minded energy, focus and determination to manage all aspects of the business to the point where the company is profitable and stable. The danger is that the owner fails to see that his/her company is one of possibly hundreds like it, but that is exactly the viewpoint of a buyer or investor. In today’s hyperconnected world, the availability of companies to buy or invest in is almost unlimited.
The typical Boomer owner, having given his/her life to the company, has a hard time adjusting their perspective to see their life’s work as just another deal, which in many cases, is just how a potential acquirer sees it. It is a common belief among buyers that most owners are an obstacle to successful transactions for the following reasons:
Unrealistic valuation. The owner believes the company is worth much more than where the market for such companies really is. Truth: the market sets the price, not the owner.
Don’t know drivers of value. Beauty is in the eyes of the beholder, and the key to value is what buyers are looking for, not what an owner thinks is attractive in his/her company
Focus on profits, not value. Profits are important, but well capitalized buyers and investors may have other objectives. Running your company to maximize profits may completely miss an opportunity to achieve a superior valuation.
Won’t share their story. Desire for privacy is understandable, but you need to get your story out to the right audience in order to separate your company from the competition and the myriad options that buyers face. Hoarding the good news impresses no one.
Check yourself: are you falling into one of the three big traps? Perhaps you’re guilty of all three? Understanding where you are and making the necessary adjustments provides a huge boost to the value of your enterprise. It’s well worth it. And in today’s market there are potential partners out there with more capital than you will ever need to take what you’ve created to the next level.
There is just no good reason for hanging on so tight any more.
[Note: for more on the upcoming glut of Boomer-driven M&A, see this article.]