Do you have enough tools? Do you have the right tools?

Brett, my business partner for the past 15 years is a DeWalt Junkie!  He has saws, drills, combo sets lights, vacuums and every imaginable product made by the DeWalt Company.  If it comes in Black and Yellow, it is sitting in his garage.  Now mind you I do have 5-6 DeWalt items on my workbench, but Brett he is truly the collector’s collector.

Over the years we have had a lot of fun at his expense with practical jokes. Once an employee contacted DeWalt and learned a Vice President of the company was in Seattle to meet with some dealers.  The employee explained how Brett had nearly every product ever made by the company.  The VP agreed to stop by the office to present a special award to Brett for his faithful acquisition of the entire catalog.

Another time on April 1st the same employee put up flyers around town saying “DeWalt Tool liquidation, my wife says everything must go.” We laughed as he got calls all day long on his cell phone asking if he was selling various DeWalt branded tools.  Eventually he found out about the prank and understood the interest in his tool collection.

In business like in the garage, tools come in handy when you have experience using them; have access and the perfect application to maximize the use of the given tool.  DeWalt sells a 90 degree drill to assist in tight fits when the full size drill won’t fit. I may not know when I will need it again, but it sure was handy when I needed it.

Planning the exit from your business requires the use of the right tool to accomplish the desired goals.  Sometimes this is a management buyout or gifting program to transfer the interest to family or management members who are equipped to take on the leadership and ownership role.  Sometimes, the best tool is an ESOP, to reward the employee base and build a culture of ownership amongst the entire organization.

If you know your goals as the owner, then choosing to deploy the right Exit Planning tool can make the job efficient and effective.  I recently heard the phrase “Owner Motives Matter Most”, this is true in all exit planning, but getting an independent opinion on the selected successor is critical that the motives of the owner will result in a successful transition.

We have all heard of family owned business statistics that demonstrate that succession plans often fail at the second or third generation. I coined the phrase that “Not all your family DNA may have the MBA to be successful”. My point is family does not always have required talents and mindset to assume the management and ownership of the business.

I have seen this first hand in small and large companies.  When I use the term MBA I don’t mean the Master’s in Business Administration degree, but more the clear understanding that the business is a fragile organization that can be damaged by neglect, abuse or abdication.   It is not a slot machine that churns out money by pulling the handle.

In the past 3 years I have met two business owners in their early 70s who had desired to transfer their family business to their daughter and their sons.  In one case it only took the daughter a couple of years to undermine the company and require that dad come back to work full time, without a salary to salvage the company.  In the other case two sons who had worked in the company since high school had never got along, much less supported their parents in the business.  They took a salary, vacation and an attitude that they were owed the business. One son drove it to point of bankruptcy by his financial mismanagement and the other refused to invoice customers timely because he didn’t like to be bossed around.  In both cases the DNA was lacking the MBA to make for a successful transfer.

Succession plans fail when the decision is made to pass on the business without properly vetting that the family member or management team members are not capable of assuming the risk as well as rewards as the owner.  The error in judgment is that of the parent, not the child who can’t assume the role.

The right tool in the hands of the right worker can make the job go smoothly and build something that will last for generations.  The right tool in the wrong hands, or wrong tool in the right hands can both result in a disaster.  Consider the tools you need and make sure you properly train anyone else to use them before sending them off to learn on their own, at your expense.

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