Monday, June 15, 2009

Better Decisions = Better Exits

For many years, I have been writing and saying that business owners are making decisions every day in their businesses, and, for the most part, they are focused almost entirely on running and growing their businesses. If these same owners would include an exit plan in their decision-making process, their decisions would be more aligned with a future exit and they would be more successful in protecting (and capitalizing) on their illiquid business wealth.

Well, I have always known that to be true. However, what I learned this week opened my eyes to how owners can begin to truly make better decisions. I find that sometimes simple concepts can alude us until someone presents the ideas in a simple manner. That is what happened as I listened to a new friend, Mickey Moore, present the way that owners make decisions.

Mickey walked through an example of how large companies make decisions. He contrasted this against how owner-operators make decisions. The contrast was dramatic but the solution to bridge this gap is not so difficult that it cannot be understood by any advisor or consultant.

You see, a large company makes decisions following a process. They make decision-making a science. Now I am not discounting the ability of an owner or manager to use their intuition to make major decisions. The creative process is not removed from these decisions. Rather, the science of making decisions is 'data driven'. The scientific way that you would analyze anything you want to investigate can be applied to small businesses if an owner will merely accept the fact that the right data can help them make better and more profitable decisions.

You see, most owner-operator business owners are treating decision-making in their businesses as a 'craft'. The creative process almost entirely drives both their tactical and strategic level decisions. The all too common problem with the way these owners make decisions is that they do so without the inputs of the market, their customers, or other professionals who can assist them with the running and/or exiting of their businesses.

Mickey built a software program to help with this decision-making process. Beyond simply surveying customers, vendors, and the marketplace, Mickey's software analyzes why certain responses are relevant to the customer and how a small business can easily meet this customer's needs.

Interestingly, I started listening to Mickey's presentation less as a consultant, and more as an owner of a fast-growing business. I started asking myself how I was making decisions. What information was I relying upon? How well had I surveyed the exit planning marketplace for insights as to what you would find most helpful in a support program for advisors and consultants.

And then I thought about the owners that I work with on their exits. For years I have been watching these owners make critical decisions, only to tell me about them weeks or months later. It may not have been my role to participate in these decisions, but it was so obvious to me, as their consultant, that it was the wrong decision to be making.

Mickey summed up this dilema nicely . . . he said that most small business owners 'self-correct' their way to success. This means that the game of 'trial and error' is played every day by owners. When fully analyzed, the main problem is that bad decisions are very expensive, on a relative basis, to small businesses that have limited resources. Taken as a whole, this leads most new small businesses to go out of business and many established small businesses to lose the opportunity to maximize their profits and return on investment in their businesses.

Taken in the context of exit planning, this dilemma is even greater. You see an owner cannot 'self-correct' their way to a successful exit. Unlike the nature of decision-making in the growth of a business, an owner needs inputs up-front before they begin executing on exit decisions. As the largest financial transaction of every owner's life, the decisions that are made are critical to success.

So, what data is available to these owners to make the right / best decisions?

What process is in place to guide these owners through their growth and exits?

Who is trained to help these owners with this critical planning phase?

How can we, as advisors, ask the right questions and provide the right data to help these owners come to the best conclusion about how they should exit their businesses? Well, for this emerging exit planning space, the resources are very limited and the need is very great.

If you spend some time thinking about this problem in the market you will likely realize that you are perfectly positioned to deliver these solutions to the owners that you serve. In the process of helping owners make the right exit decisions, you will earn the role of trusted advisor and command a fee and income that is proportionate to the value that you bring.

Ask your owners about how they are making decisions. Be confident in your ability to help them. Continue being a student because the landscape of business keeps changing. And be wary of the data that you collect and the sources that you rely upon for your own decision making. Give this advice some thought and see how it impacts your next conversation with an exiting owner. You will see the difference in the conversations that you have with owners and, likely, will start making better decisions for your own practice as well.

Thanks again Mickey for a great lesson.

Looking forward to seeing all of you at our upcoming workshops.

© John M. Leonetti

Specializing in Business Exit Strategies, John M. Leonetti, Esq., M.S. Finance, CM&AA founded Pinnacle Equity Solutions to provide advisors with the tools they need to incorporate Business Exit Planning into their advisory practices. To learn more about John's Exit Strategy Services and to receive a FREE copy of his special report, "How To Incorporate Exit Strategies Into Your Advisory Practice", visit Pinnacle Equity Solutions

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