By Bob Stewart
I’ve been thinking a lot about my own mortality lately. That’s probably because a number of people close to me have died. We so easily forget that the circle of life on this planet far too soon will no longer include us. Tempus fugit.
In the context of advising business owners, this realization reinforces for me the importance of planning ahead. Prepare yourself and your business for change. Although we can’t easily predict what change is next, we do know that change is inevitable. Those businesses that do best during times of change – at least relative to their competitors – are often those that have made contingency plans for possible changes they can predict, and those they cannot.
As my colleague Steve Coleman often says, “The best time to plan is when things are calm.” He is so right. Let me highlight a few predictable changes that every business will encounter and maybe identify some contingencies for which they can create plans, even if they never need to use them.
Most business owners or CEOs I know hope their businesses will outlast them. But not every business owner plans for the transition. It is too easy to keep doing what they’ve been doing, sometimes justifying it by staying too busy to be able to work on a transition plan. Many have trouble separating themselves from their role as the leader of a business. But a sensible steward of that business will have two plans for business succession – one if the need for a new leader arises suddenly, and one that permits a more measured turning over of the reins.
As a leader, you must do this or risk doing a tremendous disservice to the business you have worked so hard to grow, and to its owners—whether that be just you, a larger group of owners or your heirs. You are not indispensable. None of us are. Prepare your successor. Train them. Trust them. Get out of their way, when the time is right. And remember, a strong board of directors and a sound governance structure are important when successfully transitioning to the next generation of leaders.
Big Change in Sales
Have you and your leadership team figured out how your business will respond if any of these happens?
- Your business loses 60 percent of its annual revenue because key customers have found a better alternative.
- A new customer wants you to increase production by 400 percent to meet its needs.
- New technology makes your business’s primary product or service obsolete.
- Your top salesperson goes to work for a competitor and is likely to take key accounts away from you.
Understanding how these changes may impact your business will help you respond rapidly to a change if it occurs. A quick response could be essential for sustainability of the business. One important additional benefit of planning is that you will often see ways to improve your business model today. And plans for scenarios such as those described above can sometimes be quickly modified and adopted to address other unforeseen circumstances.
Supply Chain Interruptions
Most production businesses have become used to Just-In-Time raw materials or component inventory ordering. It is a great system for minimizing cost and risk, when it works. But your management team needs to think about what will happen to your business if any of the following occur:
- Your company’s primary supplier becomes insolvent.
- For political reasons, there is no longer a flow of goods from the country or countries where most of your company’s components are sourced.
- If supply from your primary supplier(s) is disrupted, and your secondary supplier is unable to meet your business’s needs.
- The cost of a key component doubles.
Few businesses anticipated the kinds of supply chain interruptions that ensued as a result of the COVID-19 pandemic and more recently, the war in the Ukraine. Whether because of a dislocation of shipping containers or an absence of computer chips, many production businesses were forced to pay for idle equipment and labor forces. Do you know the cost of buying and storing materials? Do you know the cost of idle labor and equipment? What are the true risks?
Consider this kind of planning for your business. Particularly if things are operating smoothly right now. And if you would like some help, or simply answers to a few questions, drop me a line at firstname.lastname@example.org or call me at 612-964-8072. As Pablo Picasso says, “Only put off until tomorrow what you are willing to die having left undone.”
Bob Stewart is a Partner at Platinum Group. An attorney, CPA, business manager and entrepreneur, Bob has extensive experience in international business, negotiating complex business transactions, turnarounds and mentoring across a variety of industries. He enjoys filling many roles including those of interim manager, corporate oversight, general counsel, consulting advisor and transaction specialist.