Exit Strategy: A “Soft” Look on Business Succession

It is never too late to start paying attention to the “soft stuff.” If you are a baby-boomer business owner thinking of retirement, this “soft” approach will help you find the right exit strategy and keep your business going.

FOR SALE: Family Castle. Needs Work.

There is a unique old Castle somewhere in Central Europe: instead of water, it has wild bears roaming its protective moat.

Perhaps, it was a challenge to maintain the required level of water in the moat, thus the owner came up with this “lean solution,” arguably the first one on record, that other castle owners would find questionable. Luckily, the castle has since been repurposed as a tourist attraction, and should the owner decide to sell the Castle now, the bears will be listed as one of its unique benefits by the investment broker, so this innovative solution does not bring the price of the castle down.

As a business owner, you, too, must have implemented quite a few creative solutions to the problems your business had faced throughout the years. Not all of them are revenue-generating features, definitely not in the eye of an outsider.

If you are one of the baby-boomer owners pondering retirement, now may be the time to take stock of the wild bears still roaming around, before you put your Castle up for sale.

“I have another 3 to 5 years. No rush.”

Hopefully, you have several more exciting business years ahead of you. In fact, preparing the business for the transition will extend your stay. But like with planting that proverbial tree: the best time to start working on your exit plan was 20 years ago; the second-best time is now.

To avoid a fire sale, you may need up to five years to get the business ready for your exit. Get your trusted banker, taxman, and lawyer involved to help you plan a good exit strategy. Although the final amount that you get for your business is often less than what you may have had in mind, it can be improved significantly if you follow the experts’ “hard” advice.

Overall, the price you will get for your business is determined by its perceived long-term value. Serious buyers will not be deluded by your last quarter’s results; they want to see a business that is standing firm on its feet. Their perception will depend a lot on what they see and hear during their inspection visits to your business, i.e. on the “soft stuff,” such as people, processes, your organizational culture.

In a way, this is akin to “staging” your business: if you fail to do it properly, your Castle may stay with a For Sale sign forever.

“No worries about your soft stuff. Kids will take over.”

If you have children – or someone in the family – who can carry your torch, congratulations! But make sure that they are willing to do just that. The Millennials are taking the world over, but their goals and values may be different from what your business is built upon.

Today, there are more retiring business owners than aspiring entrepreneurs who are ready and willing to take over the controls. The “problem” with the new generation is that their worldview may be different from what is natural to you. In other words, their values are not aligned with the historically evolved Purpose of your company, and the prospect of becoming a business owner does not fit their mindset. It is another “soft” area of the business transition that may be facilitated by a specialist.

Have you talked to them about the succession yet? What will you do if your younger relatives do not want to get on board?

“I’ll hire a professional to run the business as CEO, and set up a Board.”

Indeed, some owners, reluctant to let go of the company they’ve spent years building, plan to hire a professional. It is also popular to create a Board to support and control the CEO. All that sounds technically feasible, but that is not an optimal option for the outgoing owner.

Even if you find the right leader (and that’s a daunting and lengthy process) who will replace you “perfectly,” do you seriously believe that you will be able to safely disconnect from the business? If yes, then what has prevented you from taking a real vacation all these years?

Arguably, setting up a Board of Directors is not a panacea either. With all due respect, the Directors will not own the business. If they are so dedicated, offer them to become your partners and to pay for their share in the company. That will show how much skin they want to have in the game! In the meantime, sharing the ownership will start the business transfer process for you.

As the new co-owners may not have the money to buy you out right away, and if you are not ready to let go abruptly, the idea of gradual transition may sound attractive. The caveat of this slow exit is that the transition period brings additional business risks. As the new owners are not yet bearing the full responsibility, while you are partially removed from the controls, their actions may drop the value of the company.

Again, if you decide to hire an interim CEO or set up the Board or agree to share the ownership, the “soft stuff” becomes critically important. The approach that seemed to have worked for you before, “I know the right person when I see one,” is not reliable when the future of the most important family asset is at stake. The future value of your business depends on how well the new leaders are aligned. With more cooks in the kitchen, you may actually get a better broth, if your new CEO will help bridge your “legacy” culture with the future-oriented culture that your buyers may find preferable. To assess this alignment and to mitigate the associated risks, you will need to have a “soft” performance specialist work alongside your team of “hard” experts.

“OK, I’d rather just sell!”

There are many agencies that are ready to take you through the business transfer process, and, again, you should start with your own experts, both “hard” and “soft” ones. Even if you do not care what happens to the business after the sale, the “soft factor” is still important for both the buyer and the seller. Here’s why.

As a seller, you will get a better price if your people are aligned within their teams, and the teams and the leadership are aligned with the Purpose of the company. Quoting Elon Musk, “Every person in your company is a vector. Your progress is determined by the sum of all vectors. … Pulling hard is worthless if you’re not pulling in the same direction.” This alignment is what makes the organization efficient – improves its revenue and decreases costs – and brings up its perceived long-term value and hence the sale price.

For a healthy business, management buyout (MBO) is one of the most popular ways to sell a family business. This option may be preferable compared to selling to competitors or a private investor, as the buyers are already intimately familiar with the business and aligned with its Purpose. Worker cooperative conversion (WCC) is a variation of the MBO. The difference is that almost the entire staff (and not just the managers) become the new owners. In either case, if the agreement is reached, the ownership transition has a good chance to pass unnoticed to the business – and you will be assured that your good cause will continue at least for some time.

“So, we are good, no need for your fun ‘soft stuff’?”

Assuming that your staff is in a position to acquire your business, the MBO/WCC option may be the best way forward if you have decided to let go of the Family Castle. This plan works well when the management is ready and the entire team is engaged. In other words, MBO may be a preferred option when your business is in good health, i.e. your “soft stuff” has been taken care of.

Your organizational health is precious, but have you checked it lately? Like with your own health, it is advisable to have your organizational health checked regularly. This way you will be able to identify problems and work on them before they turn into a debilitating malaise driving your revenues down and dramatically cutting the value of your Castle. With the business health in check, your exit will look and feel differently even if you sell to an outsider, and your For Sale sign – in case you ever need one – will change.


It is never too late to start paying attention to the “soft stuff.” Perhaps, if you start doing it soon enough and get your successors involved, you will be able to realize your initial – and best – plan: hand off a strong organization to your children.