Entrepreneurs who have built a business from the ground up and nurtured it along the way, often end up with strong emotional ties to their companies. Too often though, emotions can get in the way of sound business decisions, and a leadership change may be in order.
Every company faces challenges over time, and adjustments need to be made to ensure long-term growth and profitability. For example, an economic slowdown may necessitate a layoff, or the rise of new competition may require an investment in R&D or a new partnership.
In addition, business owners may face personal challenges or life changes that reduce their effectiveness. A personal tragedy or illness may prevent them from managing the company effectively, or other priorities might get in the way of progress. If this is the case, the CEO should give serious thought to his or her role.
Unfortunately, strong emotional ties to the business can prevent CEOs from objectively deciding whether to stay or step aside. In addition, many business owners don’t realize that his or her leadership effectiveness has declined. For a middle market business – companies averaging $25 million to $500 million in revenues – an ineffective CEO can turn a company upside down quickly.
CEOs Should Review Their Role and Effectiveness Periodically
As a middle market business owner, you should review your role in the company and evaluate whether or not you are still the best person to be at the helm. A reputable investment banker can offer an objective viewpoint. He or she can also provide options for transferring ownership, selling your business, bringing in strategic partnerships and more.
Even if you are confident that you and the business are moving in the right direction, be honest with yourself today. Make a list of reasons, actions, significant events and other benchmarks where you will agree to shift your exit strategy into high gear. Then share this list with your trusted advisors and review it annually.
Look for the following signs when evaluating whether it’s time to make a leadership change.
1. Your health is declining. You can look at this two ways. Either your business is negatively affecting your health, or your declining health is preventing you from fulfilling your duties effectively. If neither of these two instances is short-term or temporary, your or your company’s health (or both) may suffer irreparably if you don’t step down.
2. You’re just not that into it. Have you lost the passion you once had for your business? If you don’t have that spring in your step that propelled you to the office or a meeting in the past, check yourself. How long have you felt this way? A CEO without passion is like a boat without a sail. It’s just going to drift along, and who knows where it will end up?
3. Other priorities are consuming your time. Many successful entrepreneurs will tell you that they sleep, eat and drink their businesses. To get to the top, they made many sacrifices, and building the company was their No. 1 priority. As years pass, interests change (other business ventures, personal relationships, charitable obligations, etc.), and priorities may shift. If your business is no longer a top priority, it may be time to hand over the reins to someone else.
4. Something is holding you back from investing in growth. A number of things can deter CEOs from investing money in their businesses.
- They just don’t have the money.
- They are afraid (of outside influences, new technology, intelligence or markets, etc.).
- They don’t know what areas of the business would best prosper from an investment in growth.
- They are satisfied with the status quo (“We’ve always operated this way, and it’s worked.”).
CEOs who are hesitant or unable to invest money in their businesses, should weigh their options with a reputable investment banker. At Allegiance Capital Corporation, we can help you evaluate the marketplace and review possible sale and investment scenarios. We specialize in developing compelling marketing plans that show buyers exactly why a deal is in their best interest and can connect you with the right investors.
Be Prepared for a Graceful Exit
Today may not be the right time to step down from your middle market business, but that day is inevitable. The more prepared you are to depart at the right time, the better off you and your business will be financially.
An investment banker from Allegiance Capital Corporation can help you review options for selling your company, develop a plan to market your business and give you alternatives to selling that will help your business grow. To schedule a confidential consultation, call us at (214) 217-7750.
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Keywords: entrepreneur; CEO; selling your company; exit strategy; selling your business; middle market business