Business Planning Includes Succession Planning

Not long ago two brothers I knew had a landscaping business.  They told me that they had recently taken out life insurance on each other in case one of them dies so their families and business’s debts would be taken care of.  One brother was against it, while the other was in favor of it.  But he acquiesced.  It is a good thing that he did.

A few years later, one of the brothers had a fatal accident while working.  The other brother was left to run the business.  He was so happy that the insurance was in place that it helped him continue the business and take care of his brother’s family to the extent that his nieces and nephew could attend college without worrying about the expense.  It was due to the fact they had taken out the life insurance policy.  Now that business has been taken over by the surviving brother’s son-in-law and is doing great.  A second-generation business.

Think about this:  if you suffer a heart attack and need time to recover, you need the ability to have other people step in and manage the business and pay the bills.  Exceeding a month’s convalesce could mean that you could lose the business.  A successful neighborhood fish business was being sold.  The agent told me that the owner suffered a debilitating heart attack and could not return to the business.  He had no insurance.

Owners of businesses should plan a “what if” scenario indicating in writing who should take over his tasks.  Perhaps it is a trusted staffer, relative or friend who could sign checks and purchase orders, and have access to accounts and records.  They should purchase insurance that provides money to hire someone to run the business if they become incapacitated for an extended amount of time. If there is no one running the business, vendors and customers might get nervous and discontinue their patronage.  Bankers can decide to start calling in credit.

These stories should make sole proprietors and partners consider succession planning.  Some owners feel that their children will take over the business.  It rarely happens – children want to do their own thing. Other management options to consider are current employees, customers or competitors who would purchase your business.

Finding your replacement is difficult so plan ahead, it is best to start early. Leaders are not always easy to find and it takes time to mentor someone into a management role. You will need to identify potential successors in your family or among your employees. You can hire from outside the company, but it’s helpful to groom someone already in your business over time so the transition to new leadership will be smooth.

Planning for continuity or retirement wise.  Be sure to do it!

When Plan A Doesn’t Work

The entrepreneur sets out to create or manufacture a product for a certain target market. We hold focus groups and send questionnaires and analyze their responses. We analyze the competitive marketplace and determine that we have a viable product. We do all the things that the marketing gurus say we should do to communicate our product to potential customers.  We forecast the sales we believe we could achieve and cover our costs well enough to provide a profit.

We launch and we are excited about our product, but something happens along the way.  Those customers whom we targeted are not infatuated enough with our product to make it sustainable.  Our sales forecast is not met. We are losing money.  What happened?

Perhaps you created a product that would saturate the market in a few years.  Were you wise enough to have created a core product so that you could change it or modify it into another product that would attract the same customer group who purchased the initial product?

We gather our team together to discuss the nature of our product.  Did we create value for the price offered?  Did we make it easy to use?  Was there something else in the marketplace that we did not discover?  We invested all this money on plant and equipment, inventory, and personnel, now what do we do? Give up? NO! We pivot.

Pivot?  What does that mean?  It is “a structured course correction designed to test a new fundamental hypothesis about the product, strategy and engine of growth.”  (See, The Lean StartUp by Eric Ries, Crown Business, 1978). This is a word that is especially used in the start-up technology world, but it has application for other industries as well.

When your business model is not working, you leave Plan A and turn to Plan B. You reimagine your product and your market. You find another use for the product, or we target another customer group.  We review how the original customers used our product.  Do they use it in the same way that we anticipated?  Is the size of the product appropriate for the customer?  Can these customer interactions be made more lasting and valuable? Can the recurring revenue services and products extend beyond the initial sale?  You are not alone in making changes.

There are many companies which started off with one idea and then had to change it to another idea.  These include:

Twitter  –  from Odeo which offered a network where people could find and subscribe to podcasts.  But I-Tunes came into being as a strong competitor.  Then they brainstormed and came up with the microblogging platform Twitter.

PayPal – originally allowed people to “beam” payments from their PDAs.  After merging with a financial services company called X.com, PayPal became the preferred payment system for EBay.

Instagram – It began as Burbn, check-in app that included gaming and a photo element as well. The owners worried about its clutter and potential actions.  They stripped all the features but one: Photos.  So, they rebuilt the app and focused solely on photography.

Wrigley – Wrigley, a salesman, offered chewing gum for the purchase of his soap and baking powder.  The chewing gum became more popular than the soaps and baking powder.  He went on to manufacture his brands: Juicy Fruit, Spearmint and Doublemint. The rest is history.

Fab.com – began as Fabulis, a social network targeted towards gay men. Although it tanked, in their side jobs the founders had a knack for selecting products the customers liked.  And took a new direction with Fab selling hand-picked home goods, clothing and accessories.

If you find yourself in a position like those above, don’t fret be innovative and pivot.  Find a use for your existing product, or change your target market, or even use the customers you currently have to develop a new product.

Sources:

What “Pivot” Really Means by Alan Spoon, Inc.com, August 10, 2012

Anatomy of a Business Pivot, by Mike Periu, American Express Open, Oct. 28, 2013

14 Famous Business Pivots by Jason Nazar, Forbes, Oct. 8, 2013