Lately our company has been working with New Zealand Trade and Enterprise on how to solve the succession problem for business owners.
This issue has occupied my colleagues and business acquaintances for number of years. Of particular urgency is the lack of leaders to succeed baby boomers in the New Zealand market.
The famous line about business owners wanting ‘the boat, the bach and the BMW’ is outdated.
The new, post-GFC paradigm is ‘bought, burned or buried’.
That is, owners sitting around waiting for buyer with fat cheque are out of luck. Rather, their options in the new environment are the following:
BOUGHT – For the very good businesses (<10 percent of the market) that are always positioned as ready for sale, there will be opportunities to be sold to competitor organisations in the same sector.
The private-equity-backed businesses and the effective business leaders who are prepared to invest in acquisitions and market consolidations are likely to be in acquisition mode over the next three to five years.
However, they will be acquiring businesses for much lower earnings multiples than were prevalent in the mid-2000s, pre-GFC. The PEs that were paid in that period were fuelled by cheap access to large levels of debt, which is now no longer available.
BURNED – Most business owners are going to get burned off by businesses that are well advised, probably involve private equity, and have smart, independent board members and very effective executive teams.
These businesses will burn off large number of participants in each market sector by simply being better led, better managed, more agile, and more effective and active users of technology – GPS, CRM systems, successful ecommerce and more.
Many business owners of medium-sized organisations which are smaller participants in their sector will be burned off by more effective operators.
BURIED – Many businesses will die with the owner, leaving their families very little financial legacy, broken or broke business – and potentially load of issues to resolve.
It might seem sensible idea to potentially wind business down by not investing, and failing to grow, in favour of the immediate return of comfortable lifestyle. But the upshot is often an uncomfortable lifestyle for the dependents of business.
The ANZ Business Barometer for 2011 shows companies that have truly independent board members or advisory boards are succeeding better and are more positive in outlook than those who are still “DIY”.
Businesses with growth above four percent are much more likely to use external advice. Only those with clearly defined and realistic growth plans and people who can execute these plans will progress to the “bought” category.
Who would have thought that young upstart business like Fishpond could compete with Amazon.com, Whitcoulls or Paper Plus? – but they are. Or that you would go online to buy your authentic All Black supporters jersey.
These new business models and methods are burning off old business models and burying unprepared business owners.
Without an independent advisory board watching out for you, how can you be sure you won’t be the next to be burned off or buried? M
Don Jaine is co-founder of executive search firm SEQEL Partners.
