For all of the posts, presentations and lectures I share that highlight the “Four Steps of Effective Strategic Planning”, the truth is, some organizations have a (much) more difficult time solidifying their growth path than others do. One of the most frequent requests I receive as a strategic advisor originates from small to mid-size businesses with multiple owners who are struggling to find their common ground. While I have seen many different factors leading to such disparities, the most frequent is contrasting business priorities among owners, typically because they are at different phases of their careers. This can be a significant roadblock that leads to rounds of tug-of-war among partners (instead of alignment)…and often with very high stakes.
Staggered retirement of partners is typically thought of as a stabilizing force for an organization, however, when it comes to growth strategy, I have observed a number of scenarios that pitted more established partners dedicated to minimizing risk and preserving investment vs. emerging partners eager to explore opportunities for growth, expansion and diversification. The conflict is natural and understandable…after all, the closer we get to retirement, the more risk averse we become in our own individual portfolios. Why would it be any different for business owners going through the same transition? It isn’t a battle of old vs young; it’s simply human nature.
WITHOUT STRATEGIC ALIGNMENT, UNCERTAINTY PERMEATES THE ORGANIZATION
Organizations led by multiple owners with conflicting priorities have to address this impasse in a number of ways, but one of the most challenging is the strategic planning process. How aggressive can the company’s growth goals be when all of the partners are not aligned behind the vision? In the face of this uncertainty, two facts are clear: (1) The only acceptable outcome is to develop a streamlined strategy with all stakeholders aligned behind it; and (2) Until such alignment is achieved, the balance of the organization is going to be impacted by the disruption and lack of cohesive direction.
One of the most illuminating examples of this that I have experienced stemmed from a professional services firm that outreached to me last year for guidance. The organization was nearly 50 years old and had more than 30 partners of ranging experience levels. The firm’s partner composition mirrored that described above: On one hand, there was a strong group of younger partners eager to pursue vertical and horizontal diversification in terms of service offerings and industry sectors, as well as to pursue geographic expansion and new office locations; and on the other, a seasoned group of executive partners closer to retirement that were committed to staying the course and avoiding substantial debt load, leveraging or risk.
Throughout my initial conversations with the partners, the only thing both “sides” had in common was that neither was happy with the organization’s marketing and business development department because they didn’t feel like those individuals were fulfilling their “goals”. All I could think to myself was, “Of course marketing wasn’t living up to their expectations…half of the partners thought they were too aggressive and the other half thought they weren’t aggressive enough. The marketing team was receiving conflicting guidance and couldn’t possibly win, no matter what they did”. The partner’s lack of strategy and alignment was permeating confusion throughout the organization in departments like business development. And the decline in the bottom line was proving it.
TACKLING THE INSURMOUNTABLE
In such situations, I do my best to dissect the primary issues and feedback from various parties, and then present a number of wide-ranging (and admittedly often dramatic) options to get the conversation underway. I have found with most organizations that once an open dialogue exists and is guided by a neutral third party, the outcomes some individuals will agree to are not what they themselves or others expected at the outset. Sometimes a business psychologist is the only hope (not kidding), but for many, the opportunity for a controlled and open forum is enough to foster progress. Or, at a minimum, it forces conversations than lean toward separation of parties that were a long time in the making anyway.
The longer a business owner has been part of an organization, the more difficult it is for him/her to separate personal initiatives from those of the business. This is particularly challenging for company founders that have always mirrored the goals of the organization to their own. The strategic growth conversations we are talking about here, however, force owners hoping to step back from their involvement to ask themselves one of the toughest questions of their career: “What does the organization I built from the ground up look like without me in it?”. If the answer to that question is that he/she wants the business to thrive without them, it denotes a tipping point where for the first time, he/she will have to make decisions regarding individual and company best interest separately. In other words, a long-time owner can’t advocate for a more conservative business approach simply because they are a few years from retiring if that also means the company’s performance will suffer. How to make that sacrifice/risk palatable for the long-time owners is what leads us to the four difficult questions.
WHAT DIRECTION DOES THE ORGANIZATION GO?
In the case of the professional services firm, mentioned above, I initiated the conversation by presenting the following four options for consideration:
- Find common ground within the current structure by prioritizing a growth strategy that all stakeholders could align behind.
- Segment and spin-off existing business lines, launching new divisions or changing the current structure in some other capacity;
- Explore opportunities to accelerate buyouts of senior partners; or
- Senior partners buyout the junior partners and allow those seeking aggressive growth to start anew under their own brand.
I am confident these options had crossed all of their minds, but they either hadn’t verbalized it properly or had successfully avoided the reality up to that point. When presented with such frank and open discussion, however, many of the partners started approaching the situation in a different light. (i.e., The “light” of reality that was beginning to show them what they could ALL lose if they didn’t reach a middle ground).
More specifically, the senior owners began to realize that it was a VERYviable option that the individuals behind them that they were counting on to buy out their shares in the organization could leave for other growth-centric opportunities if they didn’t make a gesture toward more aggressive expansion. After all, the emerging partners had already demonstrated and verbalized their willingness to take on more risk. The more conservative partners realized it was an actuality they could leave…and if they did…they would have no one to rely on for their exit strategy.
On the flip-side, the emerging owners recognized that if they were too aggressive, they would risk the senior partners leaving before their scheduled timeframes, forcing advanced buyouts that would impact the bottom line as well as those individuals taking their expertise and client relationships with them before transitions had been effectively planned. Since the emerging partners’ aggressive growth strategy was heavily reliant upon leveraging the existing partner client base, they acknowledged that it was mutually beneficial for them to reach a compromise as well.
The conversation notably shifted as these realities began to sink in, and the resulting strategic plan balanced preservation and growth in a manner that satisfied all parties. The emerging partners got their diversification and geographic expansion, albeit on a slower scale than they first envisioned; and the senior partners obtained guaranteed (and accelerated) timeframes for their buyouts to minimize their risk as the growth strategy was implemented. The process was an overall win…and it was all possible because the owners asked themselves four difficult questions to try to achieve alignment.
HONEST CONVERSATIONS YIELD HONEST OUTCOMES
The type of conflicts described in this short summary were by no means unique to this particular firm. Countless small and mid-size businesses have to go through this type of process when it comes to strategic planning when the growth options force owners to assess how exit strategies, succession planning or potential divestment can impact those initiatives. I strongly advise my formulating and start-up clients to consider these factors as they assemble their organization and methodologies. For those who are already long-engaged in their practices, the takeaway is that there is always an option. Whether compromise, spin-offs, buy-outs or new opportunities are the correct answer depends on the organization and the characteristics of the ownership. There is no right answer for everyone.
I advise my clients to approach such discussions realistically and with an open mind. Frank conversations are a prerequisite, and a neutral third party is often best to help interpret, advise and move forward.