Owner-Operator is Only One Option
As I work with clients in both the Next- and Now-Generation, I’ve found a limiting belief. It’s normal because many small businesses were founded by one person. That one person had the vision, invested their money, and set to work to start and build their business.
But now, when it’s time to plan the future of the business, we often believe we have to replace that one person with another person who will invest their money and continue growing the business.
This is NOT the only option!
Yes, there are buyers out there who want to own and operate a business (I personally know two young ladies who are searching for this opportunity). However, if you’re looking to transition a business to someone already in the business, say a child or a long-term employee, you both need to consider what you really want.
Leader and Investor
The leader is adept at and enjoys putting vision into action. They hire and inspire good employees and plan and manage projects. They may be the visionary, always searching the next best product or service. Leaders make the business run successfully by getting and keeping customers. Business leaders do this for a fair market salary.
The role of the owner is an investor. Someone who believes in the mission of the business and anticipates a future return on their investment. Some investors are silent, not wanting any involvement in the business while others want voting rights and enjoy sharing their wisdom and expertise. Investors are rewarded with stock dividends when the business makes a profit.
Separating the Owner-Operator into Two
As you can imagine, separating one role into two, especially if there’s been one owner-operator for decades, is a big change, but not an insurmountable one.
Start by defining the responsibilities and compensation for each. Then consider their interconnectedness. Just like many large corporations and even non-profits, treat the investors like a board. The board hires the Leader, and the Leader develops and submits plans and budgets for approval. There are typically long-term plans/budgets, perhaps a 5-year strategic plan. Then there are annual and quarterly reviews.
Investors may have the right to approve or request changes. Depending on the level of interest in the mission of the business, investors may bring their visionary ideas for open discussion. Or investors may vote by holding the leader accountable for certain financial goals, and if not met, they reserve the right to hire a different leader.
Know What You’re Looking For
If you’re the Next-Generation leader who’s been working in this business for some time, know that you can lead a business without owning it. Don’t feel bad if you don’t want to own; I’ve been told that only 5% of our population has the entrepreneur bug. Owning a business has potential for a high reward, but it is a risky investment.
If you’re a Now-Generation owner who’s looking for someone to step directly into your owner-operator shoes, you may need to rethink this. Separating the roles opens the door for you to slowly take off your operator hat while you keep your toe in and draw an income from this amazing investment you started. You might also find additional investors to purchase stock, allowing you to take some of your money off the risk-table too.
Next Steps
Of course, the most important step is to get these desires in the open as soon as possible. The worst thing that can happen is that the two of you (Next Gen and Now Gen) walk along thinking the only solution is an Owner-Operator, when a Leader-Investor model might be the best solution for each of you, and the business.
If you want to talk about this, please reach out. At Owners Outpost, we are continually meeting and vetting experts in the financial and legal aspects of ownership and we’d be happy to introduce you to a few.
