Succession Tsunami: Setting Up For a Successful Transition

Today, as baby boomers enter retirement age, over $2 trillion in business assets are at stake as most small business owners plan to exit their business over the next decade. In their survey, the Canadian Federation of Independent Business found that only 9% of business owners have a formal business succession plan.

I think of all the strong small businesses I have interacted with and the amazing entrepreneurs who started them with hard work and vision.

In reading the CFIB’s article, Succession Tsunami: Preparing For A Decade Of Small Business Transitions In Canada, I reflected on the legacy of small businesses the baby boomer generation had gifted Canada and the difficult decisions being made in these businesses over the next 5-10 years as transition is inevitable.

Baby Boomers Have Three Choices

Business owners from this generation have three options: sell in desperation as they approach the end of their working years, wind down or close up shop, or develop a transition plan for their business and see their legacy continue.

It’s sad to see businesses forced to choose the first option and be sold ‘as-is.’ The staff is pillaged, and the positive impact on the community disappears because the fundamentals for transition are not there.

I have consulted many of these businesses on the verge of selling. Often, they require years of work before they can withstand a transition of ownership.

How Business Owners Can Exit Their Business

Before you sell your business, you need a Sell-Side Confidential Information Memorandum, an official package describing different aspects of your business for buyers. It’s similar to a real estate listing when you are selling your home.

A Business Broker or intermediary will assess your business and help identify the key attributes that make your business unique and compelling for a prospective buyer.

A Succession Plan vs. An Exit Plan

You have invested blood, sweat, and tears into your business. It’s a precious part of your legacy. You want to exit the business without seeing it fail or be sold for parts.

If you’re fortunate enough to have someone capable and willing inside your company, a succession plan with this individual may be an option. The other option is to prepare the business for sale and to create a successful exit that positions the business for its next chapter.

I have been that someone else. In 2023, I bought All Things Cedar, an outdoor living company. This was a great transition, as the previous owner had run a tight ship and was well prepared for a successful transition of ownership. I got lucky, but many do not find a successful match for their business.

The Importance of a Strategic Plan

Creating a strategic plan for the next 3 to 5 years is the first step to a successful transition.

A strategic plan serves as a documented roadmap outlining the strategic choices your team is making to improve specific aspects of your business, such as leadership, culture, revenue, costs, investments and an action plan geared towards executing the most critical initiatives to sustain the business moving forward.

Working “in” the business is a common theme I see with many entrepreneurs. The strategic plan should help with delegation and create the space and focus for your team to execute. Doing this allows ownership to move up and work “on” the business at this critical juncture as it gets ready for a successful transition of ownership.

Developing a 3-5 Year Strategic Plan

At Lighthouse NINE Group, we have deep expertise working alongside owners and leadership teams to help co-create a differentiated strategic plan that creates clarity and urgency on your business’s most critical objectives, goals, strategies and measurements.

I’m a big believer in having a three-year strategic plan in place. Anything shorter is probably reactionary, and anything longer is probably not realistic. Just like wet cement is not yet concrete, your strategic plan has the ability to pivot as factors dictate before the business settles in transition.

With a three-year plan, you have time to show progress and proof points that the plan is working and with the right buyer profile, could be accelerated.

7 Important Considerations for a Successful Transition Plan

As you develop your strategic plan, keep these seven important considerations in scope. While some of these are table stakes for many businesses, it is critical to have all in place or a clear callout in your strategic plan on how you are addressing specific gaps.

1. Talent Demand Planning – Do you have the capability within your organization to deliver against your plan?

Your people are your business and a prospective buyer will be assessing talent at all levels of the organization. Your leadership team is the most critical as this group will likely carry on in the business in some capacity during the transition phase. Assessing your current talent and understanding their ability to execute the strategic plan is foundational to a successful transition.

2. Predictable Revenue Streams – How recurring or reoccurring is your revenue?

How does your business generate top-line growth, how efficient are you in pulling the pricing, mix and volume levers and how predictable is your revenue throughout the year? These are all questions a prospective buyer will be asking as they diligence your business. 

Your strategic plan should outline where your revenue comes from while also painting a realistic future around how to optimize. This isn’t about “hockey stick” projections on paper, it’s an opportunity to share a true picture of your history in generating predictable revenue for your business while also sharing your view on opportunities for growth with the right investment and team to execute the playbook.

3. History of Profitability – Can the past predict the future?

The COVID pandemic created an interesting dynamic that has proven challenging in understanding historical profitability for many businesses. Unfortunately, many businesses struggled and were not able to sustain operations. However, many experienced tremendous growth and delivered record years or at minimum, were able to survive and get to stability in subsequent years following the pandemic. Regardless, it will be important for your business to outline a realistic story around your company’s profit pools and how you actually make money. This shouldn’t be complex or wrapped in code to confuse. Showing how you made money in the past and how you plan to make money in the future, even if it’s business as usual on several fronts, is a key consideration for a successful transition.

4. Sustainable Margins – Can your business weather the storm?

A strong business has pricing power and can sustainably raise prices with a strong consumer and customer value equation in place. I’ve worked in Fortune 500 companies where this was the case, every – single – year, like clockwork, the pricing power of the brand was a key competitive advantage. While this was nice, it is not the norm. Revenue Management capability for your organization is key in determining how you manage your margins. How well you price, promote and manage your costs are factors in determining your company’s ability to survive and thrive in the current dynamic pricing environment.

5. Proven Sustainable Competitive Advantages – Can you clearly define your company’s Vision and Niche?

What is vision? It’s declaring who and what your organization is and where and how it’s going to get to its destination. I still find it hard to believe, but I’ve worked with many organizations who struggle to answer the Vision and Niche question. Ask 5 different members of the leadership team, and you often get 5 different answers. Don’t be like these companies, get your team on the same page and be able to articulate your competitive advantages. You have them, in fact, you have several of them that need to be highlighted to showcase the work you’ve done over the years to make your company a success. Ensuring this is articulated and unique in your strategic plan is key to a successful transition.

6. Key Person Risk – How essential are you to the day-to-day functions of your business? Will others be able to take over?

If you’re the only person in the company that understands how and what needs to get done in your day-to-day operations, you’re a risk. Elevating members of your leadership team and training critical capabilities within key roles of your business will create confidence that a successful transition can occur. In many cases, a prospective buyer will not have the functional skill set that the current owner has. It’s what built the company and contributed to its sustaining success over the years. Ensuring a capable team is in place who can operate while also being open to a phased transition plan with the new owner will mitigate risk and allow the business to function effectively during and post-transition.

7. Limited Customer Concentration – How risky is your customer base? 

It’s not uncommon for a business to have significant concentration with a small cohort of customers. These customers have been with the business for years and represent a large part of the annual revenue and profit a business generates. In most cases, customers will support a transition of ownership assuming limited disruption to their operations and what has made your company attractive to partner with in the past, remains or improves moving forward. Having a plan to normalize customer concentration through new business acquisitions or setting up contractual obligations for a term that is beneficial for both parties can mitigate risk to a prospective buyer.

So, Ask For Help

Lighthouse NINE Group is set up to help baby boomers transition out of their business successfully. With our partners’ experience and wealth of knowledge, we are equipped to write a strategic growth plan and participate in its execution with organizational design, leadership training, executive coaching, and more.

If you own or work in a business with 10+ employees and annual revenue of $5M+, please reach out. We’re passionate about business and this next phase of entrepreneurial spirit that is coming.

Andrew Stordeur

Andrew Stordeur is a partner at Lighthouse NINE in Calgary, where he co-leads the firm’s Strategies for Growth practice. He also serves clients in the areas of Leadership Development and Coaching, High Performance Teams, Change Management, Sales and Supply Chain Effectiveness.With more than 20 years of progressive senior leadership experience, Andrew brings a wealth of practical knowledge that allows him to leverage a world-class tool kit. Andrew has worked with several Fortune 500 companies, including rapid-growth start-ups and mature businesses. Andrew’s enterprise-wide approach has allowed him to optimize strategies for growth through building and enabling effective teams. His experience includes President & COO of Nasdaq listed SNDL, Chief Sales and Customer Officer for the Molson Coors Beverage Company and leading national grocery, drug and convenience sales channels for Mars Canada.Andrew is a practitioner with a proven track record in building businesses, brands and leaders to their greatest potential. His unique blend of strategic and people-focused talents invokes passion and commitment to drive personal and organizational success. He believes in key leadership operating principles in the following areas – sales force effectiveness, route to market, revenue management, category solutions, end-to-end supply chain and manufacturing.At Lighthouse NINE, Andrew collaborates closely with his colleagues, whose team has an extraordinary dedication to ensuring clients are thrilled with winning service and delivering consistent, sustainable results.

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