I heard the sad tale at one of my roundtable meetings – a business owner hoping to phase out of the day-to-day management of his company, promoted a valued employee to be president.
The employee was likeable, loyal, hard-working and experienced. He was also incredibly honored and flattered to suddenly have the title “President” and hold a position he had aspired to.
The only problem was he didn’t have a clue what his job entailed. He thought it was about giving pep talks to employees and holding up morale. He thought it was about wining and dining big customers. He thought it was about traveling to conferences and being seen by his peers. He thought it was about having a new company car and an expense account.
It was all those things for the first couple years and then the perfect storm hit. Material costs skyrocketed, a number of key employees were lured away by a competitor and the company lost its’ biggest customer.
Instead of immediately informing customers of increased material costs and passing them on, the president decided the company would absorb them. He feared they’d lose more customers if he increased prices. (Big mistake #1)
The loss of key employees was especially damaging because there were no back-ups trained. The owner had started a cross-training program before he semi-retired, but employees resisted taking on more responsibilities and learning new skills. The new president didn’t put his foot down and continue the program. He let it slide. (Big mistake #2)
Instead of looking for ways to decrease costs, the president started quoting jobs at prices below cost. He rationalized that with enough cash coming in and going out he could rob Peter to pay Paul and eventually get through the crisis. (Big mistake #3)
The dreadfulness of the situation became apparent when cash dried up and the line of credit was maxed out. Then and only then did the president call the owner at his retirement home and appraise him of the situation.
The owner, believing he’d left the company in good hands, moved to the southwest and was enjoying retirement. His checks kept coming and he had no reason to believe everything was not as it was when he left. He didn’t worry. He didn’t call regularly and he didn’t examine the financial statements in detail. He assumed all was well. (HUGE mistake)
Privately held companies are changing the way they handle succession planning. More owners are putting trusted individuals or teams in place to manage their companies until the right buyer can be found or the right sale price can be raised. I hope this blog serves as an example of what NOT to do when transitioning the leadership of your business.