EP 7: Michael Beck - Finding or Creating the Right Successor

Michael Beck  2:09  
I'm passionate about the work that I do. 

So yeah, I would love to, because there are a couple of interesting aspects to it. First of all, off many years ago, I reflected on the idea that everyone talks about the importance of leadership, and how you improve leadership, but actually never read why better leadership makes a difference. And as I reflected on it, it occurred to me that exceptional leadership elicits excellence. That's why it makes a difference in the results people get, which is where the company name eliciting excellence, and the name of my book, both come from, unlike many other coaches that I've known, because I've been doing executive coaching for about 20 years now.

the value that I bring to the table and my virtual team of coaches bring to the table. And in addition, for many years,

owned a business. So it was in a partnership. And so not only do I bring to the table, the executive experience, but the challenges of being an owner. And so to your point,

you know, having a for instance, a successor, or structuring an ESOP, anything where somebody who used to be an employee is going to end up as an owner, there's an interesting shift that needs to take place. And I can help them do that. I guess what, what is the avatar of the typical client that you that you're working with? Well? Well, that's a good question. And it sort of depends on the nature of the transition that we're talking about. So if it's an internal sale, or transition to a success, or single, whether it's a family member, or key executive,

and a half percent uptake, 

Ed Mysogland  20:01  
I got it. Yeah, that is a staggering statistic. 

Michael Beck  20:04  
It's a staggering. So here's so here's the upshot of that. If an owner really, really, really wants to sell externally, it's critical that they number one, get all the pieces in place to maximize the value of their business. If, for example, in the work that we do the leadership development work, or research shows that the strength of a leadership team will impact the value 15 to 20%, it's a big deal. And when you say, I'm sorry, when you say, leadership team, define what that means. Well, the key, the key leaders who will be remaining running the business after the owner departs, yeah, whatever that looks like. The other thing, I think the even more critical thing is this. If, if a company does not have a strong leadership team, and by that I mean, not only are they competent, but the owner has put the pieces in place where it can pretty well function without the owner being there. If that's not in place, it's not a terribly attractive business. And I think only the most attractive businesses are going to find a buyer over the next 10 years. Yeah, I agree. I mean, I think I think the businesses that that are most attractive is where the business owner is insulated from the day to day, and it was it's more of an investment rather than than a lifestyle. But I mean, how do those businesses that that don't have that infrastructure? How do they sell? Or do they, they're not going to, I really believe many, most every business or feels that you will decide to retire, they'll go to a business broker, they'll go to an m&a firm, Dustin banker, somebody's private equity, and they'll get it sold. I'm saying because of the statistics, it will not happen that way. And then then what are their options, their options are either to close the doors and sell off the assets, if they just cannot find a buyer, or they arbitrarily appoint somebody a successor, cross their fingers and say, Oh, please, don't run this into the ground and pay me some of the money that businesses worth. And so actually, along those lines, put together a

Ed Mysogland  0:00  
This week I had the opportunity to interview Michael Beck who is the author of eliciting excellence. And it was a fascinating interview. Because he serves a niche, he helps business owners transition to successors. So in other words, he coaches the successor so that there is a seamless transition between ownership and the next leader of the organization. So please enjoy my fascinating conversation with Michael Beck. Today, 80% of businesses don't sell to be a part of the 20% that do and at maximum value, you'll need a successful strategy. Welcome to the defenders of business value podcast, where we interview today's top professional advisors who help business owners create, preserve, and most importantly, transfer value. If you want actionable tips that will increase your business value. Stay tuned, the podcast starts now. I'm your host Ed Mysogland. I teach business owners how to identify and remove risks in their business that scares buyers and reduces value. So that one day they can sell their business at maximum value when they want, how they want and to whom they want. On today's show, I'm delighted to welcome Michael Beck of eliciting excellence, I was introduced to him at at an industry conference where his tagline helping successors succeed, and owners get paid and that caught my attention. And I just knew that we had to have him on. So Michael is an executive coach and business strategist, and author and president of eliciting excellence, a firm specializing in the assessment and development of leaders. He works with leaders to improve their interpersonal skills, sharpen strategic thinking, and enhance judgment, his work helps maximize the value of the sale and increase the likelihood of a deal. actually closing by strengthening the effectiveness of the leadership team. He offers the leadership, he offers leadership assessments, executive coaching, all designed to help successors succeed, and owners get paid. So Michael, welcome to the show.

Michael Beck  2:01  
And thanks so much for having me. I've been looking forward to this. Because I love the work that you're doing. And

what what I'm doing is objectively assessing that person to begin with, because, truthfully, two things one is that we're notoriously poor at self assessment. And then number two, in some ways, it almost doesn't matter what the owner thinks of the successor. It kind of matters more what everyone else around them thinks that's interesting. And so doing a really nice 360 Assess That gives us an objective view of things. Not Not that the owners opinion is irrelevant, but it's not the only thing that matters. And and as you know, especially with with a family member, there's all this other baggage that comes along. And often, for instance, parents don't think their children are quite up to it, yet everyone around them may feel otherwise. So. So that's one case. And then of course, with the key executive that's going to buy it, it's kind of still similar. One of the challenges is whether, regardless of whether it's family member key executive, it's nearly impossible for an owner to properly develop their own successor. And I've written about this. And there are all kinds of interesting dynamics that prevent that from happening. On an external sale. I'm generally not working with an individual but but the key members of the leadership team, and it's essential that that leadership team be as strong and capable as possible for an external sale to succeed

Ed Mysogland  6:02  
circling back to, to the family members. I mean, one one of the statistics, I had seen that for the first time in history, it actually the number of transitions going from mom and dad to the kid actually has decreased, they would rather go third party than then keep it as an internal sale. Are you seeing the same thing with you with your practice?

Michael Beck  6:25  
No, actually, I'm not. I've, I have a number of clients, and they specifically do not want to sell to an outside party. They, they don't have a family member either. But they liked the idea of, you know, keeping it in the community, bringing on and nurturing and developing somebody who will share the same values that they have them, because that's their legacy, how they built their company. And so I've seen that actually prefer to keep it in.

Ed Mysogland  6:55  
So how long is the grooming process?

Michael Beck  6:58  
That's the key, isn't it? This is an interesting two part answer, by the way. So the simple answer is, you know, if they're fairly capable already, they know the mechanics of the business, to it on helping them with the mechanics, the owner is the expert in that. So I'll help them with leadership and ownership and strategic thinking. And so if if they're, if they're growable, if they're really, potentially a good prospect for taking over the business, I can accomplish that in about a year or so, six months to a year. Here's the other part of that question. I had a client a number of years ago, who she and her husband were getting thinking about retiring, they weren't getting ready, they were thinking about retiring. And so they were planning ahead, which was smart. They have or had a sizable company. I mean, I ended up helping them land $100 million contract, multi year contract. So you can you can imagine the size of the company was at least the 10s of billions. So they brought on a COO to help groom to eventually take over and they work out a deal through that, that person to buy it. And after he was on board for a period of time, they asked me to start what I do with him. And so I began working with the guy. And after three, four or five months of me working with him, he wasn't, didn't seem a perfect fit, but he wasn't terrible, but it was okay. He quit. That hired another guy, a COO brought him on, started making sure he understood the business brought me in to help with the leadership and strategic thinking. I worked with him. He had some interesting perspectives. And really what I'm in the business of changing people's perspectives, and so he was misguided. But he did actually finally come around, which was great. And you know what happened? As he did that? He quit. They brought on a third guy. Don't ask me why they didn't ask for my help. They felt between the husband and a wife. They knew what they were doing. brought on us. Third guy as COO seemed to have good credentials. They brought him in. We he sort of got ingrained in the business for a number of months. And then they brought me in to do an assessment and help finish grooming the guy. Well, his assessment results were the worst I have ever seen. And after I debriefed it with him, and he digested it over the weekend, the next week we talked I said so what do you think? He says, Well, I'm okay with it. Excuse me? Yeah, I'm okay with it. I think they're they're just don't don't quite know me well enough yet and they'll come around. So he worked a little bit longer, but frankly, he was uncoachable He wasn't interested in changing. But what happened was that things got so bad. They couldn't even believe the stories they were hearing. And they called me in this is they were in another state. They flew me in to interview people face to face to see if the stories are true. And they were. And so they ended up firing him the moral of the story or the point of the stories, three and a half years later, they still didn't have a successor. So to your point, how long does it take? Kind of depends, doesn't it?

Ed Mysogland  10:32  
Yeah, but I guess not within that story. I mean, how detached was the business owners from the hiring process? I mean, it No,

Michael Beck  10:40  
they were they were it. They were active owners. They were not

Ed Mysogland  10:45  
passive at all. And so each each one of the candidates was just a train wreck, once they started down the path?

Michael Beck  10:53  
Yes, they just didn't really have a good a good sense for what they needed. I think this is, this is often an issue. That's where I was going with this. Yeah, I mean, they, they seemed all qualified in the industry aspect of it. But in the other part, the part that really drives ownership, leadership, strategic thinking, judgment, business judgment, they weren't well groomed, they didn't have good experience. And so they they chose poorly. Here's another thing, I worked with another client, who, too to the point we made earlier, doesn't want to sell the company externally, but doesn't have a successor. So we've been strategizing about what kind of person to bring in as a successor. And there are two aspects. And we can I don't want to go off topic just yet. But there are a couple of aspects to identifying what kind of person that ought to be, we come to an agreement on on what that looks like. And then he decides that what he should do is bring on somebody who would start kind of where he started, when he joined the company. The only problem is he joined the company. So long ago, it was a fraction of the size it is today. And if he brought the end that person needed would need to be up to speed within several years. And it's unrealistic. So we've been trying to help him understand you need a very senior experienced executive to step in. I mean, this firm is doing an excess of $80 million dollars. And so even though the the owners and executives are very sharp, sometimes we you know, we have these blind spots, so we can't quite see what we're not getting

Ed Mysogland  12:32  
a couple of times, you you've you've alluded to this assessment that you do, can you can you talk about what what is that assessment? And how does it work? And

Michael Beck  12:40  
oh, sure, I'd love to. Yeah, it's a, I've been utilizing 360 assessments over many years. And what I've done is developed my own by taking the best of all the ones I've used. And so I'm very pleased with the results we're getting from this, the concept of a 360 assessment is an assessment that looks all around the individual. That's why it's called the 360 like a big circle. So we get feedback from their boss, who ostensibly is the owner, any peers, their direct reports and direct reports it could be could be customers, you know, if the customers interact with them regularly. And so we get meaningful feedback, we look at 35 different competencies, leadership and ownership competencies. And typically we're getting feedback from as many as 25 people. So we got a really good objective view. And what that does is help us help us identify the key competencies that this person really ought to bolster. And in other words, it'll show their strengths and helps them appreciate what their strengths are. And then the weaker competencies, the client and I would strategize about which one of those would they get the greatest bang for their buck? And, and that's, that tends to be what we work on. Not not exclusively, but specifically, and then it's, it's all confidential. It's done over over the internet. It's done online. And so it's very efficient and very confidential, and produces like a 30 to 40 page report.

Ed Mysogland  14:22  
I guess the next question is how once you get that information, I mean, how coachable even have an empirical evidence how coachable are your clients after after getting that gut check?

Michael Beck  14:35  
So very, very occasionally, I get someone who's not coachable. Either they they tried to be clever and play me, but I've been doing it a long time that doesn't work, or they just don't they're not interested. Typically that's not the case in with succession work that I do. They're eager to be as effective as possible and prove their worth If so I don't I don't bump up against resistance very often. Now, kind of part of the art of what I do is putting the empirical data into context. And in fact, the brunt of the work that I do is helping to shift people's perspectives. That's what I do, because I'm dealing with pretty smart people, pretty well experienced. And so if I can shift how they view what we're talking about, the light comes on. And then we're off and running.

Ed Mysogland  15:33  
What's the what is the one area? And like, if you look at all of the assessments that you've done, is there one thing that that sticks out that this is this is always, or always seems to be the challenge with success? Yeah,

Michael Beck  15:48  
in fact, I just wrote an article on that a couple of weeks ago. To me, the competency that I tend to work with executive sign owners on most often is their ability to influence see leaders, especially the the owner, or someone at the very top, they always have the hammer, they can always say, this is what we're doing, go and do it. But the results they would get would not be nearly as as good as if they were able to influence people to do that thing, right. And so I often am working with clients, and I'm talking clients at all levels, whether they're running a very small business, or and I've done this with, with executives overseeing $500 million divisions, this issue still comes up, I help them to understand how do you influence people? How do you persuade them? Because if you can get buy into your idea, that's where the magic happens.

Ed Mysogland  16:51  
Moving over to the business owner? So do you think in today's landscape that business owners are more interested in lifestyle or legacy in in your practice?

Michael Beck  17:01  
It's an interesting question. And generally, I'm working with the successors rather than with the owners. Because I, I don't do Exit Planning, per se. But what I've observed is this, that the people that seem to cross my threshold, are keen on legacy, they want to make sure the business continues, that the families are all employed and taken care of. And they just like that, and I suspect the ones that are more interested in a lifestyle, they're the ones who want to sell and walk away with the big old check. That often doesn't cross my desk. No, makes sense. Yeah, no. But it kind of brings up another topic, can I bring up a topic for us? I've been doing lots of research. And just without delving into all the details of it, let me give you an overview. It turns out this is from SBA reports and census information. Turns out that about four and a half percent of boomers own a business. And if you look at the Gen Xers, which are the 20 years below them, about 3% of Gen X rizona business. And so you know, it's not surprising that the younger generation hasn't quite come up to let's say four and a half percent. But I think as they get older, it would be an expectation that they would generally come up to about the same likely likelihood of ownership. And so it doesn't, it's not very surprising to see that until you reflect on it. And then it becomes alarming in here's why that if the uptake on Gen Xers is going from 3% up to four and a half or another one and a half percent. That means two thirds of the boomer businesses will not have a buyer. There'll be no one to buy that. And this is a big deal. I believe this to be true. This is going to happen. And the people, I talked to folks all around the country m&a Folks, exit planners, and all this multiples are, you know, the values are dropping. And I've spoken to m&a guys who say the only way m&a firms are going to survive this is to become relational rather than transactional. And so I'm not the only one who who believes this is going to happen.

Ed Mysogland  19:28  
I've done a little bit of research to I mean, you're talking 12 million businesses of what you're saying a third of them will be unsalable if they

Michael Beck  19:38  
aren't note no two thirds,

Ed Mysogland  19:41  
oh, two thirds are going to

Michael Beck  19:43  
two thirds are going to be because listen, it all 3% of Gen Xers already do own a business that 30 to 50 year olds 30 to 53% already own a business. And so even if they rise to four

program for successful recruiting, because I believe it's going to be in high demand. And so we we have a program for owners to we help them find and recruit the appropriate successor.

Ed Mysogland  22:39  
And tell me a little bit more about about that program.

Michael Beck  22:42  
Yeah, so So you know, it kind of comes back to one thing I mentioned, or we talked about earlier, that the ideal profile of a successor, because frankly, it's not all about competencies. Competencies, actually, you can develop and train pretty easily. But by competencies, I mean, you know, if they say, Well, I want someone who's been in the industry at least 10 years, you know, they have these qualifications, and so on and so forth. That's all well and good, but it actually doesn't make them a good successor. And so it turns out that the qualities of a successor, or are the traits or the aspects of a successor are both competencies and personality traits. That I mean, do they need to have high energy? Do they need to be especially an optimist? Do they need to be driven?

Ed Mysogland  23:36  
And does that differ between business to business? Or is that just kind of universal?

Michael Beck  23:40  
Some of its universal, but some of it does matter. So here's another example, I had a client with a long term employee. And he goes, Yeah, I just want to clarify what this ideal profile would look like, because I'm pretty sure I'm gonna hand my business over to this longtime employee. And so we talk about it and and then as I post something comes to the surface, it turns out that this guy drives all the sales, he's he generates the revenue. And the person he wanted to turn it over to, was essentially the office manager. I said, You need somebody who's going to drive sales. And his thought was, I will train her, and I said, Doesn't work that way. You need a certain personality type to do this. And so he wasn't happy, but it's true. And so that, you know, there are those two aspects, personality traits, and experience and all the aspects of experience. So back to our program, and not only do we help clarify that, we've got an interesting, we'll call it a business style assessment that we give to the owner. So we get a nice objective view of how does he go about making decisions driven is easy, or he or she, I'm using just generic term. And so we get a nice profile of who the owner is. And then we have a discussion about is that what the business still needs, so that when we do find appropriate candidates, we can give them that same assessment and say, Here it is, objectively, they're a perfect match for what you need in their, in their nature. And then I have on my team, a really well experienced executive recruiter who has had great success, recruiting successors. And so we have a national footprint, we can find some great people. And to put it in perspective, the people that she brings on, after three years, 97% or 90, some odd percent are still with them, with the company. So she's, she does an excellent, she and her team do an excellent job. So this, this, and in the name of the site is successor, hyphen, recruiting.com.

Ed Mysogland  26:04  
So a lot of the business owners that, that we work with, or that are evaluating an exit, some are saying, Okay, I'm gonna give it to, to my employer, I'm gonna sell it to my employee, or my, my daughter. And typically, there's more than more than I'd like to mention, the number of times that business owner assesses value, and says, You're, you're paying this and so I'm serving as the bank, that's, that's how it's going to work. Or they'll they'll have talked to their financial planner, and they say, you know, what you need, you know, $500,000 a year in order to keep your lifestyle, and, and then that successor gets stuck with it. And, you know, they start they pay on it for for a couple of years, and all of a sudden, they're cash strapped? And then they are like, What in the world that I just do? So are you are you do you see that? Or is that part of the assessment that you did, that helps, you need to understand who's who's going to succeed you, and what you can and can't do in order to preserve the longevity of the company.

Michael Beck  27:12  
So you bring up an excellent point. And but it's one that we don't generally get involved in, you know, it's up to the two individuals, the two parties to strike the deal on the value, and how it's going to get paid. And ostensibly, if the owner is smart, he's working with a well experienced executive, or sorry, an exit planner, or transition specialist, whatever it might be, to your point about value, I have another great story. And that, that cuts both ways that value sword. There was, I heard this from a professional who was brought in on the due diligence, part of the deal, trying to keep this as vague as possible. But there was a company and they, the owner wanted to retire and he decided that his company was worth $9 million. And that's what he was going to take it was going to take anything less. And he was selling it outside. So it's even more more of an interesting story. He put it out to market, got an interested buyer, they gave gave him an LOI. And they flew in to finalize negotiations, he stuck to his guns, they they agreed on $9 million. And then they brought this professional that I was talking with, they brought him in to help them with due diligence. And during that process, they can find it in him that they had been authorized to go up to 21 million. Yeah. And so I think it's incumbent on the owner, to your point, it is incumbent on the owner, to get a professional valuation done. If you overvalue it. And then like you've said, saddle your successor with that inflated note, you will crush the company and I, I kind of wrote an article. I mean, I wrote an article kind of about the concept I called the time value of business valuation. Because frankly, you can value it whenever you want. But if not all the payments get made. That's what that's what the value ended up being. And so you shoot yourself in the foot if you inflate the value saddle the company and cause them not to be able to pay it.

Ed Mysogland  29:38  
Yeah, that's that's one of the things that I guess what what brought brought that up is I had a family situation. I had done some value work for for the parents. And about four years later, the kid comes and said didn't you do some work for my dad? And I need I'm I think I'm going to sell The company and she goes, I just can't afford it any longer. And I mean, he sold it to her for three times the amount I told him, and oh, my and he, and anyway, she came in with the keys on the table said, I'm, I'm done, she opened up her own shop just down the road and call it a day. And and just that family will will never be will never be the same. And, and again, they I mean, he thought he was he was doing right that you need to work as hard as I did. And and she had enough since the start engaging with outside parties to figure out and and subsequently unravel. You know, the situation she was in?

Michael Beck  30:48  
Yeah, those bad? Well, I,

Ed Mysogland  30:51  
I know, I want to be sensitive to your time. So I've got a couple couple last questions for you. So if you had one piece of advice that you give our listeners that would have the most immediate impact on their business, what would it be?

Michael Beck  31:06  
Well, it would be related to leadership. So if you're planning on selling externally, you really owe it to yourself to maximize the value and the attractiveness by developing as fully as possible your leaders into what you do that is to an assessment. And even if they turn out to be strong. Now you have objective proof to the buyer, that you've got a strong leadership team in place. Sorry, the internal sale, the same kind of thing. Don't don't just turn it over because they know how to make widgets. Right, right.

Ed Mysogland  31:43  
Well, in the brief show, we started talking a little bit about the the tsunami of of business sales. I mean, where do you where do you see us in that in that cycle?

Michael Beck  31:55  
Yeah, so everyone keeps talking about the large number of Boomer owned businesses that are going to come on the market. And yet, pretty, pretty consistently. Although there's been an uptick, there's no tsunami. And here's my view of why it hasn't happened. And at the same time, saying it is about to happen. So thinking back in the early 70s, life expectancy was about 72. And most people expected to retire at 65. Well, now, life expectancy is in the mid 80s. And people are not retiring until their early to mid 70s. The leading edge of the baby boomers turn 73 this year. So I believe this is the year we'll begin seeing an uptick and will continue for the next 10 years.

Ed Mysogland  32:49  
That's funny you you mentioned that I wrote an article myself about about that, you know, where is this tsunami? And because there was a number of articles when when baby boomers started at 65 that, you know, we should all brace Brace for impact, and it just never showed you exactly. And you know, I've got a I've got a partner that's 72. And as long as he's relevant and competent, and enjoys liking what he does, he's like, What Why should I sell? What Why would I even think about getting out? I agree. Yeah. And more power to him. I hope. Like I said, I hope in his case, he's, he's hanging on for a long, long time, because he's a lot of fun to be around your website. eliciting excellence.com is, is just it is loaded with resources. So where should where should someone begin?

Michael Beck  33:40  
Thank you. Thanks for asking. Yeah, it's, I would say a good place to begin and reflecting. If they've, for instance, went to any one of the successor program related pages, like the page about typical succession engagements on the sidebar, you'll see a number of downloadable brochures about engagements, successor readiness, so they can begin, an owner can begin reflecting on how spot on is that successor literature on that assessment we've been talking about. So they can see kind of what that's about, and even what our successor development program looks like. And so that's the simpler, that's the simplest way for people. There's a lot to poke around articles, a link to our successful recruiting site and some information about my background as well.

Ed Mysogland  34:35  
So who would be an ideal client of yours? And what are the various price points for the services that you're providing them?

Michael Beck  34:42  
Great question, actually. So typically, I do work with the lower middle market. So sort of the 10 million to a couple 100 million dollar range, but to your other point there Many, many businesses smaller than 10 million, and do have a reduced price point program. And so I feel that the the investment needs to be relative to what's at risk. So once you get up into the multiple millions, there's a lot of risk and not investing is foolish. In the smaller companies to that individual, there's still a lot at risk, but the numbers are different. And so I have a reduced program that is effective, but much less expensive.

Ed Mysogland  35:32  
Okay, so what's the best way we can connect with you after this? Thanks.

Michael Beck  35:36  
So certainly through the website, it's got our phone number, contact form. And, you know, we'd love to hear from folks, the kind of the nature of work we do, it does not lend itself well to high pressure. So we never have hard cells, it just doesn't work. So if someone's curious, just wants to chat, I would encourage them to do that.

I would attest that you're an easy guy to visit with. That's for certain. Thank you, Michael, I want to thank you again for being here. I'll have links to everything that we discussed in the show notes, and I'm certain our listeners will have benefited from our time together. Thanks again, so much. Hey, thanks so much. Thank you for joining us today on the defenders of business value podcast. If you're preparing your business for sale now or in the future, visit www dot value builders.us To begin your journey to maximum saleable value. And if you want more episodes jam packed with strategies to maximize value of your business, visit defenders of business value.com better yet subscribe now so you don't ever miss an episode. This program is copyrighted. micelle incorporated all rights reserved.