Turning Your Employees Into Owners
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Institutional Knowledge

I posted recently about planning for disaster and how to take care of our colleagues and their families in a crisis. Now I want to talk about another aspect of contingency planning—making sure our businesses survive.

One of the things we have to do as business owners is to think about “what-ifs.” For example, what if our office is destroyed in a storm or a fire?  What can we do now to minimize the damage and protect the business from disaster? The emergency plan that works for me won’t necessarily work well for you. Each company is different. You get to consider the advantages and disadvantages of all your options so you can draft a plan that will work for your particular situation.

Have Secondary Locations

Disasters, natural or otherwise, can wipe out a business. We had a client who went through Katrina and lost everything. A secondary location, complete with copies of all important records, can be critical.

Unfortunately, some disasters take out multiple locations. That actually happened to friends of mine. Their primary location was in New York and their secondary location was in New Jersey. Superstorm Sandy took out both.

Back Up Your Business in the Cloud

The cloud—distributed online storage—makes an attractive place to back up your data and IT systems in the cloud. The cloud is not vulnerable to local disasters, and you can access it from anywhere, so if your office is destroyed you can still get a hold of your information.

But I still like to have back-ups I can put my hands on. It is possible for a whole region to lose internet access (as happened to North Korea a while back). And of course, if your business depends upon specialized equipment, the cloud can’t help. Again, there is no one-size-fits-all solution.

Rent an Emergency Office

If you save your data, but lose critical office equipment, you still have options. There are companies that specialize in providing office space in emergencies. One of these is Agility, which is owned by General Electric. Within twenty-four hours they can bring in mobile offices with work stations and Internet. They can make arrangements for portable toilets, fresh water, portable generators, and things like that. And it’s scalable—if you just need a few computers, they can do that, too.

Plan for the Expected—and the Unexpected

If my office is destroyed by an earthquake, it won’t be a complete surprise; I work in an earthquake zone.  Tornadoes are an obvious risk in Missouri, and Florida needs to watch out for hurricanes. It just makes sense to prepare for whatever kind of problem is most common in your area.

But unexpected disasters happen, too. We don’t usually think about major earthquakes in Wisconsin or tornadoes in Nevada, but it has happened. It’s important to be flexible enough to prepare for anything that can come down the pike.

Wrapping Up

I recognize that you could spend a lot of time thinking about all this stuff, but the reality is if you get even 80% of the way there you are better off than most. As long as it doesn’t make you over-confident or complacent, a bad plan is usually better than no plan at all.

The main thing is to think about options. We tell our kids to meet outside if there’s a fire and we need to apply those principles to our business world also. We need to have a plan on the shelf that’s been tested and that’s ready to roll.

Key Takeaways

  • Ask “what if” and prepare for worst-case scenarios.
  • Take advantage of options like cloud storage and emergency replacement office services.
  • Develop a flexible disaster plan that will work even if the completely unexpected happens.

Your company works because of the business savvy and institutional knowledge of everyone on your team. To successfully transfer your business to new leadership, you have to transfer that knowledge. The tricky thing is that not all of the magic resides in your brain—everyone who works for you, regardless of position, has a piece of the puzzle.

So, how do you find and document all the information the future leaders need?

Employee surveys, customer surveys, and full SWOT analyses (“SWOT” stands for Strengths, Weaknesses, Opportunities, and Threats) can only take you so far. These are all important parts of the strategic planning process, but I’d like to suggest doing something different as well.

Instead of just collecting information and analyzing it with your central leadership team, really talk to people—and listen. Listen more than you talk, so that your employees feel empowered to speak freely. These conversations give you an opportunity to get the perspectives of others so you can develop a holistic understanding of the company together.

This process–gathering information, exploring and sharing different perspectives, and then organizing and prioritizing the results—should sound familiar; it is the foundation of good strategic planning. It is also a great way to gather the information your successors need to get a good start to their own strategic planning process.

Key Takeaways

  • You probably don’t personally know all the components of your business’s success, but you need to find that information so you can pass it on.
  • Traditional planning tools, such as employee surveys and SWOT analyses, are important, but do not provide complete understanding.
  • Take the time to talk with all of your employees, no matter what their positions are, and ask for their perspective on the company. Then listen.

In today’s WSJ there was an article titled “Amid Crackdown, Some Firms Rethink ESOP Sales Practices” which relates to owners rethinking how to sell to employee-stock-ownership-plans (ESOP) following a crackdown by the Labor Department.  It seems to me we are missing a piece of important information in the ESOP relationship that allows the new owners to make an informed decision.

The Basics:  When a founder or majority shareholder wants to liquidate their closely controlled shares to their employees, one option is an ESOP.  In this scenario, a trust is created that will hold the company shares.  The value of these shares is determined by an outside appraiser.  The purchase of these shares may be funded by the employees’ retirement savings account.  In my view, the premise of this structure is that the employee is not capable of making an informed decision.  A trustee is hired (often an outsider and, with the recent crackdown, a likely choice to protect the business owner) to protect the workers’ interests and a third party valuation firm is hired to determine a value.  It seems to me that if employees have a working knowledge of the organization that includes the institutional knowledge and business savvy, they are qualified to make their own decisions.  If they don’t, are they really qualified to be an owner?

What If:  I would submit that an employee team that has the information necessary to make an informed decision regarding the purchase of their company results in a better outcome for both the current owner and the future owners.  An ownership group that is informed will be equipped to capitalize on the historical successes and lead the firm well into the future.  This means today’s owners need to invest time and resources in the future owners by passing on the institutional knowledge and business savvy to the next generation of leaders.  By institutionalizing this knowledge and getting it out of the leader or founder’s head, it will make the company more valuable not only in the owner’s eyes but in those around them.

The WSJ suggests that the Labor Department has observed that the value of a firm may be set to meet some predetermined expectation on the part of existing owners.  This could be viewed as a one-sided negotiation that a willing participant would never accept when buying a car or home.  Why should we consider it when buying a business?

The ESOP is to be used as a financial and legal tool to facilitate the completion of a business relationship between competent, knowledgeable parties.  It should not be used as a tool to manipulate terms and conditions based on a lack of knowledge or transparency.  As business leaders it is our duty to pay it forward by developing a team of leaders and owners that have a sustainable financial foundation to lead the company into the future.  It should not be our priority to squeeze every cent out of the transaction by taking advantage of our position.