“Doug, what is a dual track succession plan?”
Dual track simply means you’re keeping more than one option open. Perhaps it’s planning for a sale to your management team while ensuring you are attractive to a third-party purchaser.
The old succession planning adage, the sooner you start, the better, is even more important with dual track planning.
Generally speaking, that means planning at least five years out. Regardless of your desired exit, the goal is to maximize the value of your business. All the pieces must be in place to meet or exceed the financial metrics typical of your industry and market space.
In any exit scenario, a business is more desirable if it has long-term viability and its success is not dependent on the founder/owner. Your management team must be able to pick up the ball and run without you, regardless of whether they are taking over, or welcoming a new owner. A purchaser wants to know that your business’s goodwill won’t follow you out the door.
This means investing in your business – in its brand, operations, market traction and in the leadership capabilities of your team. All this takes time; in fact, it takes years.
Deciding when it’s time to exit is a personal decision. Sometimes, it’s in the company’s best interests for the founder to plan to move on after certain performance objectives are reached.
This is often the case among entrepreneurs in the tech sector. The individual with the chutzpah, vision and hustle to start a company and get a compelling product to market may not be the best choice to lead it into a more mature growth phase that requires formal business processes and a well-defined org chart.
The serial entrepreneur must be thinking from the outset of when and how they will exit the business – will they sell majority control outright, or maintain ownership but hand the reins to a new CEO chosen with the board of directors’ approval?
The ideal scenario is to unlock as much equity as possible up front, with a big cheque. But this rarely happens in practice. A new or growing business may not have the necessary cash flow or cash reserves.
Regardless of how a founder chooses to exit his or her business, the best option is to have multiple options.