In my last Insight I explained the steps in human capital development.
Every investment you make in training and leadership development always pays back tenfold, but it’s tough to see when you’ve taken that day or two to work through a training program when you could be driving more production levels.
Also, I think one of the key points with customers I work with is they often have a national footprint, so they do a regional roll-out plan, and how you train and pull together these leadership groups needs to be very in sync. If you stage it out too far, the impact on the business also gets sustained over a longer period of time.
So I think the opportunity to really try and make a tactful and straight-line initiative around timing is an increased valuation at the end of the road. That’s why it’s very important to stick to your strategy.
Once you’ve done the work of researching and understanding who you are as a company, where you’re going, what’s required and what the potential pitfalls are—then you’ll be on the road to future successes.
The tough part about continuing to be successful is staying on track with your strategy, especially when distractions, such as the slow economy, lack of resources, funding shortages, changes in your supply chain, etc., become part of your daily business.
An Example
I’ve been working with a new leadership group within a mid-sized business, and they just recently acquired another business. They have a very clear exit timeline of four years in place, regardless of all those small distractions that I mentioned above.
They’ve worked very closely with their board of directors and their investors to determine their four-year plan on return: what are the financial goals and metrics to achieve, as well as the human capital plan to get there.
One of the great strategies for developing a successful exit plan is to base it on the number of years your company wants to spend growing your business before exiting.
In this example, the company wanted to spend four years before exiting. So they’ll spend their first and second year developing their leadership and management team; and their rank-and-file in the third and fourth year. When they come closer to their exit date, then they’ll pay their dividends. This completes the exit strategy, while driving valuation to the business.
The CEO and I had a long discussion about the tactics necessary to achieve this exit strategy. The major goal within the business, again, was to exit in four years, so they had to find a way to drive valuation in order to meet everyone’s expectations. The CEO also wanted to feel like he flourished while growing a business to its critical success factor.
His goal was to take one month off every year, adding a month each year up to the fourth year, when he would exit. So by the time the company got to year four of the plan, the CEO, as well as a portion of his leadership team, would have taken as much as four months off per year from the business.
Their goal was very clear.
Having four months off would also make it clear to the potential purchaser of the business not to be fearful that the management team has to be in place in order for the business to run successfully. The purchaser would see they could also take four months off and not have to worry about anything.
With that goal in mind, they had to build a leadership development plan that accelerated through all four years to determine what needed to be done—most importantly, to train the rank-and-file to run the business manually without the leadership needing to be in place.
When you talk about what that means to the potential valuation of the business—if the new owner opted to keep this plan—he/she could see a 20 percent to 30 percent increase in valuation and continue to drive the success of the business.
So a business needs a very clear human capital development plan on day one. If they stay on track and stay focused on their path, no matter what sort of distractions they see as they approach their exit plan, they’re going to be prepared to continue driving valuation.