Transitioning from Head-Down/Hands-On Management to Head-up/Hands-off Management to Drive Transferable Value

​Any owner-operator that has read even a single article on transition planning will know that the key starting point is to make the business less reliant on any single person, or more importantly, yourself.  For owners that are looking to sell, any risk (real or perceived) to future cash flows related to its reliance on any key person, can dramatically affect its transferable value (i.e. what it’s worth to someone else without you).  Even if the business is sold to management, employees, or transferred within the family, it must have transferable value or it may be doomed to fail.  However, simply knowing the path you must take is only the starting point: taking concrete steps as part of an actionable plan is what matters.
 
For small companies, the first step is to grow the business beyond your capabilities.  Most often, very small lifestyle businesses have no transferable value.
 
Even businesses with 5-10 employees can be difficult to transfer successfully if the owner-operator makes the key decisions and the rest of the staff are sales, administration, and operational assistants.  Many owner-operator entrepreneurs are so focused on keeping costs low that they get stuck in a rut, and the business never makes breakthrough performance.  Being the first one in the office and the last one to leave may be a great way to set an example, but it may also be a sign that business will never grow beyond what it is doing today.
 
Breaking through a size plateau is no easy task.  One way to start is by focusing on the critical tasks that play to your strengths and then slowly delegating everything else.  This is going to take some time and most importantly, it will take patience.  Unique knowledge and skills, as well as relationships with vendors and/or key customers, are transferable when the right people are patiently mentored and supported by the boss.  Most importantly, it will free up time to work “on” the business rather than “in” the business.
 
Building next-level management also requires the right incentives, support, and the ability of the boss to get out of the way by not second-guessing every decision or critiquing the process.  Instead, the owner-operator's energy needs to be spent nurturing next-level managements’ capabilities and focusing on the many other drivers that will increase enterprise value.
 
According to a Mckinsey report, between 25% and 50% of leadership transitions fail or were deemed as a disappointment after 2 years.  The main reason cited was organization politics and a lack of support.
 
Ultimately, the goal is to transition from General Manager to Chief Strategy Officer.  The key is to focus on ensuring the business is well-run rather than running the company well.  It is important to understand what it takes to evolve from a manager to a leader.
 
So how do you get there?  Every situation is unique however an interesting tip worth considering for small companies is to take an extended vacation, or perhaps shorter vacations more frequently.  Employees and next-level management naturally step up to the challenge when the boss is away because they will not want to bother you with every little decision.  Soon the “wheat will separate from the chaff” and the real leadership skills of key employees will begin to emerge.
 
For companies that already have a quality “next-level” management team in place, driving transferable value often involves more formal HR practices to recruit, nurture, and retain talent.  Best practices around your onboarding program, incentive programs, performance reviews, etc. will be necessary.
 
Building the skills and talent of the entire team drives transferable value regardless of the stage or size of any business.  And building transferable value is the only viable way to successfully exit regardless if the business is sold to a third party, transferred to the next generation, or kept as an investment in a family trust for future generations.

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