Assistance Requested: Candidate to be CEO of a Small Business

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mikestorm
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Assistance Requested: Candidate to be CEO of a Small Business

Post by mikestorm »

I know there are quite a few small business owners who actively post here, and am looking for your guidance an advice on an opportunity that has presented itself. I was approached to be a (potential) successor to the owner and CEO of a small niche financial services company, which is incorporated. The current founder/owner/CEO is of retirement age, and is looking to slowly transition to retirement. I'm going to tour the premises, get a better sense of the business model, hear the current owner's vision for the position, and ultimately be interviewed. Moreover, as this is such a radical departure from my current role as a cog in a MegaCorp wheel, I will have an opportunity to ask as many questions as I like to determine if the opportunity is right for me.

The two biggest questions I already know the answer to: Why are you departing (retirement), and will you stick around to transition the role (yes,as long as it takes). Beyond that, below are the questions I've come up with.

Nature of Business
What are your biggest challenges right now?
What are the trends in your industry?
How well documented are the procedures of the business?
How much does your business depend on a key customer or vendor?
What skills or qualities do you think I need to run the business effectively?
How do the financials (income statement / balance sheet) of the business look? (I don't think the job offer comes with an opportunity to obtain an ownership stake in the company, so wasn't sure if it was appropriate to ask to see them)
How integral are you (owner) to the sales process?

Benefits & Work / Life Balance
Does the company offer any sort of retirement plan?
How many hours per week do you (owner) currently work?
Salary, Medical, Dental, etc.
Would there ever be an opportunity in the future to obtain an ownership stake in the company?

So, my question to other small business owners is, if you were in my shoes and knowing what you know about running a small business, what additional questions might you ask?
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Taylor Larimore
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Two good questions

Post by Taylor Larimore »

Mikestorm:

When I was in the Small Business Administration interviewing small businesses owners requesting a loan, I asked 2 important questions (among others):

1. "What is your biggest problem?" (often a surprise)

2. "Show me copies of your last three business federal income tax returns." Tax-returns show the worst financial picture (instead of the best); show the business trend; help you determine if the businessman is honest; and alert you to unpaid taxes.

It is useful to know that most (not all) good businesses are not for sale. A business for sale is usually the last desperate effort of the owner to recover something before going out of business.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Spirit Rider
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by Spirit Rider »

I have been one of the founders of three different small startups. When we transitioned to non-founder CEOs, options were always part of the compensation package.

I can't imagine taking a senior management position without there being some form of equity participation.
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Hayden
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by Hayden »

I've been told by others in your position that a big problem is the founder not letting go. Some founders have a hard time letting go, which would make your job more difficult.
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Re: Two good questions

Post by mikestorm »

Taylor Larimore wrote:
2. "Show me copies of your last three business federal income tax returns." Tax-returns show the worst financial picture (instead of the best); show the business trend; help you determine if the businessman is honest; and alert you to unpaid taxes.
Taylor, this is solid advice, thank you.
Spirit Rider wrote:I have been one of the founders of three different small startups. When we transitioned to non-founder CEOs, options were always part of the compensation package.

I can't imagine taking a senior management position without there being some form of equity participation.
This is very good to know. Right now my exposure to the offer was a very impromptu conversation, with a more meaningful conversation to follow shortly, so I honestly don't know what the founder has in mind. Even so, it's helpful to understand a typical compensation package can potentially include equity participation, so I will ask.
Hayden wrote:I've been told by others in your position that a big problem is the founder not letting go. Some founders have a hard time letting go, which would make your job more difficult.
The other side of the coin to the founder sticking around to assist with the transition. Knowing the above is a risk, if I decide to accept, is it unreasonable for me to ask for a formalized succession plan (vs. playing it by ear) which puts obligations on both parties (me to assume responsibilities and the founder to divest responsibilities) and to ensure the transition has a definitive end date?
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by Diogenes »

Mikestorm,

Can you tell us a little about how you were 'approached' for this position? Does the business any way relate to what you were doing at your current job? Have you had experience as a Senior Officer in a small or medium company? Are they asking you to 'buy in' in any way?
Are you familiar with the small firm financial services industry? How many employees at the firm?

_D_
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celia
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by celia »

What is their financial services philosophy or mission? What is yours? If you are a Boglehead and they are more like a Edward Jones, can you reconcile that in your head or would you be struggling with it?

Who are their key employees and what do they do? Will they all be staying at least a year? (Some may leave when the CEO does.)

What do their customers and competitors think of them? (This requires research outside the company.) Do they have any large customers who bring in more than 5% of their revenue? (What if a large customer leaves when the CEO does?)

If this job requires moving, what does your family think about that? Will it impact them at all?

How many other candidates are they considering and why do they think you would be a good choice? (May not be able to ask this directly.)
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munemaker
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by munemaker »

I would ask about the regulatory environment.

Does the business have any legal actions against it?

Ask about customer satisfaction.

Are you free to operate the business as you see fit? Is the owner going to have his fingers in the business or place boundaries on your decision making?

How often is the firm audited? What issues came up during the most recent audit?

Also...maybe just me, but I usually don't ask about salary & benefits at the first interview.
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mikestorm
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by mikestorm »

Diogenes wrote:Mikestorm,

Can you tell us a little about how you were 'approached' for this position? Does the business any way relate to what you were doing at your current job? Have you had experience as a Senior Officer in a small or medium company? Are they asking you to 'buy in' in any way?
Are you familiar with the small firm financial services industry? How many employees at the firm?

_D_
Apologies in advance for clunky wording, I'm trying to keep things as unspecific as I can.

I hired and managed an individual who's father is the current principal of this business. Father had came from the same industry we did, and decided to start out on his own. The business is over ten years old, but for the first three or so, it was touch and go as I recall. Although this person has moved on, (to work for this company actually) we still kept in touch, an it was from this person that my name was floated as a potential successor. I asked why they didn't want to follow in their father's footsteps, and they feel like they have neither the desire nor aptitude to do what the current CEO does.

The business model covers a very specific facet of my industry. Think 'medical field' vs. 'a company that sells imagining equipment and software to hospitals'. So, think of someone being asked to head up a (very small) company like this who used to work in Hospital administration for over twenty years. Also, I used this example deliberately, to also point out that this company is business-to-business.

No experience as an officer in a small to medium company. I was a VP/director in a very large company (the cog in a MegaCorp wheel I mentioned earlier). The size of the company coincides with the size of the team I've managed in this role, although I imagine the identical headcount is where the similarities end.

As for other specifics, I'll know more when I meet with the principal.
Last edited by mikestorm on Sun Oct 23, 2016 6:28 am, edited 2 times in total.
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mikestorm
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by mikestorm »

Celia, all of your questions are good, and some did already plan on asking. One I did want to comment on, however, because like you I feel it is important to not compromise oneself:
celia wrote:What is their financial services philosophy or mission? What is yours? If you are a Boglehead and they are more like a Edward Jones, can you reconcile that in your head or would you be struggling with it?
They are B2B only, but to use your analogy, they are closer to Ameritrade, PayPal, or E-Trade (if these services were only offered to businesses). Very transactional, and very agnostic, so no conflicts with my philosophy.
munemaker wrote:I would ask about the regulatory environment.

Does the business have any legal actions against it?

Ask about customer satisfaction.

Are you free to operate the business as you see fit? Is the owner going to have his fingers in the business or place boundaries on your decision making?

How often is the firm audited? What issues came up during the most recent audit?

Also...maybe just me, but I usually don't ask about salary & benefits at the first interview.
Munemaker, I'm adding your questions to my list. Reading your last point, you're absolutely right. I think I was trying to compile in one place all the unknowns, but without reading this out loud, I might have rattled these questions off along with all the rest during the first meeting, so thank you!
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dm200
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by dm200 »

Among the many issues involved, one huge challenge (that you would need to be prepared for) in any kind of "financial services" is the cost, risk and work of the surely increasing burden of regulatory compliance. If you take this on, you would need to get up to speed on such issues and/or hire (or contract) someone who can and will.

Such regulatory compkiance matters should be on your list of questions. This would include what, who and how such issues have been dealt with in the past and present, as well as the future.

A "niche" can be good or bad. What are the risks that this "niche" might disappear? With changes in technology, competition, business environment, regulations, etc. many such "niches" have disappeared overnight.

What about existing staff? Will (or might) key folks leave when the current CEO leaves?

I would also get a "non compete" agreement from the current CEO so that he does not become a competitor in the future.
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celia
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by celia »

Questions to ask yourself:

Do you already have management experience? Getting people motivated and prepared to move the mission forward is different than "selling" the service or product.

Do you have experience "selling" the service or product? Understanding the challenges the employees have is important. You may wonder why it takes so long for person A to do task y. Is it the person or the task that is difficult? Similarly, as an employee, did you ever had a boss who didn't understand the complexity of a task and who wondered why it took so long? How did you feel as the employee? How do you think the boss felt? If you had been that boss, how would you be able to report up the chain of command?
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by mikestorm »

dm200 wrote: A "niche" can be good or bad. What are the risks that this "niche" might disappear? With changes in technology, competition, business environment, regulations, etc. many such "niches" have disappeared overnight.
dm200, you're spot on, and these are some of my concerns also. From what I can tell, primarily changes in technology could render this business obsolete. That said, the company appears to be capitalizing and appropriating new technology as it emerges, essentially preserving the value added by being an intermediary. This could change at any time. Business environment seems to be going the other way. Many entities who did this service in house for years appear to be outsourcing now, which seems to be why this company is doing well.
dm200 wrote: What about existing staff? Will (or might) key folks leave when the current CEO leaves?
Another good question. My assumption is he's trying to minimize disruption, and the bigger issue might be in his actually completing the transition and leaving, but if (for example) my old employee is leaving along with Dad, that would certainly set off some alarm bells to me.
dm200 wrote: I would also get a "non compete" agreement from the current CEO so that he does not become a competitor in the future.
Well, the owner will remain on the company board as the CoB, so if he ever gets the itch to actively do this again, he can just fire me!
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by mikestorm »

celia wrote:Questions to ask yourself:

Do you already have management experience? Getting people motivated and prepared to move the mission forward is different than "selling" the service or product.
I have over twenty years of management experience, specifically in attracting, growing, promoting and motivating employees.
celia wrote: Do you have experience "selling" the service or product? Understanding the challenges the employees have is important. You may wonder why it takes so long for person A to do task y. Is it the person or the task that is difficult? Similarly, as an employee, did you ever had a boss who didn't understand the complexity of a task and who wondered why it took so long? How did you feel as the employee? How do you think the boss felt? If you had been that boss, how would you be able to report up the chain of command?
I am in the financial services industry but I work in information systems. We invented what you describe. We are always blowing people's minds when we tell them something they think will take forever can be turned around in a few days, and always ratcheting down expectations when they ask us to do something they think is easy as pie, where the logistical aspect is much more complex and time consuming then the business side expects.
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by Don Christy »

I would also be interested in what the ongoing corporate governance will be, i.e. Will there be a board of directors and/or what "advisors" will you have as CEO.
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Re: Assistance Requested: Candidate to be CEO of a Small Business

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Don Christy wrote:I would also be interested in what the ongoing corporate governance will be, i.e. Will there be a board of directors and/or what "advisors" will you have as CEO.
There is a board, but rather than assume, I'll ask about corporate governance, and leave it as an open ended question.
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by blueblock »

In my former world, non-profits, founders can be a pain in the rear. More have trouble letting go than don't. You can protect yourself in this regard by having clearly described authorities spelled out in your employment contract, along with allowed grounds for dismissal, termination compensation, performance evaluation standards, etc.

No contract? Steer clear.
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by mikestorm »

blueblock wrote:In my former world, non-profits, founders can be a pain in the rear. More have trouble letting go than don't. You can protect yourself in this regard by having clearly described authorities spelled out in your employment contract, along with allowed grounds for dismissal, termination compensation, performance evaluation standards, etc.

No contract? Steer clear.
This is tremendously helpful. I'm so used to being an 'at-will' employee it didn't occur to me to inquire about a contract.
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by staythecourse »

I would want to know why not hire internally? If the answer is they don't have any good internal candidates then why not? They are a small business so the hiring is streamlined and the owner has all the clout. If he/ she was planning on stepping down why did he not have a succession plan in place already?

Not sure if it matters, but just gives insight on how functional/ dysfunctional the current system works.

I also would spend some time ALONE in the cafeteria area and just eavesdrop or ask employees what their experience has been working for x company. Changing culture would likely be the HARDEST thing to do if it is negative already.

Good luck.
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dm200
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by dm200 »

staythecourse wrote:I would want to know why not hire internally? If the answer is they don't have any good internal candidates then why not? They are a small business so the hiring is streamlined and the owner has all the clout. If he/ she was planning on stepping down why did he not have a succession plan in place already?
Not sure if it matters, but just gives insight on how functional/ dysfunctional the current system works.
I also would spend some time ALONE in the cafeteria area and just eavesdrop or ask employees what their experience has been working for x company. Changing culture would likely be the HARDEST thing to do if it is negative already.
Good luck.
As far as "hiring internally", that is a good question to at least think about.

However, not all small businesses/organizations' "business models" are such that existing internal employees are good candidates for succession. In some such small organizations, there is only sufficient work or need for one type of education/experience/certification that makes "bottom line" sense.
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Don Christy
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by Don Christy »

Along with an employment contract, with well described responsibilities/authority, I would include a "constructive termination" clause. This will protect you in the event they significantly change your role or make the environment hostile trying to run you off without paying whatever your agreement offers for involuntary separation.
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by betablocker »

I own a business and I'd recommend you get very clear about the long term exist strategy of the founder. If he is retiring is he considering a sale? Maybe you're the way he shows the company doesn't need him to run. Are you comfortable if he sells the business in a year or two? That could be great for you or you could be looking for another job. If he isn't planning for a sale either to the employees, a third party, or management, why not? That's just poor planning which is a red flag. Ideally, you'd either buy the company from him in chunks over some period of time or you'd have an understanding that he is preparing for a sale and you make your deal accordingly. Maybe you get a portion of the sales price or a contract that provides for you after a successful sale.

I also agree about founders having trouble letting go. Try to find out what his retirement plans are. If its golf and vacations, there's a high likelihood that he'll get bored and start making trouble for you. I'd try to negotiated a break up package if he doesn't get out of the way so you don't end up on the street after a year.
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dm200
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by dm200 »

In just about any kind or organization with a long term CEO (or owner), "transition" issues with successor can be either a challenge/difficult or go well.
staythecourse
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Re: Assistance Requested: Candidate to be CEO of a Small Business

Post by staythecourse »

dm200 wrote:
staythecourse wrote:I would want to know why not hire internally? If the answer is they don't have any good internal candidates then why not? They are a small business so the hiring is streamlined and the owner has all the clout. If he/ she was planning on stepping down why did he not have a succession plan in place already?
Not sure if it matters, but just gives insight on how functional/ dysfunctional the current system works.
I also would spend some time ALONE in the cafeteria area and just eavesdrop or ask employees what their experience has been working for x company. Changing culture would likely be the HARDEST thing to do if it is negative already.
Good luck.
As far as "hiring internally", that is a good question to at least think about.

However, not all small businesses/organizations' "business models" are such that existing internal employees are good candidates for succession. In some such small organizations, there is only sufficient work or need for one type of education/experience/certification that makes "bottom line" sense.
Good point.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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