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The succession issue is one that more and more firms are attempting to address.
While plenty of business owners are still happy to sell out to a consolidator, there are others who don’t want to take that route.
I understand why not.
They want their client care and business approach to carry on. And while all consolidators swear on their mother’s grave about what will and won’t happen, understandably, some sellers remain sceptical.
Internal succession is tough
If you decide to open the succession can of worms some difficult issues arise. Two major ones are:
- How will the successor/s fund the purchase?
- When will the owner/s step aside? Over what time frame?
And believe it or not, it’s the second of these issues that leads to most of the big challenges (and sometimes outright failure) of the succession plan.
Owners are control freaks by nature and even high levels of self-awareness don’t shift that trait.
So the issue of, “Can the departing owner still play a meaningful role in the business?” becomes the biggest hurdle to a successful transition.
Owners often do want to play a role.
Successors can see roles the owner could play after the handover.
Conceptually, I agree that owners can still play a role post-handover. Although I say conceptually because in practice it doesn’t always work out.
Whenever I’m involved in a succession planning job, there’s one question I like to ask up-front:
“Whose interests are our primary concern? The retiring owner or the business entity itself?”
When you agree that it’s the welfare of the business entity that’s the primary concern, decisions can get made. There’s a clarity and commonality of purpose between all parties.
If it’s the retiring owner’s welfare that’s the primary concern, then things can get messy super quick.
The funny part is, I believe that focusing exclusively on the needs of the business leads to the best interests of the owner being taken care of, too. But it’s not easy.
Even in situations where everyone agrees that the business entity’s interests should be the driving force in decision making, the owner’s lifetime of control can exert a lot of influence. People who’ve looked to the owner for years, continue to do so. Their words still carry a ton of weight. It’s like the business now has two heads instead of one. None of the team knows who they’re following and it doesn’t work.
That’s why it’s so hard to actually stay and contribute if you’re the selling owner.
In more than one case I’ve been involved with we’ve agreed that the founder needs to exit fairly rapidly. It comes up a lot.
How to deal with it
If you’re the selling owner, what I’m about to say might feel insensitive, but I assure you I don’t mean it to come across harshly. I think you’ve got two options:
Option 1: “Get the hell out of Dodge”
If you’ve spent years working with, trusting and developing the person or persons who are taking over the business, then leave them to it. If they want your input, they’ll call you.
This is a great strategy if you believe you have good quality people in the leadership role/s. And to be fair, that should have been part of your succession planning in the past.
If it was, then trust it.
Ooh, I know how hard this is.
It’s easy to read and accept what I’ve said intellectually, but it’s super hard to do in practice.
It’s going to raise the same issues a parent experiences as their children grow into young adults. They’re not the finished article. They’re going to make a few mistakes along the way.
However, just like mature parents stand back and watch the occasional car crash, knowing that in the medium term it will make their kids strong and resilient adults, retiring business owners who have raised their successors well, do exactly the same.
If your successors have got the right values, they’ll be ok.
You can’t protect them (or your future buyout payments) from every possible business challenge. You’ve got to trust that if you have the right people in place, they’ll work it all out (and get you paid).
Option 2: Establish strong corporate governance
Another business I worked with set up a new board structure so the owner can have input into the direction of the business (the ends), but no input into how the ends should be achieved (the means).
In a mature business that’s trying to transition to new ownership, establishing sound corporate governance is an essential step. It gives the departing owner/s input and access to information, whilst giving the new owner/s the control they need to do things their way.
Clearly it’s important to have the right board structure so that the outgoing owner doesn’t exert too much control. If they start meddling in the day to day running of the business, that would need to be addressed.
The two options are not mutually exclusive. You could establish effective corporate governance during your career so that when you do sell and handover, there’s continuity of that approach.
(For more information on an approach to corporate governance that I like, take a look at Reinventing Your Board: A Step-By-Step Guide To Implementing Policy Governance by John and Miriam Carver.)
Personally, I love to see succession in our profession. If you can get it right, it perpetuates your amazing legacy.
Let me know how you go.
Related: The Advice Model for the Next Generation of Clients