“Consider your will to be the vision of your influence on earth after you cease to be a part of it. Crafting a lasting legacy means you start planning and making it possible now.” — Archibald Marwizi
As fully functioning and competent executives, we might as well admit two things about ourselves right up front. First, we all know having an end game strategy for ourselves is absolutely essential to running a successful and sustainable business. It’s not even a debatable topic, since we all know that the alternative is leaving our baby, our legacy, our life’s work, however we choose to think of it, to fate.
The second is we often push this process to the future because we don’t want to face the fact that there will be a point where our baby is no longer, well, our baby. A graduate school professor once said that the biggest mistake a business owner makes is not knowing or clearly defining their exit strategy because that is the destination. And not knowing the destination prevents us from planning the best way to get there.
Who would voluntarily make such a choice? And yet, many executives either studiously avoid the topic of succession or continually postpone articulating and developing their end game. The problem is not with the word “strategy”, at which executives are adept. Nor is it with “game”, which all play to the best of their abilities. The problem is with
“end”.
The very notion of ending one’s commitment to what is, in its essence, and extension of one’s own personality, drive and ambition, is the precursor of an uncomfortable conversation. It implies all the great fears of letting go, of stepping down, even of facing one’s own mortality.
So, naturally, people will employ virtually any device to avoid the unpleasantness. They will tell themselves they are reluctant to sell out, that they see no capable replacements for themselves, that their search for a candidate who mirrors their own passion has come up empty, that they will deal with it in the future. And finally, when all else fails, that “this business is my life.”
And across the table, fate smiles.
Let’s get real. Succession planning is not just for you; it’s for who comes next and for the business you love so much. It is often a five-year or longer process. The best approach is to make it a part of your culture. To be taken seriously, it must be put down in black and white and become something that is reviewed and adjusted annually. Here’s an idea: instead of making excuses, let’s get started planning.
Succession Planning Is Really Succession Practice.
Developing a competent succession strategy is truthfully an avatar for your entire organization. In other words, if your organization truly believes in investing in people, then finding the next “you” and developing the confidence in that person should be the natural result of an organic process.
Seen in this light, succession planning should be in place at every level of your organization. Competition for succession at each level must be seen as an organizational strength and the result of logical steps. Ideally, an organization thus infused with advancement would wind up with several viable candidates at the owner or general manager level. This is a problem you want to have! People will either move up or out, and either way your corporate culture will develop a reputation as a generator of managerial and executive talent. This can only have a beneficial effect on your talent recruitment efforts.
Similarly, your duty as an executive is to maximize the value of your company. Your succession planning is ultimately inseparable from the financial impact of your exit strategy. To the extent your people feel empowered to advance and succeed, your business will flourish and your payout will, by necessity, rise to a higher multiple. Your entire organization will appear more attractive to potential investors. Conversely, failure to adequately employ organic succession planning is simply a form of leaving money on the table at the end. Is that really your strategy?
Your ultimate endgame must be reflected in a coherent strategic roadmap that gets you safely to your destination. For starters, you have to understand a real valuation of your company. In our industry, the common approach for acquisition is a multiple on weekly top line revenue. To increase that multiple, you should be thinking in terms of EBITDA (earnings before interest, taxes, depreciation and amortization) that grows continuously for four to five years in succession. To build such a map, you must define your final goal and the intermediate steps; and to do this, you must begin by asking introspective questions. What are your motivations? A house at the lake? Do you want your successor to have reached a certain age? A certain set of accomplishments?
These questions and others must be addressed in your succession plan. Your goals must be definable and quantifiable and you must have timetables for each. These interim steps need a significant level of detail in order to be effective, since you will be measuring your and your successor’s progress toward your endgame result. You will almost certainly make different decisions based on whether your successor is a son, a daughter, another family member or someone else.
How Soon Is Too Soon? It Isn’t.
Once you admit that a comprehensive succession plan at all levels is best for all involved, sooner is better and now is best. First, face up to the fact that the inevitable day when you aren’t around is coming, probably quicker than you prefer. Get rid of any denial you have about this. Separate the emotion. Put your ego in the backseat. After all, from this day forward, your success is defined by your ability to build an organization where you are not needed. That’s legacy.
This means you should start transitioning responsibility as early in the process as possible. The more of your business that resides inside your own head, the less value it will have to your successor or investors. This may seem counterintuitive, but it is nonetheless true.
Next, start identifying potential owners/leaders in your company. It’s time to begin questioning your children or your employees to determine their interest and passion for leadership of your organization. The reason? You want your understudy to build a résumé that confirms his or her aptitude and credibility for assuming command. The interim years of your roadmap will be consciously designed for this purpose, to produce a result where both you and your organization are comfortable with you walking away.
There is no set formula for identifying leaders. Don’t be afraid to ask challenging questions of candidates or children about their life goals. Remember: your task is to promote them up or out. And make no mistake—you will be judged after the fact on how well you accomplished this mission.
Finally, recognize that sustainable cultures adapt to new conditions and even generations. This means that while evaluating people you must be aware that you cannot tie your successor to previous modes or even the current structure of your business, or yourself. You are identifying them based partially on their ability to see where the business must go, not merely where it is at the current point in time.
This is a delicate balancing act. It means you have to be willing to turn over the keys during the transitional stage, all the while with the understanding that it is still your business. This cannot be a conditional act. You have to trust others, and yourself. You are, in some ways, engaged in identifying a superior intelligence to tell you what to do. In this scenario, to walk away admitting that “it had become a business you no longer knew anymore” may be a sign of success.
A Winning Strategy Rewards Success.
It is exceedingly difficult for successful individuals to be impartial about their own offspring. But if blood is thicker than water, success is thicker than both. If you are serious about building your successor’s résumé in a way that confirms his or her fitness for leadership, now is the time to prove it.
Give nothing away. If your son or daughter sincerely wants your position, they will want to earn it in their own right in order to preempt any possibility of being perceived as a beneficiary of nepotism. Do not assume that an adult child who bears your last name has inherited your passion. Your rewards system will either confirm their fitness or release them to pursue their own path. This is your job as both executive and parent!
Establish a spirit of competition for succession based on results. A good way to accomplish this is to simply set a goal or bar and let them find a way to achieve it. How they do this will reveal a great deal about their character as well as their aptitude, creativity and ingenuity. If you are offering an equity position, then make the stake contingent on attaining certain results. Set measurable mileposts and gauge their success along the way.
Another tactic is to put potential successors in charge of something like an initiative or program. Then, check their progress against predetermined benchmarks. Doing so will help you to determine the level of their hunger as well as their skill.
In the endgame, nobody flips a switch. Nobody rings a bell. The best strategy for both of you will be based on gradually increasing your successor’s stake over time. Too many executives do not have exposure to profit and loss until they had ownership of profit and loss. For you, a gradual transfer of equity will allow you the assurance of seeing your succession strategy bloom. For your successor, it will help to eliminate the possibility of being overwhelmed by the sudden assumption of authority and responsibility.
Issues of equity transfer and evaluating possible successors through reality testing of your own devising have neither easy nor quick solutions. However, throughout the process, take heart. Equipped with a roadmap, you have started down the road too few executives and owners travel until very late in the game. With confidence in the advisors you have chosen, your company will thrive in your well-planned absence.
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