Over the years working with inde- pendent advisory firm owners, I’ve seen what works — and
what doesn’t. One area where my experience has been particularly enlightening is succession planning.
Even with the current acquisition
frenzy, many firm owners still want to
transition their businesses internally,
but I’ve seen a number of internal succession plans that haven’t worked. I
used to wonder why, so sometime ago
I started tracking succession planning
behaviors to find the answer.
WHAT I’VE LEARNED
Traditionally, most firm owners who have
decided it’s time to prepare for their retirement go to a “succession planning” firm
that outlines a plan based on the owner’s
goals and show them what should happen
based on the owner’s retirement plans and
the growth of the business. This usually is
measured by increases in the number of
clients, revenues, and profitability.
The problem with these pro formas
is they usually create expectations by
the retiring owner of what the successor
“should” be able to achieve and locks out
the successor from taking on realistic
initiatives that would be more successful. In doing so, it erodes trust between
owner and successor. Consequently, in a
majority of the firms I’ve followed, the
designated “successor” does not end up
taking over the business — and the firms
are sold to outside buyers.
The reason for the low success rate for
internal succession plans is the singular
focus on achieving those “target num-
bers,” rather than on the current growth
environment and grooming the successor
to take over the business. Here’s an
example of a transition that illustrates
the elements of what I’ve found to be the
keys to successful successions.
About 15 years ago, I got a call from
a male owner advisor who had met a
young female advisor who wanted to sell
her firm, but continue to work with her
clients. The resulting merged firm has
been a client for 15 years. The owner has
retired and his (previous) firm is now
owned by two younger partners, and the
successor transfer is completed.
But, the key to the success of this
transfer came not from setting goals,
but from an almost myopic focus on the
relationship between the owner and his
successors. That relationship was based
on building trust between them and a
transfer of knowledge, information, and
support from the owner. Most important, there were open and honest communications between the groups.
Communication is the first key to success. Once good lines of communication
are established between owner and successor, the owner can begin to transfer
what is needed to successfully run the
business going forward. Most importantly, though, an owner must give to
her/his successor trust and faith — the
owner believes the successor can and
will gain the knowledge and experience
to successfully run the business.
Trust can be conveyed in a number of
ways: patience, support, honesty, encouragement, acceptance of weaknesses, and
openness and honesty. Also, with a transition, there must be a willingness to
How to Pass the Torch
Selling a firm to an internal employee involves several challenges, but you
can work around them to make this process a success.
The problem with
pro formas is they
by the retiring owner
of what the successor
“should” be able to
achieve and locks out
the successor from
taking on realistic
initiatives that would
be more successful.
THE FAST TRACK
By Angie Herbers