Top Ten Considerations in Succession Planning

Sooner or later, leadership in business is going to face succession.

Whether you’re selling a business, handing over the reins to your role, or just wondering if you can ever get payroll off of your plate, part of leadership is planning for the post-you future. The following principles have helped MW in our own succession processes, and have helped countless clients as we’ve navigated succession alongside them.

1. Never start with the attorneys and CPAs.

We don’t have anything against lawyers and accountants. They’re both vital to any succession process that includes transfer of equity. However, a good process must be designed, not assumed. Starting with these specialties will inherently lock down details and specifics that might be better left in creative mode early on. Think of these roles as carpenters: they’re going to drive (legal) nails that build something sturdy, level, and reliable. But somewhere upstream, an architect needs to consider all the possible things we could build, and think creatively so we end up with the right house. Think big-picture creativity before you think structure and details. 

2. Enter the danger.

Succession conversations can be taboo, and for good reason. Confidentiality is important, stakes are high, retirements, livelihoods, and identities are often wrapped up in the outcomes, and nobody wants to show any weakness or ignorance. Still, MW has found that ignorance as to the options available and miscommunication both pervade successions at even the largest, most well-regarded, and most sophisticated companies. Business transactions are extremely low-frequency purchase occasions, which means nobody at the table likely has much experience, and everyone can benefit from having frequent, transparent, creative, and open dialogue. Talk—a lot—about the things you’re afraid to talk about. 

3. The thing you’re talking about is hardly ever the thing you’re talking about.

When advising clients through succession, we frequently ask, “What’s really going on?” or, “What is this really about?” Questions like compensation, valuation, timing—even the announcement of retirement—all take on massive extra meaning. Don’t forget to stop, step back, and ask if the conversation (or sticking point) is actually a proxy for an upstream issue. Ask “why” before you argue over “how” and “what.”

4. Think about what you want…and what they want.

We find people are rarely aware of what they really want. And rarely are any two peoples’ motivations the same. This can create miscommunication, but it can also create opportunity. Long before setting out to “ink a deal,” it’s worthwhile to have a lot of conversations with your counterparts in a succession transaction to consider their motivations, desires, objectives, skills, interests, and needs. You might be surprised at how well they complement your own…and complementarity makes for beautiful relationships. Consider your own motivations—and others’. 

5. Both parties will inevitably value the deal differently, for different reasons.

This applies whether or not you’re selling a business. Ultimately, the exiting party is seeking freedom, rest, gratification, and peace that they did their part well. The successor is seeking the opposite: opportunity, fruitfulness, a chance to go further. Recognizing that the two are “buying” completely different things in the transaction (whether you’re selling a nine-figure company, or if you’re just trying to convince a mid-level manager to step up and take over your VP role) is important to understanding that no part of the equation will be viewed the same way by both parties. The timelines, risk profiles, perspectives, vantage points, and identity dynamics will be completely different—often opposite. Therefore, you can’t expect either party to look at any dynamic in the same way. What they want and value is not what you want and value. 

6. Stay in open mode.

John Cleese of Monty Python fame taught that the most creative results come from thinking about the problem without making a decision for the longest possible time—what he calls, “staying in open mode.” This does not mean deciding how succession needs to go, and then putting off discussing and implementing that plan for as long as possible—the pattern that all too many leaders follow. Instead, it means setting a realistic date for succession, backing out to a (much earlier) date by which decisions need to be made, and then staying in “open mode” until then so that you can be truly creative. Be specific with yourself on when decisions need to be made, and don’t lock anything down too early. 

7. Make sure you have time for open mode.

MW founder Steve McKee taught, “Get time on your side.” It’s not uncommon for people to put off intentional discussions about retirement until they’re into their fifties, sixties, or even seventies. That’s too late. Even if you dodge the proverbial heart attack that forces planning at the last minute, it’s simply difficult to be wise, intentional, and creative when you can hear the clock ticking. If you’re in leadership today, you should currently be actively, intentionally, and collaboratively thinking about who does the job after you. 

8. Don’t be greedy.

Successful successions require sacrifice by both parties. It might sound corny, but succession disagreements can often be ameliorated by intentionally taking even 15 minutes to think through the issue from the other party’s perspective. Nobody gets everything they want. Insisting on expectations the other party can’t meet is a surefire way to tank a succession effort. Be selfless and empathetic to succeed in succession. 

9. Microsuccessions beat macrosuccessions.

MW has observed two general types of leaders: those who are actively “giving away” aspects of the business and their responsibilities throughout their career (what we call microsuccessions) and those who expect to do it all at once, at the end, in one fell swoop. Steve McKee (very much the former type) said that “succession planning really begins on day one of the business.” The leaders most successful at succession have already cultivated a spirit of helping others grow behind them, even at cost to themselves, throughout their career. Start giving up responsibility and authority now. It will make it a lot easier later. 

10. Don’t rest on first thoughts.

Industries, categories, and even families tend to have assumed models of how leadership and ownership successions need to go. While these can come about for good reason, it’s often the case that there’s a better approach than the “assumed” parameters. There are thousands of ways to structure a succession that can serve and respect not only both parties, but the evolving business dynamics and pressures on the company itself (and a good succession plan should be tailored to all those factors). Never assume it’s as simple as “the way we did it last time…”

We once met a company owner who in his fifties had taken on millions in debt to finally buy out his father under the exact same model his father had used to buy out his grandfather…and his grandfather and great-grandfather before them. Our friend was now in his sixties, desperate to find a buyer under the exact same model, and unable to recognize what a bad deal that would be for his successor. The business had changed too much, the math didn’t make sense anymore, and the assumptions that had worked beautifully for prior generations had placed this gentleman in a tragic predicament. Poor planning of the prior succession had literally made his own impossible.

One of the greatest tragedies of succession is the failure to look for a better way: a little creativity could have not only prevented the demise of this ancient family company, but could have prevented literally generations of debt, stress, and turmoil…or even set up the next generation for new growth and innovation!

What will your legacy be?