Success in Succession

Leaving a company in good hands takes time, foresight and a bit of self-denial

I quit my job.

That’s the fun way of putting it, and I’ve used it as my opening line as I tell my friends and colleagues that after nearly three decades after co-founding my company, I’m leaving it in new hands. I’m choosing to avoid the “R” word, preferring to think of it as shifting gears. Not only am I too young to retire, there are a lot of other things I’d like to do in the next phase of life.

Of course, as anyone in ownership knows, you don’t just decide one day to step down. If you’re not planning on simply turning the key in the lock and walking away from everything you’ve built – or dying at your desk – you must put some sort of succession plan in place. That typically takes the form of selling the company to another entity or transitioning to a new generation of internal leadership. My business partner and I chose the latter.

The good news is that we gave ourselves plenty of lead time, initiating the process long before either of us was ready to step away. From the beginning, I had been somewhat preoccupied with our eventual exit, having launched our firm only after the succession plan at the company where we had been working fell through. Once we agreed to strike out on our own, we were determined that when it was our turn to move on, we wouldn’t be caught in the same position. It seemed so far away at the time, but it never left the back of my mind.

Identifying a successor

About ten years into our adventure, we hired a young man named Jonathan Lewis into an entry level position. He started slowly at first, but over the course of the following six years we couldn’t help but notice his character, personality, and (still-raw) talent. He didn’t know much about the business back then, but he couldn’t have been expected to. Besides, we knew all of that could be taught.

We were looking for someone with light behind his eyes, fire in his belly, and integrity in his heart. Once we became convinced that Jonathan was the guy, we began a conversation that turned into a mutual commitment. Now, ten years later, Jonathan is president of the company and managing partner. Together we brought on two additional partners to work by his side as the next generation of leadership, and they are already leading the company to new heights.

Critical factors for successful succession

Though bittersweet, it’s gratifying to know that I’m leaving my labor of love in good hands. And now that I’ve experienced both failed and successful succession plans (and have had a front-row seat to many others), I’ve learned some important things about what makes them work. In my mind, there are four critical factors.

First, don’t be greedy. This is easy to say but difficult to do, and not only because greed is one of the seven deadly sins. It’s impossible to do succession planning without the aid of accountants and attorneys whose job it is to help the outgoing generation get the most from the transaction. Add to that spouses who witnessed firsthand all the blood, sweat, and tears we put into the business (and who want to see a nice return themselves), and there’s a lot of pressure to “get what’s coming to us.” But it’s important to remember that the people on the other side of the transaction are getting similar advice from their attorneys, accountants and spouses, and if you’re not careful you could end up in a standoff that blows up the deal. It’s important to structure things in a way that incentivizes both sides to focus on making the pie bigger rather than merely enlarging their individual slices.

Second, trust is critical. No matter how firm the plans, how explicit the timeline and how well-defined the deal structure, there’s no way to anticipate in advance all the circumstances that will unfold. Both parties must be willing to trust each other through periods of uncertainty and change, which means both parties must double down on being trustworthy. In our case, economic circumstances blew up our original timeline, favoring one party over the other. We talked about it and, in the spirit of mutual success, made an adjustment. We want each other to succeed, not merely out of selflessness but because we need each other to succeed.

Third, look for character and capability in a successor more than credentials and experience. The latter can be taught; the former is innate. Ten years ago, when we first began talking with Jonathan about his (and our) long-term future, we were all aware of the fact that he didn’t know what he needed to know. We made an agreement that if he were willing, we would teach him everything we could to help him become all he could be. We poured into him as much as we could, and he not only received it, he multiplied it. Now we’re all beneficiaries of that.

Get time on your side

The final key factor is something none of us can ever get more of and we neglect at our peril: time. The more runway you allow yourself to work up, work on and work out your succession plan, the more options you’ll have, the better prepared both you and your successor will be and the less pressure you’ll feel to make compromises. I’ve come to believe that succession planning really begins on day one of the business; the goal of a founder who initially handles every task should be to slowly relinquish one job at a time until the last role he or she has is adding value but isn’t something on which the company relies. That takes time.

Wherever you are in your succession journey, whether you’re an owner who will eventually want to retire or a manager who, in order to advance, will need to replace yourself, you can’t begin soon enough. You may find, like me, that your greatest contribution to the business isn’t based on the value you provide today, but on how well you’ve set up others to provide value for a whole new generation.

I’m proud of many things about this company. But there’s nothing of which I am prouder than building something that will live on long beyond me. I look forward to watching it thrive.