Looking At Succession

Over the next decade a huge number of businesses will change hands.  Some will wind-up, some will be sold to strangers or maybe employees, and some will remain in family hands.  Many will discover the process involved in the transition is quite challenging.

There is an indicator that might be useful to help advisors and the participants decide whether it will be straightforward or difficult. 

Does the incumbent have any interest, plan or desire to have the business run itself?

If yes, then the transition can likely proceed with only normal technical difficulties.  If no, then there will be conflicts that imperil the entire process.

Business owners who want the business to run itself are already most of the way through the succession process.  They have found a way to transfer day-to-day operations and ideally some of the less frequent things like negotiating bank financing or the policy regarding wage rates.

When some of the operating executives are children, and with luck, able to operate the business the first stage is underway.  No succession is valid until the new owners can operate the business successfully.

Once not needed for operations, the founder can be busy looking for strategic fits like new markets, mergers or new products.  If the founder is already doing little on the day to day side of operations, this is an easy transition.  New markets frequently involve travel and that can be an added incentive to leave the day to day to others.

But what is the founder to do if the business does not already run itself?  After the transition, they will have nothing to do and will resent the lack of hands on control.  Usually the new owners have too little experience to guarantee success.  Easily predictable conflict here.

In either case, the founder has an important ongoing role that is not easily characterized as a business role.  Most people fail to notice.

They are the holder of the old beliefs, old philosophy and old visions.  Like Yoda and Obi-Wan.

This role is important. The philosophy of customer service, product and service excellence, community involvement, employee development,  financial strength and innovation are best served by those with a strong beginning template and few distractions.  Often the operators cannot see all of the difficulties and opportunities and so periodically the founder can say things like, “That possibility really does not fit with our history and our culture.  Maybe you should rethink it.”

It is easy to lose track of the mission when the day to day necessities interfere.  Most business transitions end incomplete because the last parts of the business purpose are never transmitted.  Communicating family business values in the new situations that develop takes a long time and probably is never really finished.

Elder statesman is a worthy role for the founder over the long period of transition.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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