Eliciting Excellence

3 Succession Pitfalls to Guard Against in a Closely Held Company

A well-planned exit strategy is critical to an owner looking to retire and hand-off their business.  But the unfortunate truth is that about 70% of all next generation businesses fail!  The reason?  The majority of the time, the issue is a poorly prepared successor.  Ideally, the chosen successors have learned the business of the company and demonstrated a commitment to it.  Hopefully, they’ve also learned how to market the company’s products and services, service the customers or clients, and can understand the business’ financial statements.

There are several other things that are also required, such as the ability to develop a compelling vision, the ability to think strategically, the need to develop an Owner’s Mindset, the ability to influence others, and the need to develop a strong executive presence.

However, even when the new leader has all of this knowledge and has these leadership competencies, there are several pitfalls that must be avoided if the new leader is to be successful as they guide the business into the future.

Pitfall #1: Making Changes Simply to Prove the Successor Is in Charge

There are two aspects to this pitfall that need to be addressed. First, newly acquired power, responsibility, and authority can be intoxicating. It can be tempting to flex one’s new leadership muscles. This temptation can arise from years of having ideas without the authority to implement them or it can arise if the new leader feels he or she must establish his or her leadership competence in the eyes of employees. The second aspect pertains to the successor’s relationship with the founder. There may be a tendency to arbitrarily make changes simply to establish that he or she is now in charge, not the founder.

In either case, making changes simply for the sake of change is a mistake. A wise leader will reflect on his or her motivations for wanting a change, show restraint, and reflect good judgment before making any changes. Change for the sake of change is destined to cause problems rather than solve them.

Pitfall #2: Continuing to Think (and Act) Like an Employee

After spending his or her entire career as an employee, the successor must adopt an Owner’s Mind-set. There are several differences between the way an employee thinks and the way an owner thinks, and if this shift doesn’t take place, problems will arise.

Employees tend to think narrowly. They usually focus on the task at hand and/or on their specific domain of responsibility (operations, finance, engineering, etc.). In contrast, an owner needs to consider the bigger picture and how his or her decisions impact each aspect of the business.

Employees tend to think short-term. Their focus tends to be on current matters, current revenues, current expenses, and current profits. On the other hand, an owner needs to consider both short-term and long-term success, learn to make decisions without having all of the information about the future, and must learn to balance risk and reward. Rarely is a decision about the future risk-free, and an owner needs the ability to assess and minimize that risk.

Additionally, employees tend to focus on doing good work while at work but generally don’t take their work home with them. On the other hand, owners learn that the business becomes their lives, and they think about it at all times, wherever they are.

Finally, employees know that if they make poor decisions, the business doesn’t do well, they become dissatisfied, or they lose their job, they can always find a new job elsewhere. Owners understand that failure is not an option. Generally, there is no “Plan B.” They understand that the business is their only future, and this understanding colors their decisions and actions.

Pitfall #3: Not Earning the Confidence of Others Within the Organization

The degree to which leaders earn the trust and respect of others determines the effectiveness of their leadership. There’s a big difference between the results gained from people who are simply compliant and those gained from people who are committed. Exceptional leadership elicits excellence.

In order for leaders to be effective, they must earn the trust and respect of those around them. A new title doesn’t automatically bestow the trust and respect of others onto leaders. Although industry knowledge can earn a new leader professional respect, leadership trust and respect are earned through everyday actions.

Trust is earned by demonstrating integrity. It is critical for leaders to follow through on their commitments. Actions truly do speak louder than words, and good intentions won’t cut it. Leaders may have the best intentions when they agree to a list of commitments, but if they don’t follow through on those commitments, they’re viewed as lacking integrity.

Likewise, if a leader states that certain values are important to him or her but then acts in a manner at odds with those values, that leader demonstrates a lack of integrity. When that happens, people learn not to trust that leader.

Respect must also be earned. The most effective way to earn respect is to show respect. As leaders, we show respect when we listen to what others have to say. People often feel they have good ideas and have something to contribute. Whether we agree with them or not, soliciting input from others demonstrates that we value them and their ideas and in turn earns their respect. The most effective means of showing respect for others is asking good questions of people and then listening to their answers.

Where to Begin

Here are several questions you can ask your clients to help you (and them) determine whether their successors are ready to take the reins:

  1. Is the new leader’s ego in check?
  2. Has the founder made all of the decisions to this point, or has he or she allowed the successor to make decisions and mistakes?
  3. Is the new leader mired in day-to-day operations, or can he or she rise above the mundane and see the bigger picture?
  4. Is the new leader respected and trusted within the organization or is he or she simply the owner’s child/relative?
  5. Does the new leader feel that he or she has been stifled by the founder?

Asking and answering these questions will help you and your clients determine whether further executive development is necessary. (There are many other leadership competencies necessary, but these questions are a good starting point.)

Where to Go From Here

It’s often difficult to help leaders who are taking over a company bridge the gap between where they are and where they need to be. Not every founder has the skill set or time to help the successor develop. However, a leader’s ability to bridge that gap can be the difference between a successful transition and one that languishes in mediocrity.

If you’d like a tool to help you determine a successor’s readiness, we have a free “Successor Readiness Assessment” you can use.  There’s no obligation or cost.  Just useful information to help you.

It’s a list of questions you can ask that will help determine whether successors are ready to take the reins.  We developed these questions as a result of the leadership issues we’ve encountered over the last 16 years.

http://www.elicitingexcellence.com/successor-readiness-assessment

If you find that a successor needs further development and you’d like help preparing that successor for a transition, please give us a call. We specialize in developing executives for succession, and our team of executive coaches works with clients around North America. A well-prepared successor will help maximize the value of a company and ensure its ongoing cash flow. You are welcome to call me on my direct office line: Michael Beck, 503-928-7645 (Portland, OR).