You have to love entrepreneurs and the skills, strengths, aptitude, and attitude that enables them to risk everything to build something. Having worked with leading visionaries who are true serial entrepreneurs for nearly three decades, I can honestly tell you that without them, our economy and society would not be nearly as vibrant, growing, and diverse.
However, a couple of their key qualities can, in the long run, actually end up hurting the very entity they have founded if not managed correctly. To put it bluntly, far too many entrepreneurs lack the delegation, mentoring, and personal development skills that are so vital to help a business reach its full potential. This is not a knock on this group. Rather it is simply an observation that their leadership strengths, decision making skills, and vision often run counter to one fundamental dynamic: eventually a successor must be groomed. This is a reality far too many business owners put off.
One of the most important roles we play with our clients is to help them analyze their businesses the way buyers do. A key detail that buyers review when looking at any target is this: If the seller is not going to stay long term after a reasonable transition period (usually 1-3 years), then has an internal replacement been groomed? Is there talent in middle management to assume a CEO role? This is especially critical if the company is dependent on the current owner for most (if not all) important decisions.
I recently had the opportunity to participate in a CEO Briefs webinar entitled “Best Practices for Creating a CEO Succession Plan.” If you are not familiar with them, CEO Briefs (a service of the Financial Times) “is an exclusive knowledge network for career-driven thought leaders. As the leading publisher of professional on-demand resources for senior executives, [they] strive to eliminate career roadblocks, sharpen principal skills, and continue to educate top leaders on hot topics impacting their profession.” They do a tremendous job focusing on providing relevant educational materials that pertain to critical C-level issues.
This particular webinar was led by Aaron Sorensen, Ph.D. with Axiom Consulting Partners, an internationally known business consulting firm. Sorensen is considered a leading expert on CEO succession planning, and I found his information timely and informative. It was an hour-long seminar so I won’t be able to cover all his information. A few of his points were extremely informative and important for CEOs to consider:
Each of these points is critical to consider, especially if you are planning to sell your company during the next couple of years.
First, you need to see the development of a successor as a financial investment in your company. Far too many business owners do not. Sorensen is right; if you don’t find and groom a replacement, buyers will view that as a risk, and any perceived risk will impact your ultimate valuation. Consider the financial consequences as you weigh the cost of creating a successor.
Secondly, let’s address how family plays into it. Based on our years of experience, succession plan creation for privately held companies is even more complex given inter-family dynamics and the raw fact that sometimes a family member is the worst person to identify as a successor. Buyers often view that as a risk as well. It is vital to look for the BEST talent, not just the next family member in line to assume your role.
Be sure to assess your potential successors as scientifically as possible. This means you need to expose them to all facets/departments of the company and see how they handle issues and people. Track their progress, document it, and use what you see as performance to make your succession decision.
And most importantly, as Sorensen so accurately points out, a successor needs to be identified who has the skills to take the business to the “next level,” not maintain the status quo. The quote from Marshall Goldsmith is so on point. If you look for someone exactly like yourself, you may be short-changing the company and any future owners. The skills to start a company are not the same as those needed to take a $5 million company to $25 million and beyond.
Now some of you are reading this and saying, OK, sounds great but I don’t have the time to identify and groom a successor because I am too busy running my company. Well you just explained why you NEED to do so if you want to build a buyer-ready business.
And even if you own a smaller company, it is still possible to develop a successor. Don’t over-engineer this process. Groom the person in your organization you believe can replace you, and simply delegate a few minor decisions to them. See how they think, how they communicate. If they do well with minor ones, move up to major ones and review their decision-making process. Finally, if they pass this test, examine their leadership potential. Can they communicate? Do they have the respect of their peers? If you are gone, will they be able to work well with a new owner(s)?
So keep this as simple as you need to but most importantly do not put this off. As Sorensen so correctly points out: “Poor CEO succession planning can erode value in a much shorter period than other competitive threats.”
This is especially true if you are trying to build a buyer-ready business!
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.