The Surprising Importance of Succession as a Team Sport

The Surprising Importance of Succession as a Team Sport

It won’t surprise you that successful exit and succession planning is a team sport. Successfully selling a professional services firm requires answers to deeply technical questions pulled from the fields of tax, law, banking and more. As a result, attorneys, CPAs, bankers and others will be forced to work closely together as a team for our clients to be successful.

However, what you may not know is that the team providing this advice has value that far exceeds their technical competence. You may be startled to learn that your value as a part of a good cross-functional team may be in your ability to coordinate how you motivate your mutual client – for their own good.

Many owners of professional services firms will be relying on the transition value of their ownership to make an important contribution to their retirement success. This is true regardless of whether your client is transitioning from the fields of architecture, tax, consulting, or law. The value your client receives in exchange for their life’s work may have an important impact on their ability to achieve their financial goals and objectives.

If you have been around projects related to the purchase, sale or transition of a company, you have learned that success is often dependent on the team around the owner.  And, yet, too many of us have been invited to work on projects to clean up a succession mess that could have been avoided had the owner assembled a good team of experts pulled from the fields of investment banking, tax, law, corporate banking, personal financial planning and wealth management.

Why are these otherwise competent business owners messing up this critical stage in their business life and skipping the advice of a competent cross-functional team?

It is easy to blame the owner for being penny-wise and pound foolish. It often appears that owners are resisting the expense of competent advice early in the process. But, I think this misses an important and subtler point. Most successful business owners have learned from their own success to make decisions in a very specific fashion. I believe that this decision-making pattern will ultimately become a liability when owners get to this step in their careers.

By way of background, I am often hired by the owners of closely held businesses to be their personal financial planner and wealth manager. What my clients tell me differentiates my practice is my focus on the wealth issues that specifically apply to individuals who own and operate a closely held business.

In this line of work, I study everything I can about the mindset of successful founder business owners. Take some of the lessons Ray Dalio shares in his book, Principles. Ray is the founder of Bridgewater Associates. Bridgewater, according to Bloomberg, is now one of the world’s largest hedge funds. However, Ray didn’t achieve this outcome without substantial failures along the way. While reading Ray’s book, it dawned on me that the wisdom I was admiring was the iterative nature of his business process. Successful owners like Ray are often forced to test, fail, learn, apply and improve all aspects of their operations. This is real-world learning, wisdom and value creation. And, owners like Ray are rewarded for behaving specifically in this fashion. It’s Darwinian. If owners don’t learn and adapt, they repeat the same failures enough to wipe them out. If they have survived, it is not because they avoided failure. Rather, it is likely due to their ability to fail, assess, adjust, learn and adapt.

As I was reading Ray’s book, I was reminded of an idea shared with me by a guy I admire a great deal, Chris Andersen – Co-CEO & Founder of AssayCS. AssayCS advises business owners on the purchase and sale of companies. Chris told me one time that you don’t get very good at selling companies until you’ve done it more than a few times. Back to Ray’s point, you need to strive, fail, assess, learn, and apply too many lessons in the first few efforts to develop any meaningful skill in that area.

Business owners have come to trust in their own ability to try, fail, adjust and move on. This experience allows them to take on high risk / low information challenges in their lives such as launching a new product or entering a new market.

The rising concern I feel on behalf of my clients is that they are attempting to answer the question of their ultimate transition in the same fashion as all the other business decisions they have faced. They have learned to under-value the study of an issue ahead of time. They have learned to ask for forgiveness and not permission. The result is that they aren’t skimping on advice as much as relying on what has worked in the past.

I would be less worried except few of our mutual clients have the luxury of time, energy and capital to fail in the process of selling their companies. And, back to Chris’ earlier point, you don’t get very good at selling ownership in a company until you have done it more than a few times.

This is why I believe so strongly in succession as a team sport. No one advisor can change an owner’s mind on their own. We may have to motivate our mutual clients and educate them about the special nature of this specific business question. It will be incumbent on us to point out the potential blind spot here and the severity of the risks if mishandled. It will be up to us to work together to get our clients to face this question differently. Our clients’ financial future may well depend on the team’s ability to do so.