Secrets to a Successful Business Exit– January 05, 2018 by Randy Myeroff

Planning for business succession is a vital discipline to help keep organizations running smoothly, and ideally thriving, from one regime to the next. Building a plan for the future boosts confidence in customers, employees, investors and lenders.
 
The key to success is to start early, particularly considering today’s demographics. According to the Pew Research Center, 10,000 baby boomers will reach age 65 every day until 2029. As they retire they will take with them invaluable skills and knowledge. Aging boomers, many at the top of the organizational chart, must strategically build the next generation of leadership as they contemplate the right time to step away.
 
Succession planning is tough work to say the least, with a myriad of practical and emotional issues to consider. Below is a recent interview I gave to Taxonomics discussing some of the key building blocks to planning for a successful business exit. 

What does the term succession planning really mean?

Succession can take on many different forms, but involves a transfer of some combination of ownership, leadership and skills. The mistake many make is to think of succession planning as a single event where an owner chooses a candidate when the time is right, and then he or she takes the reins at a certain date. This approach often misses the broader picture. Unless an owner is going to sell to a strategic buyer with a ready-made leadership team (which seldom happens), effective succession planning must be a holistic process. It’s a philosophy and a way of operating the business well before actual ownership succession. 

Explain more about the “holistic process.”

Leadership succession applies broadly across a company’s team to include aptitudes and skill sets at all levels. Organizations that do succession planning the best will build a culture focused on training, mentoring and creating depth throughout the organization. They will leverage leadership responsibility and authority from the top down and create an environment where mistakes are part of the process and employees are comfortable sharing and learning. When a leadership position comes open, whether voluntarily or involuntarily, a natural successor likely will be ready to step up. This approach increases the odds of success, and ultimately drives organizational value. 

Is that how Cohen & Company has operated all these years?

From day one. Ron Cohen did an amazing thing when he started our firm in 1977. He gave 17 percent ownership (51 percent total) to each of the three junior partners who joined him at the start. Ron felt strongly that if he couldn’t get at least one of them to agree with him, he must be wrong. That was unheard of in our profession. He made it clear that he believed in them and expected a great deal from them to develop our firm. Ron set us up for success when he built that leveraged model of leadership into the fabric of our culture. 

So why do owners often put off this critical planning?

Unfortunately, I’ve seen too many entrepreneurs delay addressing broad business succession and later find themselves without options. There are a couple reasons for this. First, there’s the misperception of time. There’s plenty of it, right? So why spend significant time and energy planning for “down the road” when there is no shortage of current issues to address? Succession planning fits with other elements of great business practices that are important but not urgent, and often drop to bottom of the list until they become urgent. It’s right up there with personal financial, estate and philanthropic planning. Each of these areas, with succession at the top, evokes strong emotional undertones (i.e., retirement and death), and are void of “right” answers and immediate results. All the easier to procrastinate. 

What else is important to a good business succession plan?

In addition to creating a culture that leads to more candidate options over a span of years rather than months, focus on elevating the business by building the aptitudes that will take the company to the next level. Carefully consider where the business is in its evolutionary cycle, and the skills needed to address changing customer needs and competitive forces. That could mean the next leader may need a different skill set.
 
For Cohen & Company, in the late ’80s Ron Cohen, who was not only the founder but the resident tax and business development genius, realized the firm, as it grew, would need a more process-focused leader to establish discipline and structure around his vision. Rich Bongorno was the perfect candidate.

A tax guru in his own right, Rich built a foundation for process and administrative discipline. By the time I was asked to take the reins, the needs were different. The firm needed higher-paced, sustainable growth and talent development. It was also time to transition governance from a partnership model to a more corporate model while preserving our entrepreneurial culture. 

How critical is the issue of timing in succession?

We can’t predict the future. That’s why it’s never too soon to start looking ahead. Find a sense of urgency. Owners should start building a culture of leveraged leadership now to identify potential leaders throughout the business. Thinking through succession and treating it as a process, rather than an event, will help instill confidence and trust in everyone involved in the business. Importantly, giving yourself plenty of time (again, years, not months) allows for mistakes along the way, which is always part of the process. 

Any final words of advice regarding succession?

Holistic succession planning, all the way to ownership succession, should be a living, breathing philosophy that evolves along with changes in the market, your organization, and an owner’s personal life and goals. Live out the planning process in real time. Build the culture needed to support leaders so they naturally rise to the top, and when it comes time to finally let go — go! I promise you will look back with a great sense of pride and accomplishment. As always, enjoy the journey. 
 
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.