When most owner-advisors talk to me about succession planning, the first thing they tell me is the value of their business (based on a recent valuation or a model formula). Then they spell out their plan for how the partners should pay for it. They think succession is about the numbers, and what they are usually looking for is a spreadsheet for how it’s going to work. When it comes my turn to talk, I tell them that’s all very nice and ask, “What have you done to groom your successors into leaders?”

The response invariably comes back: “They are junior advisors, and I don’t want to leave yet. I’m only 55 (or so) and don’t want a succession until I reach 60 (or so).”

Me: “Do you want them to participate in business decisions?”

Them: “No.”

Me: “Do you want them involved in operations?”

Them: “Yes, but only under my supervision.”

Me: “Could you leave your business today for two months and feel secure it will keep running at its current high levels of client service and profitability?”

Them: [Silence]

In our experience, the numbers and the spreadsheet that organizes them make up about 5% of a successful succession plan. The other 95% of succession success—which very few firm owners consider—depends on the successors: the younger advisors who will drive firm growth that will finance the buyout and who will eventually make the management decisions that ensure the firm’s continued success and maintain a high level of client service.

Many advisors do come to the conclusion that a succession plan is about the people and that the key element in a successful plan is a successor who has the skills to run the firm. Their solution, though, is to try to hire an experienced advisor with a management track record. Unfortunately, advisors with proven ownership potential are very rare, very expensive and almost always already tied up in a succession plan at their current firm. The result is often that desperate owner-advisors take a chance on potential successors with weaker résumés, usually with predictably disappointing results.

Consequently, we’ve found the reality of advisory succession to be that if you don’t know how to groom a leader—or leaders—for your firm, you don’t have a succession plan.

Many years ago, we realized that most advisory firm successions, including ours, were suffering from a similar problem. They were missing a program that trained junior advisors to become firm owners. So we created our leadership program, in which a small group of firm owners and top employees monitor their firm’s progress on its strategic plan, discuss the challenges that the firm is currently facing and assign various members specific projects to address those challenges.

The goal of these teams is to expose potential firm leaders to what’s involved in running a successful advisory business, to give them the skills to be firm owners and to identify the future firm leaders. Although firm owners often have opinions about who is and who isn’t a future leader, it’s really a trial and error process, and we like to invite a range of people to participate.

We recently had an advisor who was pretty adamant that a junior advisor just wasn’t leadership material. We weren’t so sure and convinced the owner to put him in the program for one quarter. Now we’re into the third month and the owner is saying, “I had no idea he can do that, that he understood this.” Now the advisor is a viable candidate for firm ownership. After working with their Leadership Team (as we call it) for a while, it’s not uncommon for firm owners to say, “I didn’t know this person could do that.”

At first, we didn’t have a formal plan for our leadership program, but we quickly found out that this was an effort to have a meeting with a focus on accomplishing the assigned projects. Originally, we scheduled the team meetings for once a week, but found that wasn’t enough time to finish most projects and there wasn’t much to discuss at the meetings. Then we tried monthly meetings, but found that was too long: Employees would get the projects done too soon and lose focus. We now have a two-week process. It allows team members to start and finish a task, and we’ve found owners cannot accomplish more by having a meeting more often.

We also learned that without boundaries, the meetings lost focus and were unproductive. When you bring groups together it’s easy to go off topic on personal issues, etc. Two of the key elements to being a leader are organization and time management, and we now use the structure in our team meetings to teach these qualities. All our team meetings start on time—employees who can’t be on time are quickly eliminated from leadership consideration. Then, each meeting is tightly scheduled in a two-page meeting agenda as follows:

  • In the first five minutes, we discuss where the firm is today.

  • The second five minutes are used to cover progress made on current goals.

  • The next 40 minutes are spent on the meeting agenda, which addresses individual areas of the business that the firm needs to deal with to reach its quarterly, one-year and long-term goals, and assigning specific projects to team members along with specific goals for each.

  • Then, we take five minutes on new ideas that have been back-burnered to determine if any need to be moved up to a current project.

  • Finally, we take the last five minutes to review the goals for the next meeting and get a commitment from each person.

To emphasize the importance of time management and focusing on goals, we set rules for our leadership programs and team meetings. Our meetings start on time and end on time: real leaders get there first. If they run too long, I hang up the phone. We don’t allow “one more quick thing… .” This trains people to put things on the agenda and to stay focused: consider the task at hand, solve it and move on. It also encourages members to be decisive. It’s far better to make a decision and move on; if you make a bad one, do something else in the next meeting. When the meeting is over, finish it. If you get done early, finish early.

Employees who consistently break these rules are showing that they don’t want to be leaders, and we will kick them out of the leadership program. Seems extreme, but we’ve found that leadership needs to be taken very seriously.

One of the keys to being a leader is allowing oneself to be led. If employees won’t take leadership, they take away from others in the group. One person got kicked off a Leadership Team because he refused to follow the meeting structure.

The last key to successful team meetings is handling employee participation. Some employees won’t say anything during the meetings, and the owner will complain about that. We encourage owners to be patient. These employees are listening—and learning—and gradually they will gain confidence to participate. It’s part of the leadership process.

Other employees will be too deferential, not offering an opinion until they hear what the owner has to say. We urge firm owners to encourage other people to talk first and to ask questions, even when they know the answers. This helps people think of their own ideas—which sometimes can be better than the owner’s—and it allows owners to gauge the level of their future leaders’ understanding and their progress.

Training future firm owners requires time, exposure to the challenges of managing an advisory business, experience with making decisions that work out—and don’t work out—and learning to think like an owner. We find that when owner-advisors start early to identify and train future firm owners, the rest of their succession plan easily falls into place.