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?”
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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?”
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.