Leadership: The Key to Succession Planning and Creating Value

by Stanley H. Davis

As printed in the Providence Business Journal

Do you have a solid plan to transition your business?
It’s a question that most business owners and senior executives have heard at some point during their career. It can be an especially vexing question for owners of family-owned businesses, where few have been able to focus on development of a solid exit strategy.

Typically, business owners answer the question in several ways: they believe they have a plan that will allow them to walk away; they are waiting for a child to graduate college to take over the business; they just need to hire the right people and the business will run itself; or they need to hire someone to run things until their daughter/son is ready to step in.

While those might sound like good answers during a social lunch or as cocktail party conversation, those strategies may not ensure the long-term viability of the business, or unlock the value the owner should receive when they step aside.

Leadership succession planning and assessing the real value of a company should start with a business owner asking themselves a fundamental question: Do they want to hire someone for the business they currently have, or for the business they are committed to becoming? If it’s the latter, here are some things to keep in mind:

• Don’t settle for talent that’s “good enough for now.” “Now” is temporary, and mediocre talent will generate mediocre results.

• Invest in leaders whose expertise is better than current executives, and who will “raise the bar” for the rest of the leadership team and challenge ownership to be the best it can be.

• As new leadership takes hold, make sure in addition to business acumen they fit personally and with the culture of the company.

• Ensure that all leaders are organizationally committed, goal-oriented and selfless enough to get the best from each other, and to hire others of equal or better talent.

• When hiring, don’t focus on pedigree (e.g. family or educational background, appearance or impressive yet unrelated activities) but rather on relevant and quantifiable accomplishments, how they were achieved and under what circumstances.

• Choose leaders of whom the company will be proud. Like a transformative capital purchase, leadership is an investment. The expected return can and should be defined. Characteristics of a transformational executive include: decisiveness; urgency; agility; an emphasis on collaboration and engagement; an understanding of customers, markets, finances, supply chains, employees and competition; an appreciation for value-added activities; a capacity to differentiate millstones from millers; and a quick study. A transformational executive is someone who doesn’t cut muscle as he trims fat, and can jump in and repair the leaks while positioning for longer-term success.

The smartest thing a business owner considering a transition or sale can do is to ask themselves: “If I own this for the next 10 years, how can I increase the value of my business?” Making investments now that create value, whether you are ready to sell or not, is a win-win situation. The company will be worth more.

Owners need to remember that an opportunity to sell can come at any time. As investment bankers and brokers remind us, often they strategically approach companies and businesses that didn’t know they want to be sold. Therefore, it behooves every owner to be well-positioned with the right leadership and succession plan.

Identifying and hiring a right new leader for your company creates long-term value for your business and will be key to a successful ownership transition.

Stanley H. Davis is founding principal of Standish Executive Search LLC in Providence. He can be reached at sdavis@standishsearch.com.