Seven tips for transitioning an AE firm to the second generation
Morrissey Goodale outlines seven tips for founders looking to transition their company
Only about 25% of design and environmental consulting firms successfully transition leadership from a founder to the second generation. It’s darn hard to do. We’ve helped more than our fair share of clients achieve the transition. And we’ve also seen more than a few failures.
Far too many founders get hung up on the mechanics of transition—valuations, percentages of ownership, financing, corporate structure, etc. Yup, they are all important. But, in my experience, it all comes down to understanding yourself, change, and giving—“Everlong.”
So, if you’re a founder and you want to transition your firm internally, here are seven tips—which typically don’t get discussed in the literature or in webinars—to get you moving in the right direction.
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Ground truth your decision: What you’re planning to do, in reality, makes no sense. Your internal transition will always compete against the external options of a sale or recapitalization. Why? Because 99.9% of the time a sale or recap would yield to you the highest value for your firm. So, you’re choosing to “leave money on the table” with the internal option. And while you’re explaining that to your spouse, you can also let them in on this. While a sale or recap is never guaranteed, or in many cases even achievable, neither is a successful internal transition. Indeed, that’s why most founders end up winding down their businesses. They get caught between two stools and end up unable to pull off either option. So, you need to live with the reality that you’re choosing the lesser-value option with no guarantee you’ll achieve it. Along the way, you and others will question your choice. Best thing to do is think of yourself as the mad scientist creating something beautiful (you know, like back in the day when you started your firm).
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Be honest with yourself: We know you’re not doing this for the money. So, why are you doing it? Loyalty to the employees who’ve helped you build the firm? Or maybe you see this as a way to reward them? A desire for some sense of continuity? A way for you to keep working (or practicing) on your own terms? Maybe all of these. Regardless, be clear about your reasons and be prepared to share them (repeatedly) with the next generation.
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What’s the worst interview question of all time? Where do you see yourself in five years? It’s what you need to ask yourself at the outset. Envision yourself in the future. Do you want to work another 3, 5, 10 years? What does work look like at each of those milestones? At what time do you not want to be on the hook for everything? When do you not want to spend every waking hour worrying about the firm? When is it that you want to spend some, most, or all of your time with your grandchildren? Or travelling the world? Your (selfish) goals are what will drive your transition plan.
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Sharing is caring: You’re not writing a mystery novel, you’re crafting the agenda for the next phase—of your career, the careers of the next generation, and of “your” firm. Lay out your reasons and your goals to those folks you believe have the “right stuff” to be the next leaders. Share your vision for the transition with a timeline. Share how and when you will step down and back along with how they will take on more responsibility and authority. Put a reasonable valuation model in place. Make the necessary adjustments to their compensation. Invest in their business education. Share the firm’s financials with them. Sharing and giving is at the heart of a successful transition. You may not hear “thank you” much, if any, along the way. But remember, that’s not why you’re doing this.
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The student becomes the master: Your transition is predicated on taking existing relationships and changing them. These involve the relationships you have with each of the next-generation folks. And their relationships with each other. Success requires that you “get real” with each other. Some of this will come through an investment in coaching. But most of it comes through the hard work you do of moving through the “boss/employee” dynamic to the “hey, we’re partners now” vibe to the “OK, this is my last month with the firm, what do you want me to do?” phase of your leadership team. You’re the catalyst for this change. At first, you’re the driver, providing direction. You then transition to the facilitator and coach. Until eventually you end up where the student becomes the master. This takes (a long) time. It also requires, like every good relationship, a lot of giving on the part of all—beginning with you.
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Forget perfection: Because nothing is going to be perfect in your transition. And this starts with you looking in the mirror. You built a firm in your brilliant, but imperfect image. Your transition will take that and make it even more “imperfect.” But it will reflect the imperfections (and unique power) of the next generation blended with yours. You need to give the next generation the permission and support to create the next great, imperfect firm.
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This is now job #1: You’re responsible for the success of the transition. And to do it right you need to realize that it’s a full-time job—and now your primary calling. This is the ultimate manifestation of “working on the business, not in the business.” You need to give yourself to your firm—in a completely new way.
An internal transition requires thoughtful and careful planning. It also requires a great understanding of yourself and an ability to give yourself to others.
Original content can be found at www.morrisseygoodale.com.
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