#1 Reason Succession Fails & How to Get it Right

When I met Aaron and Janet they were engaged in their third attempt at family succession.  In many ways this attempt is no different than the first two abandoned attempts. The players are the same, the goals are the same, and the timeline is roughly the same. Begging the question, “how can they expect a different outcome?”

Aaron (son of the CEO) and Janet (daughter of the CFO) were the third generation (G3) cousins most likely to succeed G2 in the top roles and they felt the weight of that question on their shoulders.  When we met with all seven cousins it became clear that Aaron and Janet’s frustration was warranted. Four of the cousins worked in the business and wanted the generational succession, but three had chosen alternative careers and wanted their money out of the business.

After meeting with the G2 CEO and CFO it was clear they had fallen victim to the #1 reason family succession fails. They had not framed the problem well and as a result, transition expectations were misaligned. The G2 CEO and CFO said they wanted to exit, but argued G3 family members couldn’t produce results when given the opportunity to lead. In talking with G3 they argued that G2 was clinging to control and preventing G3 from making important changes for the company to compete going forward. 

The reality: neither generation had properly framed the problem.  Without exception, every participant in the family and business system demonstrated cognitive biases and thinking errors that kept them from developing an effective transition strategy. 

Accurate problem framing is the #1 succession challenge because of the way the human mind works. We are wired for simplifying complexity and that means the way we frame a problem dictates the solutions we will explore. Overcoming this limitation to find optimal solutions involves four critical features:

  1. Know yourself.  Understand and take responsibility for your own transition inclinations and create space for understanding the inclinations of others. 
    • People have differences in generational experience, and personality styles.  Thus, they will approach transition with different needs. 
    • Hidden cognitive biases derail effective decision-making.  Making them known increases control and improves outcomes.
    • Defining what each person does and does not what at a values and aspirations level surfaces realities that can be addressed proactively instead of letting these unidentified needs drive a destructive narrative. 
  2. View transition as a complex process, not an event
    • There are four essential phases of transition (exploratory, strategic, execution, and adjustment). Owners that achieve successful transitions go through all four phases. As it turns out, the exploratory phase is most often skipped and it happens to be the most crucial phase for achieving success. (For more on this topic see Bo Burlingham’s “Finish Big: How Great Entrepreneurs Exit Their Companies on Top.”
    • Part of the complexity stems from the fact that an owner’s ecosystem is filled with advisors motivated at the strategic and execution phase when the money is motion.  If the family lacks clarity at this point the complexity and confusion are exponentially magnified.  This is not the fault of your advisors.  They are doing what they are trained to do – lawyers focus on legal aspects, financial professionals on your finances, insurance professionals on insurance and tax professionals on tax.  They are not well equipped to address the issues of the exploratory phase. 
    • Viewing transition as a process is foundational for a robust exploratory process. It removes the pressure to make strategic decisions and frees owners to identify what is most important to them during the transition phase. More importantly, owners are able to determine what they are and are NOT willing to compromise during the strategic and execution phase. This increases clarity and alignment giving the family greater control during the transition process.
  3. Make Time a Competitive Advantage
    • Preparation. Giving yourself enough time to achieve a successful transition means starting years (not months) before your ideal time frame. Bottom line: More time = more options; less time = fewer options
    • Finances. Wise deployment of resources = ability to “own” your time and it increases decision making control. Owners that create sufficient wealth outside their business during their lifetime as an owner give themselves greater options when engaging in generational succession, selling the business, or accessing capital necessary for scaling.
    • Organizational development. Whether the goal is maximizing enterprise value, ensuring successors are adequately prepared to lead the company, or trying to overcome growth barriers giving yourself enough time to achieve the goals is essential. Owners that use the exploratory phase to identify strengths and gaps are better positioned to close gaps during the strategic phase.
  4. Build a SMART Team You Can Count On
    • Another way to gain control is to use the exploratory phase for clearly defining SMART (Specific, Measurable, Accountable, Realistic, and Time bound) goals that you are able to clearly communicate to all of your advisors to reduce the number of competing priorities you have to face.
    • These SMART goals allows you to identify what expert skills you need when. It also allows you to clearly communicate scope of work to each one thereby increasing efficiency and reducing costs.
    • A SMART team member is one that has the 3Cs: Character, Competency, and Chemistry. They work well with other advisors and follow the owner’s leadership throughout the process. Everyone wants to be the “quarterback” (QB), but you can only have one QB. Instead of playing football owners can change the game… we suggest behaving like the rugby captain. Make your intent known, hold your team accountable, and let them focus on their areas of expertise!

These four practices make all the difference between an efficient and effective process or a costly and confusing journey. 

Properly framed transition challenge: These family business members are experiencing a lack of clarity about what each generation wants for MOM – Management, Ownership, and Money.

Until they were able to work through deeply held beliefs, faulty mental models, and cognitive biases they would continue to struggle with transition.  Aaron, Janet, and their parents put a concerted effort into the exploratory phase. As a result they began to reconcile competing priorities, increase clarity, and enhance relationships.  Eighteen months into the 5-year transition plan the business is running smoother, the family is happier, and they are on track for achieving their goals.

When I met Aaron and Janet they were engaged in their third attempt at family succession. In many ways this attempt is no different than the first two abandoned attempts. The players are the same, the goals are the same, and the timeline is roughly the same. Begging the question, “how can they expect a different outcome?”

Aaron (son of the CEO) and Janet (daughter of the CFO) were the third generation (G3) cousins most likely to succeed G2 in the top roles and they felt the weight of that question on their shoulders. When we met with all seven cousins it became clear that Aaron and Janet’s frustration was warranted. Four of the cousins worked in the business and wanted the generational succession, but three had chosen alternative careers and wanted their money out of the business.

After meeting with the G2 CEO and CFO it was clear they had fallen victim to the #1 reason family succession fails. They had not framed the problem well and as a result, transition expectations were misaligned. The G2 CEO and CFO said they wanted to exit, but argued G3 family members couldn’t produce results when given the opportunity to lead. In talking with G3 they argued that G2 was clinging to control and preventing G3 from making important changes for the company to compete going forward. 

The reality: neither generation had properly framed the problem. Without exception, every participant in the family and business system demonstrated cognitive biases and thinking errors that kept them from developing an effective transition strategy. 

Accurate problem framing is the #1 succession challenge because of the way the human mind works. We are wired for simplifying complexity and that means the way we frame a problem dictates the solutions we will explore. Overcoming this limitation to find optimal solutions involves four critical features:

  1. Know yourself. Understand and take responsibility for your own transition inclinations and create space for understanding the inclinations of others. 
  • People have differences in generational experience, and personality styles. Thus, they will approach transition with different needs. 
  • Hidden cognitive biases derail effective decision-making. Making them known increases control and improves outcomes.
  • Defining what each person does and does not what at a values and aspirations level surfaces realities that can be addressed proactively instead of letting these unidentified needs drive a destructive narrative. 

2. View transition as a complex process, not an event

  • There are four essential phases of transition (exploratory, strategic, execution, and adjustment). Owners that achieve successful transitions go through all four phases. As it turns out, the exploratory phase is most often skipped and it happens to be the most crucial phase for achieving success. (For more on this topic see Bo Burlingham’s “Finish Big: How Great Entrepreneurs Exit Their Companies on Top.”
  • Part of the complexity stems from the fact that an owner’s ecosystem is filled with advisors motivated at the strategic and execution phase where money is in motion and their expertise is best put to work.  When the family does not engage in the exploratory work, the complexity and confusion are exponentially magnified during strategic and execution phases . This is not the fault of your advisors, they are doing what they are trained to do – lawyers focus on legal aspects, financial professionals on your finances, insurance professionals on insurance and tax professionals on tax. 
  • Viewing transition as a process is foundational for a robust exploratory process. It removes the pressure to make strategic decisions and frees owners to identify what is most important to them during the transition phase. More importantly, owners are able to determine what they are and are NOT willing to compromise during the strategic and execution phase. This increases clarity and alignment giving the family greater control during the transition process.

3. Make Time a Competitive Advantage

  • Preparation. Giving yourself enough time to achieve a successful transition means starting years (not months) before your ideal time frame. Bottom line: More time = more options; less time = fewer options
  • Finances. Wise deployment of resources = ability to “own” your time and it increases decision making control. Owners that create sufficient wealth outside their business during their lifetime as an owner give themselves greater options when engaging in generational succession, selling the business, or accessing capital necessary for scaling.
  • Organizational development. Whether the goal is maximizing enterprise value, ensuring successors are adequately prepared to lead the company, or trying to overcome growth barriers giving yourself enough time to achieve the goals is essential. Owners that use the exploratory phase to identify strengths and gaps are better positioned to close gaps during the strategic phase.

4. Build a SMART Team You Can Count On

  • Another way to gain control is to use the exploratory phase for clearly defining SMART (Specific, Measurable, Accountable, Realistic, and Time bound) goals that you are able to clearly communicate to all of your advisors to reduce the number of competing priorities you have to face.
  • These SMART goals allows you to identify what expert skills you need when. It also allows you to clearly communicate scope of work to each one thereby increasing efficiency and reducing costs.
  • A SMART team member is one that has the 3Cs: Character, Competency, and Chemistry. They work well with other advisors and follow the owner’s leadership throughout the process. Everyone wants to be the “quarterback” (QB), but you can only have one QB. Instead of playing football owners can change the game… we suggest behaving like the rugby captain. Make your intent known, hold your team accountable, and let them focus on their areas of expertise!

These four practices make all the difference between an efficient and effective process or a costly and confusing journey. 

Properly framed transition challenge: These family business members are experiencing a lack of clarity about what each generation wants for MOM – Management, Ownership, and Money.

Until they were able to work through deeply held beliefs, faulty mental models, and cognitive biases they would continue to struggle with transition. Aaron, Janet, and their parents put a concerted effort into the exploratory phase. As a result they began to reconcile competing priorities, increase clarity, and enhance relationships. Eighteen months into the 5-year transition plan the business is running smoother, the family is happier, and they are on track for achieving their goals.