It’s never too early to plan an exit from a company, but if succession planning efforts are poorly handled, it could be a recipe for disaster. That is according to Al Marco, principal, Trovato Group, a national executive search and consulting firm, headquartered in Madison, Wisc., specializing in real estate.
“Succession planning is business planning and it needs to be incorporated into the strategic plan of the organization,” he explained. Determining the final outcome of the business (hold, fold or sell) drives the rest of the process, but it should not wait until the founder or current owner is about to retire, because the unexpected could happen to a young leader, leaving the business in disarray.
“It’s always smart to have a second-in-command, but the smaller the business the more difficult that is,” he said. “Most companies have a chain of command so that when the top person goes on vacation, there is a person at the office with some operational responsibilities. The problem in smaller real estate companies is that decision-making is usually tightly held by the principal or the partners.”
Once the decision is made to hold, fold or sell, the real work begins. Assuming the decision is to keep the business in the family, the next steps are to find the family member who will assume the leadership role and to keep top performers happy.
Marco said that the person who takes over the business should have qualities similar to the current owner. He or she must have an entrepreneurial spirit, a knack for innovation and qualities of leadership and vision.
For the small real estate company, Marco cautioned against keeping the succession planning process a secret. He advises to communicate openly with all stakeholders, including family members, investors, advisory board members and key employees. “Not only is it important to communicate with all of these people, but their agreement and buy-in is needed as well,” he noted.
For example, the owner could say to key employees, “I developed this business and want to keep it in the family. I believe that I have the person who can run it. Mr. Employee, this is where you fit into the plan.” According to Marco, these are the types of conversations that need to take place. If they do not, there is a strong possibility that the company will lose high-performing employees to another commercial real estate company.
Obstacles to Succession Planning
There are many obstacles to successful succession planning, not the least of which is getting the owner to plan his exit and then implement the plan. Another big hurdle, and an almost impossible one for many entrepreneurs, is to give up some control and delegate responsibility to others.
“A plan could be in place, but if the company owner isn’t delegating decisions and responsibilities, there’s no way of assessing employee capabilities. Once the owner begins letting go, he or she has to commit time to mentor those staff people or family members.”
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