Next year is shaping up to be a very strong year for M&A activity in the Knowledge Economy. In order to assist your preparation for 2021, take a look at our M&A Preview, in which we discuss the following eight key trends:
- The adoption of digital is accelerating
- Emerging technologies are being commercialised rapidly
- There is a convergence across the sector and delivery models are blending
- Private equity participation in the knowledge economy is increasing
- Next-generation technology platforms are emerging
- Vertical software solutions are playing an increasing role
- Buyers are returning to nearshore locations for access to new skills
- Shareholders are aligning expectations and addressing structural risks
Six steps to successful leadership succession transitioning from the founder owners of a knowledge economy business.
Leadership succession involving a transition from the founders has its own specific challenges. Founders leave a huge legacy in the business, which in one sense is extremely valuable but can also result in a level of dependency that introduces risk. Governance roles often change at the sale of a company, when owner/founders will typically move from an executive position. The challenge here is that the owner/founders will need to be conscious of their change in role and step back sufficiently to allow successors to create their own leadership identity, while still continuing to offer their unique skills and experience in a broader governance role.
If you’re a founder preparing for a transition, getting it right involves ensuring you set up the new CEO for success, while simultaneously moving away from the operational side of the business and continuing to add value. The difficulty for founders is they are used to being in control and making decisions independently, which means trusting the new leader can be difficult. If they do achieve this, it ensures value is not diluted. In fact, it can result in value being enhanced.
Get the recruitment process right
For an owner who has put their all into building a business, handing over the baton can be very difficult. How do you know the incoming CEO shares your passion and commitment? Will they adhere to the company’s values?
One way to deal with this is to have a thorough recruitment process that reveals not just the skills, capability and experience of the prospective CEO, but their values and the way they work. Introducing them to other members of the team can also be an effective way to test chemistry and their ‘fit’ with the business.
Have conversations up front
The best way to deal with handing over decision-making power is through having conversations up front. As a founder planning a succession, you should agree with the new CEO the decision-making protocol that would give you confidence – even if this is just for the first few months. It will be easier for both parties to have no surprises and for you not to be peering over someone’s shoulder.
Learn to be a sounding board
Founders should also consider spending time learning about and mentally preparing themselves for the nature of their new role. They should think about what will help them transition into acting more as a sounding board and trusted adviser, rather than the expert and decision maker.
Once you become comfortable with the idea that your experience is sometimes going to be less important than the new person or team shaping the new future, you will become more comfortable with your role as a mentor and adviser, rather than leader.
Book in coaching meetings
Founders should check in with CEOs for regular coaching meetings. It’s important to make it clear that these aren’t meetings where the CEO is being checked up on or where they are expected to ask for permission ahead of taking decisions.
Instead, these should involve the founder becoming a real resource for the new CEO, giving them headspace and fresh ideas, rather than a critique of their performance.
This could mean taking an aspect of the strategic plan that might be a real challenge for the B-suites and offering an hour to work through it strategically.
There is also scope for sharing feedback when this is a two-way discussion. Founders should ask for feedback on how the relationship is going and what each of you might need to do more of, less of or differently to build the success of the business.
Prepare for more complex handovers
When private equity is involved in the transition, you may find they want the CEO to execute the strategic plan in a certain way, while the CEO is still reporting to and taking direction from you. This dynamic adds further complexity to an already challenging hand off. Again, start with strategic alignment. Get everyone on the same page about direction and as far as possible the rules of engagement for management decision-making. Taking time to have this conversation and get this clarity up front will save possible confusion and conflict.
Recognize your leadership legacy
As a founder who has built something and devoted their life to it, handing over may feel like a loss. It might also involve letting go of things that made you and your business successful in the past. You should remember that a real part of your leadership legacy will be managing the tensions of handing over and setting the new CEO and your business on the path to future success.
Listen to our webinar on this topic here.
In the webinar we look at planning for succession and making it happen, including:
Financial de-risking of succession
Using private equity to realize value, retain upside and spread equity in the team
Why trade buyers are interested in your succession plans
How to manage leadership transitions as an owner/founder