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Succession is something that every business owner must plan for and yet it is understandably not a top priority for most of us. It fits into the “important but not urgent” category and is often crowded out by other things that are screaming for attention.

Here are three common mistakes I see business owners make in succession planning.

Procrastination

Procrastination is a coping strategy, and not a particularly effective one. We put things off to avoid negative emotions and stress associated with the thing we don’t want to do. Cramming for a test in school might get you through but it is not a winning strategy for succession planning. Mark Twain provided good advice when he said, “the secret to getting ahead is getting started.”

Not Communicating

Others can’t read our minds and when we don’t share what we are thinking with each other, we end up making assumptions and telling ourselves stories that are simply not based in reality. Talking, writing things down, and encouraging each other to ask questions are all good ways to get started.

Avoiding Emotional Preparation

Surveys consistently show that the majority of business owners regret exiting their business within 12 months, not for financial reasons but because their identity was closely tied to their work and position. When these disappear, they lack purpose and direction. Even though most of us are aware of this fact, we think it doesn’t apply to us. It almost certainly does. Dedicate some time to contemplate these issues and prepare yourself for the next phase of life.

Like any endeavor, success is never an accident. It is always the result of intention, effort, and execution—and so it goes with succession planning.

To make sure you and your organization are on track, download our Succession Readiness Checklist HERE.

Written by Leron Lehman​

I recently read a blog post by Morgan Housel in which he makes the point that architecture that wins awards and looks great in magazines is often not very practical for the people who actually live in it. Similarly, he says that investing advice that sounds beautiful and intelligent is often not particularly useful for the average investor.

I think the same is true when it comes to business transition and succession planning counsel.

It’s easy to be drawn toward advice that sounds smart and innovative. Many of us fall into the trap of what’s known as sophistication bias—the tendency to overlook simple, practical ideas in favor of those that seem more complex or intellectually clever.

We also live in a world saturated with information—case studies, books, podcasts, articles—all offering different perspectives on what you should do. It is hard to distinguish what’s actually helpful from what’s just noise. And more often than not, we end up feeling more stuck and confused than when we started.

I don’t want to minimize the value of thoughtful planning techniques and tools—there’s certainly a place for them, and when applied appropriately, they can offer significant value. That said, beginning with the basics, applying common sense, and keeping things simple is almost always a wise choice.

With that in mind, here are a few practical tips that, while often overlooked, are incredibly useful in all every ownership and leadership succession endeavors:

  1. Start early
  2. Communicate often
  3. Develop deep clarity about your priorities

These simple and timeless disciplines won’t solve every issue, but it’s amazing how much value they can unlock.

At North Group, we’ve seen firsthand how the most effective transitions are often grounded in these kinds of straightforward truths. If you’re navigating the complexities of succession or ownership transition or don’t know how to get started, we’d be honored to walk alongside you—offering counsel that prioritizes clarity, practicality, and the long-term health of your organization.

In light of Brian’s story shared through our podcast and Gina’s recent reflection video, I’ve been pondering two critical questions:

  1. How do we build resilience into our lives?
  2. How do we consistently move toward our highest potential as individuals and leaders?

These are challenging endeavors. Life presents us with all kinds of obstacles and setbacks, and we often feel unprepared to handle them effectively.

As a sports fan, I’ve found that professional athletes, coaches, and team sports offer valuable lessons. I’m particularly inspired by MLB players who have consistently performed at a high level and remained with their teams for their entire careers. Players like Cal Ripken, Tony Gwynn, Robin Yount, Derek Jeter, and George Brett had approximately 20-year careers. Considering that the average major league career lasts less than six years and only 1% of players reach 20 years in the league, this is pretty impressive. These guys mostly played in an era before the current hyper-focus on conditioning, diet, and sports psychology in professional sports, yet they still accomplished something incredible. This begs the question: how did they do it? What was the source of their resilience?

In many ways, it is a rhetorical question and there is no clear answer. While they took care of their bodies, possessed mental toughness, incredible talent, and a love for the game, many other players displayed similar traits but did not achieve the same level of success. Perhaps good fortune played a role, but they certainly shared a particular winner’s mindset.

I recently saw an interview with George Brett where he outlined his three goals for every game:

  1. Have more fun than anyone else on the field.
  2. Have the dirtiest uniform after nine innings.
  3. Play better than anyone else in the game.

While these goals don’t perfectly translate to us mere mortals that have day jobs and families to care for, there are solid principles we can adopt:

  • Cultivate purpose. A sense of purpose produces passion and motivation, which can sustain us during dark times. Perhaps you remember the infamous “pine tar incident,” where Brett ran out of the dugout to defend himself. This is one of the best displays of passion you’ll ever see.
  • Develop a growth mindset. Winners have a positive attitude and always believe they can improve. Late in Brett’s career, the media claimed he was washed up and his best days were behind him. In truth, he wasn’t playing that great. But he rose to the challenge and started coming to the park early to get his batting practice in. His efforts paid off and, in 1990, he won another batting title at the age of 37.
  • Focus on what you can control. We can’t control what happens to us or how others behave. However, we can always control our response, our effort, and our attitude.

Resilience flows from who we are, the character we cultivate, and the choices we make. It’s about being, not just doing.

 

You can find Parts 1 and 2 of Brian’s story series linked below:

Good, Fast, or Cheap. Pick two. Maybe you have seen a sign like this at your neighborhood mechanic. It is both clever and true and it captures the essence of trade-offs.

A point I make to my children from time to time is that they can have anything they want, they just can’t have everything they want. This is an obvious oversimplification, but it highlights the truth that achieving anything of value requires trade-offs. Sacrifices must be made. Trade-offs are everywhere – economics, investing, relationships, fitness, career choices, school. Literally, everywhere.

Sometimes we forget about the trade-off we have accepted, or we simply pretend that we can have it all; these situations typically end in disaster. I once worked with an entrepreneur who raised venture capital funding but continued to run the company as if it were a lifestyle business. This resulted in some tense Board meetings. When you accept investor money in exchange for a portion of your business, you give up some measure of control over your growth strategy.

In many family businesses, especially when there are multiple generations of owners, there are often competing priorities among the shareholders that must be navigated. In times of leadership and ownership transition, these priorities and the related trade-offs can easily become a point of conflict. Often the older generation is less concerned about growth and more concerned about liquidity since they want to maximize cash flow available for distributions or stock buybacks. The younger generation may be more interested in reinvesting profits to grow the business and maximize long-term value. There may be a third priority around maintaining control of the entity. Selling equity to an outsider or even issuing bank debt gives some measure of control to a third party and can limit your flexibility to decide what you do with your excess cash flow. Thomas Sowell said “There are no solutions. There are only trade-offs”.

The point is to never ignore the trade-offs you face in your business. Communicate clearly about what you are optimizing for and where you are willing to sacrifice.

Jiro Dreams of Sushi is a 2011 documentary about a Japanese Sushi Master in his 80s who built a Michelin three-star sushi restaurant. The story is intriguing, in part, because it is so unusual and unlikely. Jiro Ono’s restaurant has only 10 seats, is in a Tokyo subway station, and its prices start at almost $300. The documentary was a sensation when it came out, as it presents a powerful story about craftmanship, longevity, focus, and passion – and the excellence that results from practicing these disciplines for decades. It is as inspiring as it is entertaining.

I recently watched the film again and was struck by the family dynamics at play and the issues it raises related to generational succession. A theme that is present throughout the story is how the Onos’ history, family system, and culture have defined the business and the paths that Jiro’s two sons have taken.

To many 21st-century Western viewers, Jiro’s background might seem very unusual. His family was very poor, and he was responsible for taking care of himself from a young age. He started working in a restaurant at age seven, quickly becoming very independent and adopting a “workaholic” mentality that endured throughout his life. Jiro married and started a family, but he wasn’t present when his children were young because he fully dedicated himself to his work. There is an anecdote in the film about his children asking their mother about the stranger sleeping in their house – they didn’t even know their own father. Jiro is demanding and his work ethic is legendary; he only takes a day off on national holidays. By Japanese standards in the mid-20th century, Jiro’s focus on work isn’t particularly noteworthy, but it certainly doesn’t foster a healthy family system from our 21st-century Western perspective.

Both of Jiro’s sons have also become accomplished sushi chefs and are well into the second half of their careers. Jiro’s older son has worked in the business his entire life and expects to succeed his father. This is his traditional role as the eldest son in the family, and he seems to have accepted it without question. Even though his father maintains firm control, the older son is supportive, diligent, and committed to the family and the business. The younger son left the business to start his own sushi restaurant, doing so with his father’s blessing. Somewhat surprisingly, this seemed to be a natural decision and was not an apparent point of conflict or stress for the family.

As is the case in many family businesses, Jiro’s children are very aware of the long shadow cast by their father and the related challenges of living up to his expectations; it is not easy for them to forge their own identities. It is perhaps more pronounced for the older son as he thinks about a future without his father in the business. It is nearly impossible for him to improve on anything within the restaurant, and that creates a certain asymmetry in his work – there is almost no upside but there is plenty of downside. To varying degrees, the older son’s experience reflects the plight of many next-gen successors, and it can be a heavy burden to bear. It can feel like one has to choose between two less-than-attractive options: on one hand, stay the course and risk being criticized for not being as good as your father, or, on the other hand, put your own stamp on things and risk being criticized for screwing up what your family has built over the years. Either way, the pressure to not mess things up is considerable.

Leaving the business, like Jiro’s younger son did, alleviates these pressures for next-gen successors but also raises concerns that one is not part of the family legacy, which can challenge an individual’s identity and worth. What if? Am I good enough? Am I as good as my sibling? In a competitive family (and most of us are competitive with our siblings), there is an undercurrent of comparison and one-upmanship that can magnify other unhealthy attitudes or neuroses.

It is impossible to draw too many hard conclusions from a short documentary, but it would appear that Jiro and his sons have defied the odds in how they have maintained family unity and are positioned to further the family legacy in the future. Granted, Jiro’s restaurant and family structure lack the complexity of many large family businesses that are facing ownership and leadership transition. Still, the relational and psychological issues present in Jiro Dreams of Sushi are tensions that exist between every founder and the next generation that will succeed them. When should the founding generation give up the reins and allow the next generation to exert some influence? What will the founder do if he retires?  Is the next generation willing to be patient and wait for their opportunity? How do siblings cope with their roles and expectations both within the family and from the outside? How do you handle it when the next generation wants to leave and start their own thing in the same industry? How does one handle the pressure of living up to their father’s example?

These are the questions that must be explored as part of transition planning. Culture and family systems play a significant role in how communications occur and in how decisions are made. Maximizing the chances of success in family business transition demands an intentional, collaborative, and ongoing conversation between generations.

When I was a kid, my grandmother paid me for memorizing the multiplication tables. Even though it took me a few weeks, it was a pretty easy $10. Ever since then, I’ve been pretty good with numbers and fascinated by complex formulas and problems of logic. Math and physics have unlocked the secrets of the universe, but they also reveal some basic and practical concepts that we can apply to daily life. For example, consistent multiplication creates a compounding effect and is a powerful force in investing and in life. Regular improvements in any area create remarkable success. Multiplication is a beautiful thing.

There is, however, a potential pitfall. Even those that struggle with math know that any number multiplied by zero results in zero. It is generally good advice to maximize our strengths and plan for the best, but it is also foolish to neglect preparing for the worst, or “zero” situations. Even the best laid plans are worthless if we are not ready for the unexpected.

We regularly work with families and businesses that are seeking to perpetuate the business into future generations, provide family stability, or create a family legacy of generosity. This is a worthy and multiplicative endeavor that requires thoughtful planning and coordination. Groups especially need to focus on the pesky “zeroes” that could sneak into the equation and negate all their careful work. These are things we generally don’t like to think about, and while they are certainly not everyday occurrences, they are far from rare. They include the dreaded 5 Ds: Death, Disability, Disagreement, Distress, and Divorce.

Identifying and removing zeroes from transition and succession planning provides peace of mind and is relatively straightforward. Families and organizations can establish good contingency plans, like drafting appropriate agreements and documentation, implementing sound structure, and purchasing insurance.

Just one little pig planned ahead and was prepared for the big bad wolf; he was the only one that emerged unscathed from all the huffing and puffing. They say pigs are intelligent beings–I don’t know about that, but it seems they might at least know some basic multiplication.

Succession is often a dangerous and emotionally exhausting business. Many ambitious and goal-oriented successors find it natural to equate their ascension to organizational leadership with their personal value or worth. There are obvious dangers to this tendency, but by no means is it abnormal or indicative of some underlying character flaw. Nearly all of us shape our identity around things we are good at and things we enjoy; when we fail at those things, we sense that we are a failure. An inability to adequately deal with those feelings presents significant challenges to one’s development. As we mature, learning to separate our identity from our roles and performance is a worthy endeavor.

For a next-gen leader who has not yet formed a healthy identity of himself or herself, it is not always clear what is motivating their drive for success. Is it because they have a deep loyalty to the family and the business and they are committed to continuing to build the legacy? Or is it because they view their role as the next logical part of their story and to not achieve it would be a failure and an embarrassment? Are they driven because they love the work? Is being identified as the next leader viewed as a reward to admire, or as a responsibility to be respected?

A combination of these motives might drive a next-gen leader, but without a deep sense of responsibility, the risk of future challenges increases. Often a reward signifies the end of the journey. You’ve arrived, you’ve finished the hard part, and now it’s time to bask in the glory of success. On the other hand, responsibility is a continuous journey of dedication and improvement.

Setting goals is nearly universally accepted as an effective way to accomplish something or to achieve a reward. It works. But there is a potential downside. It’s easy to get so focused on achieving a reward that we have no plan for what comes next. We get there and it feels great, but then we struggle to follow up on it or we go into a kind of funk and languish while we search for direction. This is the basic argument for developing sustainable habits related to our responsibilities, rather than solely focusing on goals. We have a saying at the North Group that “being comes before doing”. Our actions, motivations, and goals should be driven by our character to accomplish the responsibilities we have committed to.

Successful leadership almost always requires playing the long game; healthy transitions require that next-generation leaders have a clear sense of their identity, the source of their motivations, and the responsibilities they are accepting.

 

To learn more about our approach to succession planning, visit our Transition & Succession Solutions page.

 

Abraham Lincoln is credited with saying, “Good things may come to those who wait, but only the things left by those who hustle.” Patience is certainly a virtue, but it should never be confused with complacency. When it comes to planning for the future ownership and leadership of your business, Lincoln was on to something – waiting around and hoping for the best is a poor strategy.

Succession planning is a long-term process which includes many complexities and nuances. Each situation is unique and requires thoughtful attention, but there are helpful frameworks and models to rely on with common patterns. The core objective of a succession plan is to determine how the ownership and leadership of an organization will be successfully transferred to the next generation. It is reasonable to plan for a 10-year runway of planning and preparation – consider this the “green zone.” This allows sufficient time to:

  • Prepare the organization
  • Groom successors
  • Set expectations
  •  Communicate with transparency to all stakeholders
  • Draft and implement proper documentation and agreements
  • Address issues of valuation and structure
  • Determine how and when ownership and leadership will be transferred

This partial list makes it obvious that there is a lot of work to be done. If you wait until you only have a few years left, you are in the “red zone.” It is here that risks increase and unforeseen challenges can easily derail the process. It is much easier to slow down than it is to speed up. Get started early and allocate sufficient time so you avoid the temptation to rush things.

While the heavy lifting will almost always occur in the years leading up to the transfer of ownership and influence, that doesn’t mean there is nothing to do in a business that is still a couple of decades away from an expected transition. Being prepared for an unexpected event (Death, Disability, etc.) is critical at any stage of an organization’s life cycle. This would include having a fully executed and appropriate shareholder’s agreement in place, identifying clear leadership in the event of an untimely death, and being certain that there is sufficient liquidity to support the needs of a spouse or family if a shareholder dies or is unable to continue working. Sudden event preparedness should never be neglected.

The organizational health of the business and relational health of the family is foundational to a successful transition. It is always appropriate to spend time and effort in these areas. Exposing children to the business as they grow up and providing them with a realistic but positive view of the company is very beneficial. Being explicit about family values and building respect for the family legacy builds strong connective tissue that is invaluable in any family business or business family. The importance of family unity and healthy relationships simply cannot be overstated; sweeping family conflict under the rug is a recipe for future conflict and is likely to be a challenge at the most inopportune time. An ounce of prevention is worth a pound of cure.

When it comes to succession planning, there is always work to be done. It is advisable to take the long view, be intentional, and prepare for both the expected and unexpected.

There is a simple model of human behavior that says we only do things when we have a strong enough reason to do them; on the motivational scales in our brains, the benefits must outweigh the costs. Another way of saying this is that you need to find your “why.” Simon Sinek, author and speaker, has popularized this idea and it’s highly useful in many areas of organizational and personal planning.

How would we apply this behavioral model to planning for the future of a family business? Why should we implement a strategy for the transition of ownership and leadership from one generation to the next? There are many obvious motivations:

  • Do what’s right for the customers and employees
  • Leave a legacy for family
  • Ensure the future health and success of the company
  • Allow the next generation to reach their full potential
  • Minimize future taxes
  • Preserve wealth

This all seems fairly straight-forward. However, our intuitive model of human behavior assumes we are rational beings who have the ability to objectively perceive and evaluate our circumstances. We are not. Newton’s first Law of Motion describes a core physics principle – an object at rest tends to stay at rest. There is a similar principle that describes the behavior of humans called the status quo bias. Unfortunately, we are often not driven by logic or rational thought; most of us prefer to maintain the current state of affairs. Change (even positive change) is often viewed with suspicion, and we adopt all manner of coping mechanisms to deal with it. Denial. The Ostrich effect. The Bliss of Ignorance. Research has confirmed over and over that most people are prone to procrastination when it comes to planning for retirement, their estates, and for the future of their businesses. Most business owners know how to run their business but are not well equipped to grapple with the emotional, relational, economic, legal, and tax issues of business succession. There are plenty of obvious reasons to get started, but it is confusing and overwhelming, so we procrastinate.

If this sounds a bit depressing – fear not, there is hope. Productivity experts consistently point out some ways to overcome this glitch in how we deal with change. One good strategy is to find someone to talk to that will encourage you and hold you accountable. This could be a spouse, business partner, mentor, friend, or even a professional advisor. Unloading your stress, uncertainty, and emotions has a way of disarming them. We all do better when we have someone to share our burdens and nudge us in the right direction.

Finally, just get started. Take a small step and let the momentum build. The second part of Newton’s first law is that an object in motion tends to remain in motion. After the initial push, progress becomes much easier. Even the longest journey begins with a single step.