What’s the Best Gift Founders Can Give Future Generations?

This article was originally featured in Forbes.

As an entrepreneur who advises other business owners and wealth creators, I understand the many barriers to succession planning. It begins with your own mortality—which no one wants to confront—and is complicated by ego. How can you even think about this business, this thing that you have poured your heart and soul into creating, without you? For some, it’s also about wealth. Perhaps you think about the money you’ll leave on the table.

Over the years, I’ve occasionally come across a business owner who just can’t make the transition. Let’s call them the lifestyle leader—the person who is in it for the cash flow, and who can’t see their way to reinvesting in the business any more than they can see another name on the letterhead. The lifestyle leader is likely to sell the firm and move on, and there’s nothing wrong with that.

On the other hand, there’s the leader with the growth mindset. They're a leader who is always building the team around them to propel their business faster and further. This can be a much more satisfying season of business ownership, but it’s not inexpensive. They stop every once in a while and think, maybe it would be easier to cut expenses and maintain.

Whether you are the growth mindset or the lifestyle leader, you likely know that, in reality, there’s no such thing as the status quo in business. If you are not growing, you are dying. If you are not investing, you will be outdone by competitors and your customers will ultimately leave you. Building a company that can sustain itself in the future requires investment in time and planning, particularly when it comes to the leader who will carry your business into the future.

Creating Value For Your Business

Succession planning creates value for your company. Here’s how:

• Employees have the peace of mind knowing that there’s a plan for the future, and if you’re choosing a successor from inside the business, you’ll show them that there’s a ladder to success within the company.

• You’ll signal to clients that your company is built to last. Naming a leader to carry the company into the future tells your customers that you are looking beyond your own time horizon.

• There is perceived value in a deep bench of leadership that can be sustained beyond your transition away from the business. If you decide to sell, a strong leadership team will show that your business is worth more than the name on the door.

• You’ll continue to shape the trajectory of your company. Your successor likely wants your insights, ideas and advice. After all, you built the company into what it is today. One caution here: Keep your ego in check and remember that the new leader will have their own insights and ideas—after all, that’s one of the reasons you have chosen them to lead.

Fostering Resilience For Yourself And Your Company

When I decided to formally name my successor a couple of years before he ascended to CEO, it was as though a weight was lifted from my shoulders. Being the CEO is a heavy backpack, and knowing that our current CEO and our current president would be working in the business gave me the chance to step back and work on the business. The distinction is subtle but important, and remaining on board as Chairman has allowed me to view the business from a different perspective.

Continuity beyond the founder is important to creating resiliency within your business, too. “Key man life insurance”—a financial windfall that would accompany your unexpected demise—can only go so far in sustaining your company.

Choosing Your Successor

If you’re in a service business, you know that human capital is the most valuable asset you have. And if you’re headed into succession planning without a strong internal candidate, you will likely realize that you’re looking at a lopsided balance sheet when it comes to leadership.

Unless your business is distressed and in need of a turnaround, an internal candidate could offer you the best short- and long-term outcomes. Internal candidates are typically cheered by your people as a known entity who has climbed the ranks and received the award.

External candidates have a harder time winning the trust and confidence of the internal team, but at times, there are compelling reasons to hire outside. If this is the case, look for someone who is both a strategic and a cultural fit. Particularly when you are transitioning away as founder, the culture shock of someone who is misaligned when it comes to what you and your team have come to value can be too much to overcome.

Giving Yourself Peace Of Mind

It’s my experience that the happiest founders I have known and advised upon their exit are those who have a management team in place that they have selected, and who give them the comfort that the company will continue beyond them.

That’s the truest definition of legacy—looking back on your life with satisfaction, knowing that you have created something bigger than you could have imagined and recognizing that you have created value in the world.

On the other hand, I’ve met many a control freak who is miserable in retirement, with nothing to retire “to” and only the past which they are retiring “from.”

Your Business Is Your Legacy

If you take just one thing away from this article, I hope what you will hear is that not only is succession planning just one more way to pour your heart and soul into your business, but it is actually the best gift you can give yourself and future generations.

It takes a new mindset, something along the lines of, “How can I think about this business if it won’t endure beyond me?”

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