A Publication of WTVP

The stronger the communication, the more clearly each side will understand the other.

As a teenager, I was always right. I had all the answers and knew my way was the best way. I looked at the way adults operated and said, “I’ll never be that way when I’m their age.” Well, I am now “their age,” and, I am that way.

By “that way,” I mean that I’m slower to make significant changes, I adhere to philosophies that have been historically successful, I’m more conservative, and I am more sensitive to how my actions affect others. Life’s experiences have shaped who I am, what I do and how I think; in short, my perspective.

What does this have to do with managing a successful business? We are in the midst of the largest leadership and ownership transition in history. Owners are passing their businesses to their children, their management team, or to new owners outside the organization. At best, this can be a challenging process; at worst, it can be devastating, both financially and emotionally. At the heart of the challenge is the fact that both parties have valid perspectives that may appear to conflict with each other.

Two Perspectives on Transition
When owners are considering retiring, it’s tempting to look back at how far they have come. They took considerable risks to either start a business or take it over, and it was an exciting and scary time. Part of the fear comes from realizing their talents and abilities were different than the former owner’s. Looking back is satisfying for owners because they can appreciate what they’ve learned from others and be proud of how they developed their own unique approaches to growth and success.

Every successor faces that same challenge, and though a departing owner may not agree with all the methods of the new leader, they can help shape his or her approach and build the confidence that is so critical during any new leader’s transition period.

During a transition, both current leaders and their successors must recognize that they will live with today’s decisions for many years to come. For a new leader, the weight of that responsibility may make it more difficult to make decisions. The strongest leaders are those who understand what they do not know, and actively seek counsel and direction from those with the valuable experience they lack.

A successor must balance the desire to move fast with an understanding of the broad, long-term implications of each decision. Senior leaders can help the next generation understand that small, sustained changes over time often have greater impact than big, broad changes made in haste.

Perceptions of Failure
Older entrepreneurs have benefited from both success and failure. Although painful at the time, failure shapes leaders. Often, the next generation has not yet had the benefit of failing. Taking risks and learning from the outcomes is an important part of becoming a leader. For a leader moving out of an organization, it can be very difficult to watch a successor going down a path that appears to lead to failure. However, one should recognize that failure may help shape the next leader and ultimately lead to future success.

One of the key differences between older and younger generations is the perception of risk. Of course, reckless risk is not healthy, but a younger leader looking at the same opportunity may see an older person’s perspective as overly cautious—to the point of passing up opportunity. The luxury of experience provides the ability to anticipate outcomes before they play out, but an older leader may also be at a point in life where a significant failure could result in an unrecoverable loss in personal well-being.

It’s important to recognize that both biases—toward action or inaction—are oriented toward doing what is best for the company. However, one favors opportunity, while the other’s priority is to avoid failure. Negotiating through a transition issue with a healthy respect for each other’s perspective will provide both leaders a powerful opportunity to learn from each other.

Two Elements of Successful Transitions
There are no magic answers to a successful business transition, because each situation is unique. However, there are two actions that both an owner and the successor can take to improve the likelihood of success:

The stronger the communication between the current leadership and the next generation, the more clearly each side will understand the other’s perspective. As a result, both sides will be able to work through the challenges inherent in a major transition. iBi

Matt Smutz and Brent Terhaar are principals with CliftonLarsonAllen LLP.