Succession Planning is Not About This
Last week I met up with Rahul Nerurkar, a wise mutual fund distributor from Mumbai. We discussed everything under the sun as it related to his business and our industry. Rahul had identified his nephew Ajay to succeed him in his firm. He seemed happy as he had read about another such wise move in the media. He said, “I think I am sorted now. I am done with my succession planning.” I told him, “I don’t think so. You have only addressed one aspect of continuity and succession. However, the most important aspects (problems) still remain unresolved.”
Rahul was keen to know more. Then I told him the story of Rajan Chopra, a 70 years old business owner from Mumbai. Rajan has 3 sons, who were also a part of his business, but it was Rajan who was always calling the shots. One fine day he said “enough is enough” and decided to implement his succession plan. Two of his sons were not so keen on continuing in the business and were super comfortable being shareholders (only), while allowing their other brother to run the business, but they felt compelled (to not offend their dad) to stick with the business. The third brother wanted to take over the reins but Rajan was not so sure about him. He asked for my help. I met all of his sons for a few weeks and then shared my thoughts with Rajan.
What did I say?
I told him that there were some unresolved issues within the business and family. I told him that his 2 sons who don’t want to be a part of the business should do what they love while continuing to be shareholders of the company. And there was some more. But that is not the main point here.
Rajan wanted something different as this seemed too simple. He consulted with an international wealth firm that gave him some complex recommendations in the form of additional companies and trusts. He also hired a very senior professional from one of the business groups as an Executive Director to help him with the succession planning of his firm.
I met Rajan 2 years later. The first line he told me, “I should have listened to you and kept it simple. It’s a complete mess. I just created additional complexity and the dynamics between the 3 brothers have taken a different turn now. The executive who I hired quit and I am now left without a clear direction of where this is headed.” While what happened next is not important, one of the key things that I had told Rajan was “You have to focus on addressing the real problem. You can never solve real business problems with structures, and tools”.
“Did this ring a bell?”, I asked Rahul
He seemed a bit confused. Are you too?
Rahul was like “What has Rajan’s thing got to do with me? I have found my nephew as my successor and we both are happy. I have not done anything complex either.”
“That’s great Rahul but as I mentioned earlier, you have only addressed one aspect of continuity and succession planning.”
“What about growth?
What about maximizing the value of your firm?
What about your issues of client experience and the current value proposition that poses a risk to the value of the firm?
What about competition?
You were growing at X and after Ajay comes in, you will still grow at X or probably lower. How has that been addressed? The problems that you faced earlier are now Ajay’s to handle.
All you have done is that you found someone to replace you without making any other changes in the firm.
Continuity and succession planning are not only about finding that one person. First and foremost, it’s finding the right person. Rather it’s finding the best person (not just any person who says yes or the first person you meet) for your firm (or the kind of firm you wish to build). It’s similar to getting your child married. There is no short cut here.
Another way to look at it is by asking yourself this question – who would you want to operate on your brain or heart? The best professional right? No doubt about it.
Is your business any different then? You need the best and the most capable one. Even when you have the best one, there is no guarantee.
But let’s assume that you have the best person, and all is great. A big pat on your back.”
At the same time, continuity and succession planning are not also about forming a company or LLP or any other structure. A structure does not grow your business. A distributor recently changed his structure from a proprietorship to LLP and thought his succession was done. A structure will not ensure growth. A structure will not create or maximize value for your business either.
The next point in continuity and succession planning is about taking your business to the next level – build the firm of the future (invest in new capabilities, technology, processes, people) and deliver a wow experience to clients. It’s about building that competitive advantage and becoming invaluable in the lives of your clients. Note if you don’t become invaluable in their lives, someone else will. Your client is someone else’s prospect.
The third one is about growing the firm consistently (building a growth machine) and maximizing the value of your firm.
The ultimate value of your firm is a function of your future growth and the competitive advantage you have built in it. Merely changing a person will not change anything. It may be the first step or one step.
Rahul seemed to be having an AHA moment. He was getting the points I was making. He told me, “Wow I never thought of it in the way you explained it to me. It certainly makes a lot of sense because I want to ensure that my firm grows and I am able to maximize (or optimize) its value.
So, what’s the next step?”