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Determining Ownership Options

Determining Ownership Options

The founders/owners of closely held firms are faced with what to do at the end of their careers—whether to keep the firm going through a leadership transition or consider the work they’ve done their legacy and close the practice. What are the options when a leadership transition is not started early enough?


Challenge

With retirement just eight years out, the founders of a 30-person high-profile design firm wanted to evaluate their options.

The principals had built a design practice that had earned a strong national reputation; they were at the top of their profession and wanted to protect their brand. This meant being very selective with whom they brought into the firm.

Proud of the quality of their work, they had high expectations of their people and didn’t see anyone on staff who could grow into a leadership role. The employees were good at supporting the principals, but were not necessarily leaders themselves. A few who had shown promise had left for better opportunities or even started their own firms.

The principals were very hands-on with their projects, going deeper into projects than is customary in a firm their size. As a result, their staff had few opportunities to improve their leadership skills.

Because this practice was founded 15 years earlier after a failed internal ownership transition at another company, the partners—affected by that unpleasant experience—avoided the conversation about their own transition until late in their careers.

Insight

Understanding the best path forward for the principals involved spending time learning about their professional and personal values and desires, which often diverged.

By asking many questions and doing a lot of listening, we learned that each of the three principals had different timetables and ideas for what they wanted when they reached retirement. We were able to distill their options to three:

•  Recruit people from the outside, and start an internal transition quickly

•  Sell externally to a like-minded firm as a way to acquire the needed leadership

•  Close the firm at the end of their careers

Over a period of two years, we met every two months to guide the principals toward a decision.

Action

The principals are more knowledgeable about the options they have and the likelihood of achieving them.

The principals explored bringing in new leadership by acquiring or merging with another small firm; that didn’t come to fruition. They considered closing the practice when ready to retire, because they were fearful that a sale of the firm to an external buyer would ruin their practice. Ultimately they decided to move forward with an internal transition.

They began by advancing one senior associate to principal. We assessed his interests and aptitude for leadership and encouraged them to proceed. We also conducted a valuation of the business and set up the buy-in strategy. The process is not over, however. They will still be looking to recruit other potential principals, to round out the next-generation leadership group.

When architecture firms plan for the future, it can be a tricky proposition.  This might be especially true for smaller firms where culture is often more condensed than in larger organizations.  Cameron McAllister has helped us navigate a path toward our future with uncommon clarity and understanding.  They got to know our colleagues, helped us craft a process for leadership evolution, and mapped the nitty gritty of ownership transition.  Thanks to their thoughtful guidance, we’re on our way.

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