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  • Writer's pictureJonathan Brabrand

M&A Mistake #2: Having No Successor to the Owner

Updated: May 11, 2020

Image Credit: Cytonn Photography

One of the most important factors that I’ve seen in over twenty years of M&A that drives a successful exit is the depth and quality of the management team. While this certainly includes the owners if they are actively involved in the business, what matters most is the team that reports to them. And more than just how good they are, the real question is: If the owners stopped showing up for work, who could keep the business moving forward? To you, as the owner, that person who could step up and move the business forward in your absence is your back-up, your bench, your understudy. They are your future successor, which is a critically important role that exists in virtually all $100 million companies, but one sorely lacking in most smaller businesses. The story below comes from Chapter 3 of The $100 Million Exit and shows us that having a successor in place provides an insurance policy for the company’s ability to survive upon the owner’s retirement or should something unexpected happen to the owner in the meantime.

Jane Marbury owns a small, five-person wealth management firm called Bayside Financial. Jane founded the business over fifteen years ago after leaving a similar practice within a national bank and hanging out her own shingle. Like many start-ups, Bayside was built around Jane’s personal expertise, contacts, and business acumen. The clients that engage Bayside Financial to manage their assets do so in large part because of Jane. One day, about five years ago during a family vacation, Jane was reflecting on Bayside and realized her firm was wholly dependent on her personal abilities. “I had just turned sixty,” Jane recalls, “and I came to a startling realization: Bayside the firm and me the owner were one and the same. Bayside wouldn’t exist without me.” Following that train of thought, Jane reached the inevitable conclusion that whenever she retired, which was more and more in the back of her mind, Bayside would cease to exist. Bayside was Jane’s job, not her business. After that vacation, Jane set about finding a future successor for her business. Not a peer of hers that could take over on Day 1, but a protégée who could be groomed into the role over time. It took her a few months of searching, but Jane found her number two. Steve Bryant, a successful professional in his mid-thirties with significant experience in the wealth management industry, was looking for a more entrepreneurial opportunity. Jane brought Steve on board at Bayside and began developing his skills across all aspects of the firm. After an initial trial period of eighteen months, Jane was confident that Steve was indeed a great candidate to be her successor and approached him about a formal long-term transition plan. “The goal was to make it easy to understand and crystal clear,” Jane notes. The agreement they reached was simple, yet effective. When Jane reached sixty-five years old, or otherwise retired from Bayside, the business would be valued using a pre-determined formula. Steve would then take full ownership of the business and pay Jane the purchase price over a seven-year period funded by the earnings of the business. By bringing Steve on board and creating a long-term transition plan, Jane successfully transitioned Bayside from a job to a business. Bayside now had value as an ongoing entity, and Jane knew that if something unexpected happened to her tomorrow, her clients and employees would be cared for, as would her family through the pay-out provision. Having a succession plan in place also gave Jane significant leverage when she was later approached by a bank that wanted to acquire Bayside as part of an expansion of its financial services. Jane responded, “I would be happy to entertain your proposal, but I am perfectly happy to exit Bayside through the arrangement I already have in place with Steve.” That arrangement with Steve gave Jane optionality and enabled her to negotiate from a position of strength. When she received the potential buyer’s offer, which was less attractive than her buy-out plan with Steve, Jane was able to decline the offer without consternation or remorse and move forward undeterred. The ability to have a successor in place to serve as an insurance policy against retirement or unexpected life events is just as effective in larger businesses as it is in a small firm like Bayside. Larger companies may have a pool of potential successor candidates to draw from internally, supplementing an external candidate search, but the need for a successor is equally as important. Whether it has two employees or fifty employees, a business with no one to step into the top owner’s role is just a job.

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In this article series, I share excerpts and stories from my book, The $100 Million Exit. I hope you enjoyed this post — if you did and want to connect, you can reach me via email at or connect with me at Also, you can find my book on Amazon here:

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