Six steps to successful leadership succession

By Penny de Valk, Associate Director, Equiteq

Leadership succession involving a transition from the founders has its own specific challenges. Founders leave a huge legacy in the business, which in one sense is extremely valuable but can also result in a level of dependency that introduces risk.

Governance roles will change at exit, when an owner/founder will typically move from an executive position. The challenge here is that the owner/founder will need to be conscious of their change in role and step back sufficiently to allow successors to create their own leadership identity, while still continuing to offer their unique skills and experience in a broader governance role.

If you’re a founder preparing for a transition, getting it right involves ensuring you set up the new CEO for success, while simultaneously moving away from the operational side of the business and continuing to add value.

The difficulty for founders is they are used to being in control and making decisions independently, which means trusting the new leader can be difficult.

If they do achieve this, it ensures value is not diluted. In fact, it can result in value being enhanced.

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How IP can make your profits fly

By Adam Blatchford, Associate, Equiteq.

Smart Scaling is all about growing revenues and profits while also building your equity value, as opposed to doing one at the expense of the other. Intellectual Property is central to that, it is a ‘win-win’ because buyers want it and it drives profitable growth in your firm.

Whether your firm generates revenues of $20m or $100m, IP differentiates you. It ensures clients buy your services, means you can deliver profitably, and makes investors love you. This blog will focus on how to achieve that in your firm.

What is IP?

In simple terms, intellectual property is any knowledge recorded and maintained as a usable business asset. In most consulting firms, this means ‘trade secrets’, such as process maps, methodologies, training systems and software tools, rather than just copyrights and trademarks.

There are three main types of IP:

  • IP to market the business
  • IP to deliver business
  • IP to run the business

All three are important, but in the context of Smart Scaling we will focus on delivery IP. See here for a deeper discussion of the three types.

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Why succession planning is difficult – and how to get it right

By Penny de Valk, Associate Director, Equiteq

One thing you need to assure future owners of when preparing for an exit is leadership capability and stability, as well as the continued positive effect of this on profitability and growth. Ownership succession generally involves management succession and because buyers buy people and great leadership, it is natural for them to want to assess the quality of bench strength, as well as the planning that has gone into ensuring the right people are in the right roles. Your management succession plans throughout the company are an aspect of good governance that you can expect to have evaluated in due diligence. And CEO succession in particular will be critical. It is a key responsibility of the Board and is central to good governance.

Why the lack of planning?

So why do so many companies not prepare well on this front? Often succession planning is mistakenly just not seen as a priority against the immediate operational requirements of getting the company to grow and become profitable.

Sometimes this lack of focus relates to the size of the business. Even in some mid-size organizations, without a big HR function, there are few resources to manage succession compared to the formal talent programs enjoyed by larger organizations. Yet being a smaller organization makes it even more important, as not only is the company very exposed to key talent leaving, but those firms can also have a shallow pool of talent to draw from and are unlikely to have the rotational assignment opportunities that allow people to build their skills and experience.

Sometimes firms feel that planning around succession can be distracting for the individuals and the company and create a political tone in senior management that isn’t helpful.

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Creating a C-suite to build equity value

If you own a knowledge-led services firm in a sector such as consulting, IT services or media and you want to grow revenues to, say, $30m, it is unlikely that the expertise of the founders will be able to drive this. What you need is a team of specialist C-suite executives on board.

However, at some stage a founders-only team will put a break on growth. Here are three reasons why founders maintain the status quo and fail to see the damage it may be doing to their business:

  1. Growth creeps up on you so you don’t notice the degree to which the requirements have changed

During the start-up phase your main focus will be delivering on your particular domain expertise, but as time goes by you’ll spend more time on anything from finances to dealing with people issues.

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The highest price for your consulting business may well come from outside your core industry

The most prolific acquirers of knowledge-led businesses are undergoing unprecedented diversification and convergence across adjacent consulting segments and sectors. At the same time, digital transformation is driving hybrid business models with consulting, technology and managed service revenue. This change is fuelling high levels of M&A activity from trade and private equity investors, which we review in our 2017 M&A report. For owners considering selling their business, an appreciation of these trends is critical to uncovering the synergistic buyers that may offer the highest value.

Convergence between consulting offerings

Global consulting clients are increasingly looking to their advisors for best-in-class, end-to-end consulting solutions. These trends are driving established consulting buyers to use M&A to enter new geographies and acquire complementary capabilities.

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Principles of Maximizing Profitability

There may not be a more fundamentally important topic for consulting firms than improving profits.

Shareholders ultimately want a return on their investment and buyers are looking for evidence of healthy growth, while strong profitability is required to sustain growth and equity realization.

The levers that need to be pulled to improve margin – revenue and cost – might be well understood, but the combination of activities required are often more nuanced.

We’ve identified the top strategies firms can use to start improving profits now:

  1. The leadership team must make profitability an ongoing focus

Profitability has to become embedded in the leadership team’s mindset for sustainable margin improvement to be successful.

Achieving this requires strong communication around accountabilities, clear success measures being established and tactical activities – such as margin exception reporting, resource management, and utilization forecasting – becoming integrated into regular business updates.

Once a shared understanding of what success looks like is established within this team, firms can create strategic work streams – such as market expansion or IP development – and make people accountable.

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