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The owner of a mid-sized construction firm decided it was time to hang up his boots and sell to a team of his managers. So he appointed a successor—a talented project manager in whom he saw many of his own successful traits.

The problem? The heir lacked a crucial skill: the ability to generate new business. Instead of looking elsewhere to fill that gap, the owner kept pushing his favored successor to become something he wasn’t. Eventually, their relationship fractured under the pressure and the exasperated owner sold the company to a third party at a knock-down price, giving up his goal of maintaining the family name on the company’s door.

As this anecdote shows, succession planning can be one of the most dangerous blind spots for leaders in the construction sector.

It’s a challenge for any business, but construction firms are among the most vulnerable to poor planning in this area. Construction is relatively risky and potential buyers are unwilling to take additional chances on companies that lack key skill sets.

Many construction leaders don’t realize the skills they possess. But often, the founder has juggled customer relationships, business development, strategy, managing profitability and talent development.

Construction firms, many of them family-owned, have a tendency to be dominated by long-serving, charismatic owners who are intertwined with the business’s identity. That, combined with a shortage of talent in the industry, can cause poor decision making around succession planning that may derail plans for selling the company on the best terms.

There are many elements of a good succession plan. But getting the human factor right is the hardest, and probably most important, aspect for small and mid-size construction firms. Even so, it tends to be the most overlooked and poorly managed.

The fact is that when a long-serving owner steps down, it risks undermining much of a company’s value unless his or her talent and experience has been convincingly divested into other people.

An owner’s starting point for a strong succession plan is quite simple: How do I make the company as strong, or stronger, without me in it? But achieving that goal can become quite complex. It may require looking for external help to identify gaps in the company's talent make-up and investing substantially in improving skills. The following are three key steps to focus on.

1. Transaction planning is not succession planning.

Understand that having a plan to sell the company is not the same as having a good succession plan. There is a tendency to think of preparing for the transaction—whether it be a management buyout, a private equity deal, or an employee stock ownership plan (ESOP)—as a succession plan. But the transaction type does not affect a company’s viability for a sale. The value of any type of sale chosen will be undermined if the owner does not have a credible succession plan in place.

2. Get over the “one-for-one” fallacy.

Owners tend to fall into the assumption that they can pick out a like-for-like replacement who will be able to seamlessly take over all of their roles and relationships. In reality, that is very rare. How can a relative newcomer be expected to match the employee, customer, subcontractor, vendor, community, bonding/surety, CPA, attorney and banking relationships built up by an owner over 20 to 30 years?

If an owner has been successful at growing the company, it has become more complex and would likely benefit from divvying up key responsibilities more widely. Rather than seeking the “one true heir,” succession planning should be about identifying the key traits the owner has and the right people to take them over. This process can't be short-circuited. It takes more than five years to get it right.

3. Acknowledge skills shortfalls and invest to fix them.

If people lack the skills needed to step up and take on new responsibilities, no amount of incentive is going to change that. Owners, therefore, need to spend time and money on identifying skills shortages and putting in place development plans to address them. There’s a tendency for owners to resist spending on professional coaches and organizational development people, but investing in making the company less reliant on you can be the best money ever spent. External professionals can help filter out hires who aren’t a good fit for the company culture. And they can provide much-needed push back against an owner who is overly focused on selecting a successor who is like him.

There’s always the fear of investing in developing someone who may join a competitor, making owners reluctant to put resources into professional coaches and organizational developers. But a more pertinent risk is ignoring the training needed and then the employee stays with the company.

Skills shortages can be fatal to a construction company’s succession plan. Some deals may make sense from every financial angle but fall through because the buyer didn’t have the resources to make up for skills gaps at the firm.

Imagine how different it could have turned out if the owner who failed at appointing the talented project manager had followed the succession planning steps above? Instead of putting carrots in front of his chosen successor, he might have hired a development coach who would have made clear that new business development was never going to be that person’s strength.

He could then have worked with the coach to develop the skills the successor did have while identifying others who could excel at new business generation. The result could have been a more well-rounded leadership team, a higher sale price and a whole lot less frustration.


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