MSP Succession Plans, Part II

MSP Succession Plans, Part II

ceo_rf_120Yesterday, I explored succession planning at Heartland Technology Solutions, a managed service provider that recently completed an internal executive promotion. My key question: What would happen to HTS if CEO Arlin Sorensen got hit by a bus or decided to retire? In response, Sorensen shared some key thoughts on succession planning. Now, let's continue the succession planning discussion with thoughts from Network Depot and MSP University.

I reached out to Network Depot because the MSP has two owners: Rich Forsen and Chris Amori. The 50-50 partner format is rewarding when you find the right partner (as I discovered when I co-launched Nine Lives Media Inc. with Amy Katz). But 5o-50 partnerships -- a business marriage of sorts -- also raise a bunch of succession planning questions.

In Network Depot's case, the company is an LLC formed not from two people but from two S-Corps. "Chris [Amori] and I had previously owned our own companies and rather than dissolve those, we just had the two companies share in the new one, which still gives us some tax and choice flexibility," notes Forsen.

As part of an operating agreement, Network Depot has "key-man insurance" on the lives of Forsen and Amori. The company is the beneficiary and the funds from the policy would go to purchase the partnership from the estate, notes Amori.

Amori and Forsen considered a range of additional scenarios. "It is my belief that if we either retire, dissolve, divorce, etc. that the shares of the partnership have to be sold back to the remaining partner," says Amori. "Normally this is done by appraisal. If we can't agree on an appraiser, then we each select one.  If they can't agree, then THEY select one. In the end you pay a ton of money and average the 3 together!"

Now, the key point from Amori:

"Like a pre-nup for a marriage, a partnership agreement is based on what happens if it doesn't work out.  We spent many hours with the lawyers hammering that out."
Adds Forsen:
"Obviously the hope is that we never need the insurance and the design is that we intend to sell all or part of the company as the "dissolution" plan, but these things are in place just in case."
Amy Katz and I took similar steps when we set up Nine Lives Media Inc. It wasn't a fun process. But once the details were sorted out we could focus on the building a successful company.

MSP University

My next move was an email to Erick Simpson, CIO of MSP University, which runs workshops for aspiring managed service providers. Simpson works closely with MSP University President and CEO Gary Beechum -- and I figured the duo would have some real-world thoughts on succession planning.

Some key tips from Simpson:
  • Build out your organization chart to reflect each role (not individual) required to run your company, then assign the current individual’s name to that role. More than likely, you will have more roles than individuals, with each individual performing several roles. This then becomes a roadmap for growth.
  • Document each and every role, along with key performance metrics and goals. This becomes the blueprint that allows performance measurement and establishment of accountability.
  • Evaluate where your organization is experiencing the most pain (sales, service delivery, operations, etc.), and prioritize your hiring, promotion and development process to fill these roles.
  • Once you’ve completed these steps, and your entire organization understands the organizational structure and the roles required to operate and manage your company, you can begin succession planning not only for C-level executives, but also provide a clear roadmap for the recruitment, development and career path advancement of individuals within the organization to strategically align your succession strategy to meet future needs and business goals.
Simpson says he'll share more thoughts on succession planning during an Aug. 12-14 boot camp he's running.

What Did We Miss?

Surely, you've run into additional succession planning challenges within your own company. If so, share them and let us know how you worked around them.

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