The cost of postponing the succession conversation in a privately held business is rarely the cost most owners worry about. It is not, principally, the risk that the owner will be incapacitated unexpectedly, although that risk exists. It is the cost of the years the business operates under an unspoken constraint, in which the leadership team does not know whether it is being prepared to run the post-founder business or to be retained by an acquirer, and conducts itself accordingly.
I have watched this play out in enough mid-market businesses to have developed a particular sympathy for the senior leaders inside them. The leader who does not know whether the business is being prepared for succession or for sale is operating, structurally, in a holding pattern. He is not making the multi-year investments — in capability, in his own development, in the recruitment of the next layer of leadership — that he would make if the future were clearer. He is making, instead, a series of nearer-term decisions, calibrated to a horizon he is not certain will extend. The cost of this, accumulated over three or four years, is meaningful. It is not visible in any single quarter's results. It is, with high reliability, visible in the gap between the business the owner believes he has built and the business that emerges when an acquirer or a successor is finally invited in to inspect it.
The succession conversation, conducted on a five-year horizon, removes this cost. It does not commit the owner to step back. It commits him to clarity about the path the business is on, and to give the senior team the information they need to make decisions consistent with it. That clarity is, in our experience, the most undervalued benefit of the succession work, and the one most often unmentioned in the literature.