Word on the Street: Issue 245

It Oughta Be Easy, Oughta Be Simple Enough

But it’s not. In “Tunnel of Love,” Springsteen was referring to the fears, suspicions, and secrets contributing to a failing marriage. These same “soft” features are far too often the culprits that cause leadership and ownership transitions to fail in the AE industry. It’s hardly ever the financials that cause an ownership or leadership transition to fail. Nine out of ten times it’s some combination of these soft items. 

In his article this week, Mark Goodale has great advice for how to set the stage for a successful passing of the baton from one generation to the next.  But, if your transition started out with high hopes but is now “stuck,” there’s every chance it’s due to one or more unresolved psychological or emotional barriers in the mix. Some of these affect the departing/selling owners/leaders and cause them to drag their feet or abandon the process altogether. Others inhibit the next generation from moving forward, making decisions, and assuming the leadership of the firm.  

The first step in remedying these issues is to recognize them. Here’s a description of some of the more common psychological/emotional baggage items that can gum up the works of a perfectly good transition plan and who typically puts them in play.

What selling shareholders/departing leaders bring:

1. Into the great wide open? Endless golf, sailing, world travel, select board engagements, and unlimited time with spouses, children, and grandkids may seem like a pretty appealing next chapter for most CEOs. But when you consider that the average CEO has spent 25 years with their current firm and is on average 65 years old when they retire, it can be difficult to step away. Most have a powerful, deep-seated—if unacknowledged or unspoken—relationship with their firm and their role. The daily routine. The ability to call the shots. The love/respect they get from employees, clients, and peers. None of these are easy to give up. As “retirement date” gets closer, some CEOs balk at leaving it all behind and look to find reasons to defer or delay the transition.

2. The skeptic two-step: In these days of sky-high firm valuations and a seemingly endless stream of unsolicited lucrative offers from enthusiastic investors and strategic acquirers to buy their firms, most departing leadership teams and senior selling shareholders are well aware of the immediate wealth that awaits them should they decide to sell externally rather than transition internally. Ideally, they have factored this into their assessment of their strategic options and decided that their preferred route was an internal transition—for all the “right” reasons. But all it takes is a series of poor decisions or some bad judgement calls by next-generation leaders. Or for the next-generation folks to demonstrate some hesitancy about taking on more risk. Or for them to express reluctance to provide more fulsome guarantees to the selling shareholders. Or for them to balk at the continuation of cherished (but clearly not mission-critical) perks or compensation for departing leaders. Or a hiccup or wobble in the economic outlook. All it takes is for one or more of these to manifest themselves, and it’s a shockingly easy path for selling shareholders to turn skeptical about the ability of the next generation to successfully pull off a transition and begin the exploration of an external sale, thus placing the internal transition at risk.

3. You’re not the boss of me: Not everyone is equipped or prepared for navigating the subtle yet meaningful shifts in the power dynamics of firm relationships during a transition. For the transition from one generation to the next to work, those who have been accustomed to providing direction must adjust their behavior to one seeking collaboration and/or consensus and ultimately end up looking for permission. It’s akin to voluntarily moving from the driver’s seat to the passenger seat to the way-way-back. It requires trust and patience. It takes a willingness to relinquish “the old ways” of interacting with those who were formerly “subordinates.” And it assumes that the next generation can do the job better. For some departing leaders it requires a lot of coaching and/or hand-holding.

What the next generation brings: 

1. Why change anything? Over the past decade, many next-generation leaders and shareholders have received real-time compensation that exceeds whatever they ever could have imagined when entering the profession. They’ve also seen dramatic increases in their equity positions in their firms. Times are good. They’ve experienced all of this without necessarily having any of the liabilities that go along with running the firm. Their names are not on the firm’s credit line or loans. Their houses or other property have not been used as collateral to secure financing. But as the transition heads into the “red zone” where the financial liabilities and risk are to be transferred to them from the current owners in addition to any notes to pay off those same departing shareholders, the next generation can get skittish.

2. Not my team: Many (most?) transitions require a group of next-generation shareholders and eager/willing leaders to demonstrate high levels of competency, loyalty, potential, and ambition to take over from the current leadership and senior shareholders. This provides the confidence needed by senior shareholders to proceed with the transition. However, there’s a big difference between individual eagerness and ambition versus collective eagerness and ambition. And how the next generation is organized is a major factor contributing to the success or failure of any transition. Throwing folks together and informing them that the firm is going to be transitioned to them without those folks having had the opportunity to develop trusting relationships with each other or test their team dynamic is a recipe for disaster. Bottom line: The next generation needs to not only collectively want to seize the opportunity to run the firm at the price offered by the selling shareholders, but they also need to want to do that together.

Any and all of these issues can be addressed successfully. What complicates matters is that they generally are all in play to some degree at the same time. It’s important to recognize these challenges will be in your transition’s future and get outside help where necessary. This is where good executive coaches really earn their fees.

You can reach Mick Morrissey @ 508.380.1868 or [email protected].

How to Prepare Your Protégés to Take Over

You’re not going to be in the big chair forever. Whether you’re planning an internal transition, selling to outsiders, or handing over the keys to the castle in some hybrid fashion, one thing is certain: Someone else is going to lead your firm. And they’re probably already inside your walls.

The question isn’t if leadership will change; it’s whether you’ll help shape that next wave or leave them to figure it out while they wrestle with your shadow over the boardroom table.

To make sure your protégés don’t just inherit your business but are ready to lead it, here’s what you need to do:

Accept that you are replaceable. You might feel like you aren’t—after all, you’ve built the firm, taken the risks (and the punches), landed the whales, and patched the leaks. But leadership transition isn’t about creating your clone. It’s about preparing others to step up in their own ways, not as knockoff versions of you.

So, the first mindset shift is this: You are a steward, not a monument.

Your job now is to help them take the firm forward, not re-create the past.

Spot the right people. Not every strong performer is a strong leader. You need to identify the ones who want to lead, not just the ones who are good at what they do. Leadership takes a rare mix of ambition, resilience, vision, and humility—and no, “biggest rainmaker” doesn’t automatically qualify someone.

Here’s what to look for:

• Curiosity about the business. Do they ask questions about how the firm works, not just how to deliver projects?
• Comfort with discomfort. Do they handle ambiguity, tough decisions, and conflicting opinions without shutting down?
• Drive to elevate others. Do they make the team better or just themselves?

If you’re not sure who those people are, you’re not looking closely enough—or worse, you’re blocking the view.

Give them real responsibility, not just important-sounding titles. If you hand someone a fancy title but leave all the real decision-making locked away, congratulations! You’ve just created a figurehead, not a leader.

To prepare protégés, you must give them actual responsibilities. Let them:

• Lead key initiatives without you swooping in to rescue things.
• Manage client relationships, including the messy parts.
• Navigate internal conflicts and make judgment calls.
• Sit at major decision tables, not as observers, but as voices.

These assignments will stretch them—sometimes uncomfortably—but that’s where leadership is forged. Yes, they’ll screw up occasionally. But wouldn’t you rather they screw up while you’re still there to guide them?

Teach them how to think, not just what to do. Here’s a classic trap: You keep handing down answers. But the next generation doesn’t just need your solutions; they need to learn how you got there. Start pulling back the curtain:

• Explain how and why you made key decisions.
• Share how you evaluate risks.
• Show what you’re watching in the market.

Reveal when you choose to act (and when you deliberately wait).

Think of yourself as an experienced coach—not a dictator, not a micromanager, but someone who equips their protégés to handle situations after you’re well into your next chapter.

Let them develop their own leadership styles. Even if people want to be carbon copies of the boss (and most, if not all, do not), they probably couldn’t pull it off anyway.

They need space to develop their own voice, approach, and credibility. This might mean they:

• Handle people more gently (or more directly) than you do.
• Focus on different growth areas or clients.
• Bring a more tech-savvy, collaborative, or fast-paced energy.

That’s not a threat to your legacy—that is your legacy. A firm that stays strong because it evolves.

Build leadership as a team sport. Here’s where things often go sideways: You train one star, and they act like they’re inheriting the throne. Don’t let it happen.

Modern leadership is collaborative, not king-of-the-hill. Make sure your future leaders know how to:

• Build cross-functional alliances.
• Share credit.
• Elevate peers, not just command subordinates.
• Work within a leadership team, not as a lone wolf.

Otherwise, you’ll leave behind a firm with a hero complex—and that never ends well.

Connect the transition to the ownership plan. Leadership transition isn’t separate from ownership transition; they’re two sides of the same coin. If you’re selling internally, your future owners need to be capable leaders—or no one will want to follow them or buy in. If you’re selling externally, your protégés must be seen as key players for the buyer—or they’ll be seen as weak links.

So, make sure you:

• Align leadership development with your ownership timeline.
• Communicate the plan clearly to those involved.
• Be deliberate about leadership succession—don’t make it an afterthought.

Model (and demand) accountability. Here’s a blunt truth: Many protégés don’t fail because they’re inexperienced—they fail because no one holds them accountable.

You need to:

• Set clear expectations. Not just vague “be a leader” talk, but specific outcomes.
• Give consistent feedback. Praise what works and challenge what doesn’t at every step.
• Let consequences play out. Don’t shield them from the fallout when things go sideways.

I’m not saying throw them to the wolves. But I am saying create a culture where leaders own their decisions and the occasional upset from those decisions. Which, by the way, means you need to own yours, too.

Plan for the day they have to drive by themselves. Finally, the most uncomfortable step: Prepare the firm to operate without you.

This step means:

• Documenting key relationships, processes, and institutional knowledge.
• Structuring leadership teams and roles so no one person (including you) is the single point of failure.
• Creating a communications plan so clients, staff, and stakeholders know the firm has a solid future.

If you can’t imagine the firm running well without you, that’s a sign you’ve still got work to do.

Contact Mark Goodale at 508.254.3914 or [email protected].

Market Snapshot: Indiana

50 states in 50 weeks – This series leverages our market intelligence database to bring you powerful AE industry insights. Each week, we highlight a new state in green while previously featured states fade to a lighter green. Next, let’s look at Indiana.

Indiana Economic Performance and Outlook Grade*: A-

• Economy: B
• Population: B
• Workforce: C+
• Financial/Fiscal Health: A-

* Overall grade is assigned based on a curve (relative to all states’ performances).

Among the strongest Midwest states for AE firms in recent years, Indiana is ranked fourth in business friendliness by CNBC and third in economic stability and outlook on the ALEC-Laffer State Economic Competitiveness Index. A 2019 law exempting data center equipment, construction costs, and energy use from state sales taxes has sparked development of campus-style technology parks featuring research facilities, office spaces, and laboratories. Amazon, Google, Microsoft, and Meta are among the major tech companies making major investments in Indiana. With announced tariffs potentially impacting the Hoosier State’s major goods-producing industries, S&P Global forecasts the 3.8% Gross State Product rise in 2024 to slow to 1.3% in 2025 and 1.4% in 2026. Recent stock market performance, federal policy, and slower job and wage growth are projected to cause the state budget to fall short of recent projections and force program cuts or tax hikes. See below for regional highlights in Indiana:

• Indianapolis: Thanks to a surging economy and population growth outpacing the rest of the state and country, Indiana Business Review projects real GDP growth in the state capital to accelerate from 2.3% in 2024 to 3.1% in 2025. Total construction starts in Indianapolis are forecast to rise 30% between 2024 and 2026, according to Dodge Data & Analytics. Major projects include Eli Lilly’s $13 billion LEAP innovation and research hub in Boone County and Indiana University Health’s $4.3 billion downtown hospital complex. 
• Northwest Indiana: According to Indiana Business Review, northwest Indiana is in its strongest economic position in decades. Driven historically by the steel and other manufacturing industries, the region is transitioning to a more service-oriented economy as it benefits from its proximity to Chicago and affordable housing. Its geographic location is driving large-scale warehousing, distribution, and cold-storage facility projects. Amazon Web Services is developing an $11 billion data center complex in New Carlisle, where General Motors and Samsung SDI are also building a $3.5 billion electric vehicle battery plant. AE industry employment in northwest Indiana spiked 15% from 2019 to 2024.
• Fort Wayne: Allen County’s population is projected to rise 14% over the next 30 years, nearly triple the increase in the state as a whole. Google is investing in a $2 billion data center in the city. 

For sector-specific data and insights for Indiana or questions about our market intelligence and research services, call/text Rafael Barbosa at 972-266-4955 or email [email protected].

Weekly M&A Round Up

Industry M&A is up 6% over the past 12 months: The pace of M&A activity continues to increase, with 17 new transactions announced in both the U.S. and abroad last week. We reported on deals in CA, ID, OH, NY, TX, and FL. Internationally, we reported transactions in the UK, Netherlands, France, Canada, Australia, and Sweden. You can check all the week’s M&A news here.