The unintended consequences without exit or contingency planning

For 24 years, Susan devoted her career and formidable energy to building her public affairs firm. She worked many late nights, weekends, holidays… you know the routine. She loved the culture and the team she developed. By the time Susan turned 55, her agency employed 40 people and generated $8 million in annual revenue while achieving above-average EBIDTA.

Everything was great. Until it wasn’t. Seemingly in good health, Susan died unexpectedly of a heart attack.

No exit or continuity emergency plan had been prepared to handle this.

Unfortunately, Susan left no plan behind for dealing with this situation. There were no written instructions on how the business should be managed in her absence. While she had personal insurance coverage to protect her family’s estate, there was no key person insurance in place for her which would infuse the proceeds into the business.  

The four members of the agency’s leadership team each had their own specific, narrow roles. None understood how the overall agency operated and made money. The staff was shellshocked and concerned about the future.   

Susan’s husband Richard was a successful professional in another field… and had no real knowledge of or interest in running the firm. That made a bad situation worse as no one was leading an agency that has just been rocked with tragic news.

Falling from 24 years of continuity into chaos.

It soon became clear that the agency’s leadership team couldn’t actually lead without Susan being there to tell them what to do. Each of the four retreated into his and her personal fiefdoms and began their attempts to outmaneuver and out-politic the other three to gain more authority within the firm. These personal agendas conflicted with the best interests of the agency as a whole.

Without Susan, there was no one there with the vision and experience to diagnose and help solve problems with clients. Key clients began to defect from the agency, lowering revenue. Susan was also the main new business driver so you can imagine how business development essentially collapsed.

Faced with having no leader, declining client revenue and no new business on the horizon, gossip, rumor and innuendo began to shatter the camaraderie, trust and culture that Susan had so carefully built and managed.

The staff panicked. As people began to fear for their jobs, the exodus to other agencies was underway. The firm had no key person insurance in place on Susan. So there was very little money available to pay “stay” bonuses while Richard tried to figure out how best to deal with the agency he had no ability to run.

By now, the firm’s exceptional level of client service had declined markedly. This caused even long-standing clients to lose confidence, run out of patience and ultimately fire the agency.

Revenue plummeted. With no proceeds from key person insurance to fund operations, only the liquidity in the balance sheet was keeping the agency afloat… but dried up fast. Richard tried to pick up the pieces during this emotionally draining time but had neither the knowledge nor management support to be successful.

One year after Susan’s death, her agency went under.

This didn’t need to happen.

Susan’s agency would likely still be here if she and her team had been better prepared in advance for her untimely death. All agency owners should carefully consider taking these three important steps.

Have a plan and put it in writing. Having a written exit plan could have prevented all of this. A carefully prepared plan anticipates the possibilities and includes specific steps to meet the needs of not only the owner’s family and estate but also the agency itself including its continuity, leadership, talent and finances.

Instructions would be included on how the business should be managed should a tragedy occur. The owner holds in-depth discussions with her/his spouse and key agency leaders to ensure alignment with the owner’s goals. Specific roles are laid out for each senior member of the team.

In Susan’s case, the plan would have also driven her to get enough insurance coverage to protect the agency and team she built.

The plan should address post-tragedy communications to clients and staff. The document should then be entrusted to an attorney to ensure that the plan is implemented.

Name, prepare and empower your successor. Identify and train your best qualified #2 to take over immediately if you’re no longer there. S/he needs to be capable of effectively managing all aspects of the agency including client service, business development and the business of the business (talent, finance, legal and operations). And make sure the staff understands that you wholeheartedly support this person.

In addition, others on the senior team will take on new roles and responsibilities as the successor ascends. There should be written roles for each senior leader on their new responsibilities.

Carry key person insurance to fund operations and provide financial flexibility to the firm. Don’t rely only on the liquidity in your balance sheet to keep the agency going without you. The firm needs strong cash reserves to weather any loss of clients and also to afford paying bonuses to avoid staff attrition during the critical transition period.

These key person insurance proceeds can also be used to pay the estate for equity if the surviving spouse so desires. And, if your chosen #2 isn’t up to the job as the permanent CEO, the estate trustee will be able to pay a recruiter to find the right person who will be.

We’re here to help you succeed… and prepare for the unexpected.

Prosper Group exists to help the owners of independent marketing communications agencies achieve their ambitions and maximize the value of their life's work.

Our team of former agency leaders and owners focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.