How to ensure your succession plan succeeds
Planning for the handover of your company is hard, emotionally fraught and absolutely necessary
by Marzena Czarnecka
Illustration Pete Ryan
You might have noticed there’s a huge crop of brand-new CEOs around. The changeover hasn’t been particularly subtle. There’s nary an oil patch giant that hasn’t put a new boss in the top spot in the last few years; and the handful that haven’t are about to. It’s simple demographics, right, baby? The boomers are getting old. And replaced.
And it’s not just a big business phenomenon. That mom-and-pop ice cream shop you love? Joe Junior’s name is on the title papers now and Joe Senior’s spending more time on the golf course than behind the counter. There are new managers and contact people at most of the service companies you’re dealing with. You’ve just heard that Steve and Paula have passed their business on to their employees. And while you’re certainly not ready for the retirement pastures or the Elysian fields – you’re barely a boomer, really, a very, very young boomer, certainly not ready to let go of control any time soon. You’re starting to think … yeah, one day you’re gonna have to exit. Next five years? Ten? Maybe it’s time to start seriously thinking about succession planning.
Deep breath. It’s not a sign you’re gonna die. Nor a sign you’re getting old. (OK, well, you are. But so’s everyone else. Chill.) Getting serious about succession planning is simply a sign that you have stellar business acumen. You know those 30-something tech millionaires? They’re rich because they launched their businesses with an exit plan in mind. And you’re just as clever as them young pups, right? Of course you are. So: let’s plan.
Stop hyperventilating. We’re going to do this in stages.
Deloitte partner Mike Bird suggests you think of succession planning in terms of four discrete stages: initiation, selection, development and transition. And guess what? Initiation is exactly what we’re doing right now. Thinking about succession. Identifying options. Pondering timelines and goals.
Successful large organizations with long-term survivability have succession plans built into their hierarchies and processes. See, succession planning isn’t about passing on the torch, or about taking out your nest egg to finance your retirement. It’s about taking care of current and future business needs. A successful succession plan is borne out of a clearly articulated and understood strategic plan for your business, which identifies current skills and abilities, as well as those you will need in the future. Are you going to grow? Expand geographically? Who’s going to take you there? Are the people with the skills necessary for your business’s success already in your organization? Coming up through the ranks? Trainable? Or do you have to find them? And how necessary to the business’s success are you?
If the answer to that last question is “absolutely necessary,” you have some serious work ahead of you. Succession planning is essentially about making any one individual – including you – if not precisely redundant, then definitely replaceable. Because if you’ve made yourself integral and irreplaceable, well, the business is going to die without you. Do you follow?
For owner operators, this is a particularly difficult task. They are so identified and entwined with their business, they’re often not sure where the person ends and the business begins. And processes, plans, documentation? Um … who has the time for that?
“In most cases, those people have been so focused on growing the business and making sure the business survives, they’ve had to devote so much time and attention to all the day-to-day stuff, it’s hard for them to step back and take a strategic overview of what they should be doing in terms of planning,” says David Beavis, consultant with David Bradley Consulting. While serial entrepreneurs are building to sell/exit their business from day one, the majority of SME operators are building to build… and they will engage in a succession plan and ownership transition only once. “For those people, it’s a once in a lifetime thing,” says Beavis.
No wonder it’s hard. So if you’re sitting at the initiation stage feeling overwhelmed – get help. Succession planning is big business and there is an army of professionals out there available to walk you through the options. Eldest son lazy? You don’t have to pass the whole kit-and-kaboodle down to him. Heir apparent just quit? Don’t panic. There are other options. The initiation stage is about identifying all of the alternatives.
The selection stage is about choosing the best one. And it might be prepping the business for a sale to a competitor or aggregator. But, let’s focus on your current first choice. You’ve been building a legacy, right? You want it to survive you: you want to pass it on to … Henry? Sarah? Jim? Henry’s the eldest … Sarah’s clearly smarter … and then, of course, there’s George, who’s not of-the-family, but been with the business longer than any of the children and knows all the ropes inside and out.
OK, now listen very carefully: You don’t have to leave it all to Henry just because he’s the eldest – that’s not the world we’re living in anymore. And if the sale of the business, or its future profitability, is how you’re planning to fund your retirement, you’d better make sure you leave the most competent child – or employee or external candidate – in charge. Got it? This is not the time to be sentimental. Make it about the business, not family. Henry will get over it. (Or not. But, hey, that’s his problem.)
Can’t make up your mind between Sarah and George? That’s fine. Train them both. And be honest. Tell each you’ve identified them as a potential candidate for the top job. Those big organizations that have succession planning down to a science? They usually have three candidates in play for any critical position.
Because one might flop and another might leave. Train them both. A little competition will keep them sharp.
After selection comes development. Set up your successor for, well, success. Identify gaps in their skills and knowledge and fill them. Give them the experiences they need. Clearly, the sooner you start this process, the better. “A good succession plan takes up to 10 years,” says Bird. “I wouldn’t want one to take 10 years,” he adds, but longer is generally better. As a stellar example of how to do it right, he holds up the CEO who, as soon as she comes into a job, is aware that part of her job is to identify, from day one, who is going to take over that role when she’s ready to exit. You, my friend, should be doing the same. Because even if you’re planning to never, ever retire – one day you will die. There’s no getting away from that.
Finally comes the toughest part of the process. Transition. Make the announcement: as of November 1, George is in charge. OK, that’s easy. Done. You know what’s hard? This: get out of the way. “The best successions are the ones when the new person takes over and the previous CEO or owner steps out of the role and of the business entirely,” says Bird.
“Be there to help if they ask, sure, but don’t get in the way.” For heaven’s sake, don’t come into the office. Just don’t. Your shareholders will thank you.
So, initiate, select, develop and transition. Start today. And hopefully when you’re ready to exit, your heir will be ready to step in. And if she’s not – well, there are other options. Auctions, takeovers, liquidations. But if you plan well, odds are your succession will go mostly according to your plan. At stake is your future financial well-being. So put in the work, will you?
Our experts recommend:
- Looking to raise your exporting game? Family business? Check out Thomas Deans’ Every Family’s Business at www.everyfamiliesbusiness.com
- For hands-on tools – and some scary statistics about how many small successions fail – check out the Canadian Federation of Independent Business website at www.cfib-fcei.ca. Look for Building a Succession Plan and Research Report: Passing the Business to the Next Generation.
- You’ll also find great succession planning chapters in: The Great Workplace: how to build it, how to keep it, and why it matters (2011) by Michael Burchell and Jennifer Robin and Culture Connection: how developing a winning culture will give your organization a competitive advantage (2012) by Marty Parker.
Good to Know:
According to Coaching for Leadership (2012) by Marshall Goldsmith, Laurence Lyons, and Sarah McArthur:
- One in three leaders brought into these roles from other organizations were not successful in meeting organizational expectations by the two-year mark.
- One in five leaders promoted to the top from within failed to meet their organization’s criteria for successful performance within two years.
- 73 per cent of survey participants listed interpersonal and leadership skills as a significant factor in executive under-performance. For one in three respondents, it was listed as the most important factor.