HAVING A SOLID ROADMAP MAY MAKE THE DIFFERENCE BETWEEN SURVIVAL AND EXTINCTION
To choose a successor to its superstar CEO Jack Welch, GE spent five years interviewing and assessing candidates. Company planning for the changeover took many more years and involved huge teams of internal staff and external advisors. Succession planning is built into strategic planning at most large companies and is considered almost as important to company success as product and marketing strategy.
Even if your business is a far cry from a Fortune 500 organization, you can learn from these behemoths. Solid succession planning — creating a roadmap for how you will find, prepare and hand off your company to others — can mean the difference between survival and extinction of the company you've worked so hard to build.
Use these lessons from your larger counterparts to create an effective succession plan.
Consider it part of business planning
Some experts say succession planning should start the day a company is founded. Most organizations don't take this approach, but sophisticated larger companies do integrate succession planning into their strategic planning. These companies understand that good succession planning is essential to company longevity.
For smaller businesses, a succession plan is also often a key part of securing the founder's or owner's future retirement. Add succession planning into your strategic planning process to ensure it gets regular attention. By coupling it with a process already in place, you are most likely to stick with it. Assign this task to someone on your staff so the process has an owner.
Include others in the process
Succession planning should be a team effort. At larger companies, it may involve human resources, finance and senior management. As owner, you should provide input on the process and shape the vision, but you should not be solely responsible for succession planning. While smaller companies obviously don't have the same bench strength as large ones, they can rely on staff, board members, attorneys, financial advisors and bankers to gain perspective and keep the process moving forward.
Develop a long list of potential candidates
While it isn't easy in any company to devise a list of high potential people to take over important positions, large companies push their organizations to try. In smaller companies, assumptions about succession may cut short, or eliminate altogether, the deliberation on who is best to lead the company. These businesses tend to turn to family or staff for succession and stop there.
Instead of limiting yourself to the people who are available, push yourself to consider a profile of the person or people who will be best suited to run your company when you move on. The goal is to find the best candidate for the job, even if you don't have that person in mind at the start.
Have a good sense of financials
In closely-held businesses financials can take a back seat to other considerations, such as familiarity with a candidate. However, the goal of a succession plan is to ensure the ongoing well-being of a company. This means financial fundamentals — revenues, growth estimates, profitability, investment plans and other key financial details — should be front and center when succession planning is under way. It is important to seek legal and financial planning advice to assess the proper valuation of your company. A qualified business appraiser should be a central part of the process.
Effective succession planning provides you and your replacement candidate with a clear picture of your company's finances and a roadmap of the company's future.
Your accountant and financial planner can help you balance your personal financial needs and the needs of the company and its stakeholders.
Know emergencies happen
Large organizations are typically better than smaller ones at planning for unseen emergencies. Therefore, they do succession planning in a variety of scenarios. They realize that CEOs may leave without warning, have health or legal issues, or face other challenges.
In a smaller business, when you are finding your replacement it can be difficult to accept that unforeseen circumstances may arise. Health issues or other developments arise without warning. With this in mind, the succession planning process should start many years in advance of your planned departure. The earlier you start thinking about it, the more likely you are to have a plan in place that meets your objectives.