What is Succession?
Your succession plan should be in your startup business plan. It should be as bulletproof as possible, enabling business continuance in emergencies. Have you considered who can take over the reins if the CEO was to leave tomorrow? Succession Planning should be planned with two frames: A short-term emergency frame and a medium to long term plan.
Does your company have a living document for succession planning? Is it refreshed to take into consideration changes in market conditions or strategy?
Everything you do communicates what you really value, regardless of what you say you value. The key is the plan and the action.
A bird in the hand is worth two in the bush
This goes for selling your business too. Money up front is worth more to you than the possibility of money in the future. Put yourself in the buyer’s position. The buyer wants to get the benefit of owning the business without having to pay for it. Too often we see business owners seduced by the value of an earn out that the buyer has no intention of paying.
Protect the value of your investment
The more you stay involved, the more you can protect the value of your investment. This may be the shares that you still own, the value of your earn-out or your vendor loan. You need to retain control if you have money on the table.
Take your time
If you are not selling out entirely (with all money up front), the choice of people you go into business with is paramount. Take your time. Be ruthless. Get an independent view. If they are employees, do psychometric testing and do your due diligence. If possible, have a get-out clause if it does not work out.
De-Risking your investment
Your succession plan may involve merging your business with another one. This may result in you owning a smaller piece of a larger pie. Often this is a great chance to de-risk your investment. But it makes it more important than ever to choose your partners wisely.
Tend to focus on "tangible"
As lawyers and accountants, we tend to focus on the tangible. This is usually money. But there may be things that are also important to you. This may include being the face of the company, having an office or another honorary role. These give you a sense of purpose after you transfer the business. Think of the Mad Butcher.
How to achieve good results and what to watch out for
Getting it Wrong
Not having a plan
Frittering the money away
Chasing the highest price
Working for free
Leaving it too late
Selling in distress
Adding values by getting it right
Money up front vs earn out
Choosing the right partners
Smaller piece of a bigger pie
Non- financial rewards
Succession does not have to mean selling
Everyone acts in their own self-interest
Talk it over with your partner/family
There are no tricks of the trade, success is built on good planning, execution and hard work
It will take longer and cost more than you think
Be prepared to negotiate and compromise
Have a plan B (the next best option)
5 Steps to successful Succession
Step 1: Engage the Stakeholders
Engagement of a board in establishing criteria for succession planning creates buy-in and alignment from a panel who will select the next leader. They lead this process to ensure a dashboard for objectively measuring successional candidates. Ongoing review will be the difference in managing a crisis effectively. There is no such thing as a “ready now” candidate. If you have no board then The Engine can work with you through this process.
Step 2: Internal Successors
Your living document should detail the competencies and experiences required for your next leader. As outlined above, this will be reviewed and updated with any change in marketing conditions or strategy. If you have various layers of management, review each layer. Do not create favourites and start a destructive horse race. External assessment is essential and quite often dark horses emerge when you look deeper than the first layer. The Engine is well aware that employees lack in-depth business experience. With this in mind, we have established a ten week New Business 101 course. We know it’s the best investment you could make. Whether it be for succession now or to provide a key-person help.
It may become clear there are no internal candidates that fit the succession criteria. This is an obvious risk for the Company and a plan for recruitment and development needs to be put into play. The Engine’s New Business 101 course is generating talent. If you don’t have someone internally, we may have the right person for you to transition into your business. The Engine develops leadership capacity and prepares executives for transition into leadership. Funding may be available to you for this course.
Step 3: Set up the stimuli
Practice makes perfect in anything we do and that is the same in executing a succession plan. Step 2 identifies finding your successor. Either internally (and providing them with the best platform in-depth knowledge in running a business) or through The Engine’s profiled leaders seeking transitioning or new business opportunities. Establishing an emergency plan, wherein reins are required to be taken over will assess the viability of your successor in such conditions. This will help determine what further mentoring is required. The Engine provides the perfect platform to ensure your successor has the right support. Allowing you to concentrate on your business. There is no doubt a proven capable successor reduces the risk of the transition when it comes time to do so.
Step 4: On-board the successor
There’s a saying that a ‘ready now‘ candidate is a fool’s errand. All successors have learning to do and mistakes to recover from. When identifying and naming a successor, crucial support must be provided. This means a good team, wise and accessible mentors, executive coaching and continuous feedback. This creates an environment in which the new CEO can be the most effective.
Step 5: Board
The Board must play an important role in succession planning. Honest jury-style external evaluation and a system to develop a rich talent pipeline are two of the areas where board members can make a difference. In this effort, directors have to remember: the search for their ‘similar‘ means identifying what is most critical. This means refocusing the successor on the moving target of the knowledge, skills, and abilities the next CEO will need to lead. We at The Engine can be your external board. We have a rich talent pipeline growing across all sectors.
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