An Approach to Succession Planning: How Long Are You Going to Wait?
As any entrepreneur will tell you, running a business can be a daunting and all-encompassing task. Handling the day to day responsibilities, while managing the short and long-term goals of the company, will often leave the owner, or owners, with a full plate. It’s not surprising then that devising and implementing a comprehensive succession plan is an oft-overlooked aspect of company management.
I urge everyone to remember that nothing is forever.
People in important leadership positions, including the principals themselves, will eventually move on, creating a challenge for the company. In order to avoid a potentially crippling scenario, well-managed companies will create and sustain a succession plan to deal with all possible scenarios.
Once you have established a timeline for a succession plan, there are two main options for legal structuring
You will need to consider the legal structure moving forward. Are you going to own it and transfer control to a new operator? If so, you need to start preparing to truly give them the reigns. One thing we see a lot is an owner having difficulty giving up control, often overriding their decisions. Accept that things are going to change.
The other option is to sell your shares, which could be to your employees or another company. You will still need a long term plan to organize the company and clean up the financials, as well as integrating a new manager.
How do you decide to promote from within or hire from outside to complete your succession plan?
Managing human resources within your business is not that different than managing the players on a professional sports franchise. On opening-day you field the team you believe is most competitive. Then, of course, something unexpected happens and you’re left looking for a replacement. Just as the sports manager must weigh the options of elevating a bench player versus acquiring a replacement from elsewhere, the business manager must choose between promoting from within the company, or hiring from outside. Each approach has its pros and cons, and a careful analysis of the situation is in order before deciding which way to proceed.
Promoting from within can be a sound solution if a good candidate is readily available and expendable in their current position, and if the timeline is relaxed enough to allow for their proper development.
In order to successfully promote from within, a company must have a system in place for evaluating the skills and aptitudes of its employees. This system should be formalized and ongoing, always identifying and analysing the talent inside the company. While specific skills can be taught, aptitude is often innate, and a good review of human resources must be able to pick up on these assets. Of course, simply spotting talent is not enough. A process must be put in place to nurture and develop these talents, actively grooming them for bigger and better things down the line.
An outside hire may be preferable in other situations. Often times a well-qualified external candidate may be available, who is able to hit the ground running on day one. If time is of the essence, and nobody internally has been groomed for the position, it’s often best to make an outside hire. Bringing somebody in may require a learning curve, as far as corporate culture and process is concerned. On the other side of this coin, it can be an opportunity to inject a fresh perspective into the company.
Hiring from outside the company has other advantages as well. Promoting from within the company necessarily means removing somebody from their current role. While this can be a powerful motivator for the workforce, it creates another hole to fill, which may or may not represent a problem. Bringing in an outside recruit alleviates the need to disrupt other positions.
Regardless of whether the situation calls for an internal promotion or an external recruit, planning ahead is the key to avoid being caught flat-footed.
A good succession process involves foresight and planning. Often it’s useful to have external resources like a recruitment firm to help evaluate the workforce and scout the talent pool. Forward planning will also prove beneficial after the hire has been made. Companies that have taken the time to develop, and maintain, a good on-boarding process will find smoother transitions the norm.
“A good hire can inject new ideas and energy into a company, without upsetting the day to day operations of the company. in order to achieve this, a formalized transfer of positional knowledge and company policy is invaluable.”
The truth is that company restructuring is an inevitability. The four Ds (death, disability, divorce, departure) ensure that everybody will one day leave the company. Careful planning helps companies maximize the value of their business in the event of a sale, minimize the vulnerability of the company in the event of a departure, and avoid conflict and confusion when one or more of the ownership wish to exit the business. As the saying goes, ‘those who fail to plan must plan to fail.’ Succession planning is certainly no exception.