Blog

WHO’S NEXT?

If you are the founder of a closely held business, what do you think the chances are that your business will survive into the next generation?  The answer is only about 1 in 3 or 4.  In other words, fewer than 30% of small businesses survive into the second generation, and it gets worse.  The chances of your firm surviving into the grandchildren’s generation are fewer than 1 in 7!  

 The sad fact is that closely held businesses fail at a much greater rate than other kinds of businesses.  The primary reason they fail, after having operated successfully under the first owner, is that they don’t make a successful transition to the next owner.  Otherwise savvy, successful business owners consistently jeopardize both the stability and the permanence of their firms by neglecting to attend to a most basic strategic concern – planning for succession. 

 Succession planning in the private sector can be defined as the deliberate actions taken by today’s ownership of a firm to ensure sound, competent leadership in the firm’s future.  About 40% of all businesses in America do not have a succession plan.  The result is a business environment with much more instability and monetary risk than is necessary.

 Succession planning is not rocket science.  It is eminently rational and something most business owners and top executives can do with the same skill they display in guiding their organization through any kind of strategic process.  While it may be necessary to bring in an outsider to help with the analysis and facilitate the process, the steps in succession planning are very straightforward.

 Whether you’re replacing the chief executive or a principal department head, the process essentially is the same:

 First, determine the kinds of skills and abilities one needs to run the organization.  Next, take a look at who you already have on board and compare their talents, skills, and potential against your list.  Any of those that pass muster go into the successor candidate pool.  At this point, you may decide that you need to go outside to recruit better candidates.  Assuming you have done a sufficiently thorough analysis of the talents required to do the job, you should be able to attract solid candidates.

 Once you’ve identified your pool of likely candidates, you subject them to a formal assessment of their knowledge, skills, and abilities and give them actual tasks and assignments based on what it takes to do the job.  Keep in mind the assessment period can go on for some time.  You don’t need to force a choice.  It is not necessary that the ideal candidate actually possesses all of the skills and abilities you require at that moment, but she or he must have the ability to obtain those.  If you start early enough, you have the luxury of making a deliberate decision after a reasonable period of development. 

 A final point:  proper succession planning and transition require a multi-year commitment.  If you are an owner or top executive contemplating retiring or starting to gradually pull back, you are at least 3 years too early if you have no succession plan in place.