In a conversation with a small business CEO about his company’s succession plan, the CEO stated that one had yet to be put in place. As a CEO in a company where people perform many roles in a day, his time is stretched dealing with today’s business priorities and thinking about the future is something left to ponder late at night. This situation is not an isolated case. Various studies and executive reports have found that a majority of companies do not have succession plans. A BMO report research identified 58% of Canada’s small businesses as not having succession plans in place while a Korn/Ferry Executive Survey found 65% of top companies do not have a CEO succession plan. It is clear that both small and large businesses are struggling with creating succession plans to ensure a company’s leadership transition is smooth and uninterrupted.
I find the absence of leadership succession plans interesting since most leaders are Baby Boomers who are or will be contemplating leaving the work force soon, which will have an impact on their company regardless of its size. This situation is more critical for smaller businesses where the leader is the owner/operator and their leadership team is not large. The succession planning process is similar for both small and large businesses but the reasons for creating a succession plan are different. Large companies want to find the best leaders and have a smooth transition while smaller companies are interested in either finding a successor, or transferring ownership or selling the business.
Looking at the aforementioned statistics, we can conclude that there is limited action being taken concerning succession planning. A TD Waterhouse study found that the top two reasons for not having a succession plan were:
- One was still in the process of being formulated, and
- CEO’s have just not gotten around to creating a succession plan.
These reasons suggest small business leaders are spending most of their time working IN their business rather than working ON their business.
I personally believe that small business owners should take action now to address a key question: “Who will take over the business when I leave?” This succession planning issue becomes more complex as the business grows and leadership and equity questions become important to the owner/operator and their family.
The company’s business strategy drives the outcome of the succession plan but for a small business, the personal aspects for their future are also key considerations. To be prepared for the future, a CEO/Owner needs to spend time answering questions such as the following:
- Do I want to quit working completely?
- What do I want to do when I am no longer in or running the business?
- What I am passionate about?
- What do I want for my staff and people?
- What do I do if I have a health issue or emergency?
With answers to the above questions, a CEO/Owner can create goals for both themselves and the company which will shape the company’s succession plan. Small businesses have more options available to them beyond ensuring a smooth, uninterrupted transfer of the company leadership. By creating the business strategy with a succession plan, CEO/Owners’ will have a positive, engaging impact on the business and its staff.
Steps that the CEO/Owner can take right now are to:
- Evaluate their situation (answering the above questions and others) and set their goals,
- Seek independent advice and support either through a Board of Directors/Advisors or independent management expertise,
- Formulate a business strategy, and
- Create a succession plan.
The succession plan should answer these questions:
- What are the critical roles and positions required to achieve business success?
- What are the core competencies and skills required by people taking on these critical roles and positions?
- Do we have internal candidates for these roles and responsibilities now and in the future or do we need to look outside the company?
- What leadership development needs do these candidates need now and in the future?
These succession planning questions are necessary for any company to answer, regardless of their size. What you do with the answers and the action you take will have an impact on your company’s sustainability, leadership capacity and value.
I recommend you start formulating your succession plan now and take action, regardless of whether you are just starting a company or have been in operation for years. You need to start thinking about what is next for your business. The work you do analyzing your situation and creating a succession plan will prepare you to deal with any unforeseen situations or opportunities that come knocking on your door.