This is part 1 in a two-part series on the importance of succession planning. Part 2 will be published in the June issue of the Grandy & Associates newsletter.
What could be easier than passing a small stick to another person?
Then why have the Unites States men and women’s track teams composed of elite athletes failed to win the Olympics in 2004 and 2008? They dropped the baton repeatedly. Some things that appear to be very simple are not simple at all. The passing of the baton in track races is a complicated and intricately connected transition process that requires planning, timing, communication, team work and preparation.
The same is true about succession planning. It appears to be very simple, but in reality is a very complex exercise that requires an immense amount of practice and preparation. The United States Olympic teams needed to hire a professional coach just to focus on the handoff. Are you prepared for the handoff off of succession planning in your business? Don’t drop the baton. Don’t underestimate the complexities involved in what seems a simple handoff.
How long do you want to continue to lead your business, and have you determined the day you will move on and pass your leadership to another person to lead your company? Have you given serious thought, planning, and preparation for the next chapter of your life? Have you prepared your successor to replace you? Will you keep your customer’s loyalty and continue to provide the same level of service to them when you are gone? Will you keep your team and your work force moving together as you exit the business? Will you need income from the business in the future? Will you be utilizing a family member to replace you as the leader? Are there other family members who want the position? Do you have clear metrics for their responsibilities and job competencies? Will this create family conflicts?
These are just a few of the questions that need consideration.
You may be thinking, “Stop, there are just too many things to think about!” You may be saying, “I just want to retire and leave and let the business continue to function without me.” You wish it were just that simple, but it is not. You may now realize that succession planning is similar to the exchange of runners in an athletic contest, it’s not as simple as one may think.
The race is won or lost in the passing of the baton; the exchange makes all the difference. Practice, preparation, communication and teamwork are essential components of the succession process. You may even need a coach for some part of your preparation in the planning and training, and preparation. The question I am often asked is where does one start the process and which component of the process is most critical? The most critical person in the process is you. You are the leader of the business and you must take the initiative to start the process as early as possible. Time and clarity are your friends when you start your succession of planning the process. Don’t wait until you are forced to retire because of health reasons or external pressures start the process now. It is extremely helpful for you to be crystal clear about the timing and your expectations of your outcomes in your planning process.
My grandfather used to say there are only two kinds of people in the world. One kind says: “tell me how to do it and I will get it done.” The other group says “I want to do it, but I do not know how to do it.” Take a moment now and ask yourself this question: do I need more motivation or do I need more education? Succession planning requires a high degree of focused motivation in that it must be sustained over a long duration of time. Succession planning also requires a solid working knowledge of change process management, communication, leadership selection, delegation and strategic planning and working knowledge of compensation models, tax incentives and liabilities and legal issues.
What is succession planning exactly and where do I start? I am glad you asked; I will define some basic terms and then address a simple process.
This simple process is focused on succession planning. It will help frame the process if you understand the terms that we are using. There is a difference between a personal exit strategy, a leadership transition plan, and a comprehensive succession plan. A personal exit strategy is simply your plan for you to leave the business, while a leadership transition plan focused only upon the successor of the business.
I want to address the planning process by making it as simple as possible by providing five major areas that you need to address if you want to be successful. I realize there are many things outside your control, but a planning process is a great start to move in the intended direction with an end goal with clear outcomes. It may be simple in some ways but is not simplistic.
I will define the five major areas with two critical questions that lead to two action steps that must be addressed to start to form a succession plan. They five categories include: Anticipation (the motivation for planning succession), Selection (selecting your successor), Delegation (empowerment and training), Orientation (evaluation of your business’s health) and Transition (leaving well with a leadership legacy).
Why Succession Planning? The two most critical natural resources that you possess beyond your physical health are time and money. How often you have heard people say “You can’t buy more time with money,” or “If I only had more money I wouldn’t have to spend so much time working”? The first two steps in succession planning are to determine when you want to exit the business, and how much money you need to take with you. Time is more important than money, so this is step one. Determine the time frame for when you no longer want to be working full time as the primary leader or owner-operator of your business. Determine the end date of your present role and stay focused on that date.
The next step is to determine the exact amount of money you will take from the business, and how much you will leave behind. Business owners often wait too long to determine how much they will take out of the business and are not prepared to retire. This determination can create tension with the new owner, particularly if the new owner is a family member. Often I recommend an independent business appraiser to appraise the financial worth of a business as the owner exits from the company.
- ACTION STEP ONE: Determine the timing. When will I leave the business?
- ACTION STEP TWO: Decide the financial. How much will I take from the business?
Who will be leading the business when I exit? Jim Collins has clearly stated that “the single greatest factor that will guarantee the success or failure of your business is the selection, preparation and placement of the next leader. “ The next action step is to create a clear profile for the successor of the business. Small businesses and family businesses often neglect due diligence when selecting the next leader. Do you have a clear profile of what it actually takes to do the job of the senior leader of the company? Is it in writing, and is it comprehensive? Does it include both the operational and leadership competencies associated with the role? Would you hire the person within the company who does not have all the competencies needed to do the job just because they are an internal candidate or a family member?
The next action step is to qualify your successor with clear metrics that you have quantified, and test the potential candidate against these metrics. I use DISC assessments to test the potential new leader’s motivation, behaviors, and job competencies. This allows me to test the person against the job with a job benchmarking system. You must know clearly if the person can do the job before you place them in a position of leadership.
- ACTION STEP THREE: Select the criteria. Do I have clear leadership profile for my successor?
- ACTION STEP FOUR: Prequalify your successor. Have I assessed my successor with objective metrics?
Next month, we’ll look at the remaining three categories of consideration for your succession plan. Until then, please don’t hesitate to contact us if you have any questions about these initial action steps talked about here.