Team Solutions: Succession Planning – Not As Simple As It Seems, Part 2

This is part 2 in a two-part series on the importance of succession planning. Part 1 is available here.

In part 1 of this two-part article series, we started talking about the succession planning process. It appears to be a very simple thing to do but, in reality, building a succession plan is a very complex exercise that requires an immense amount of practice and preparation. We broke it down by defining five major areas and related action steps that must be addressed when forming a succession plan. The first categories we discussed were:  anticipation (the motivation for planning succession) and selection (selecting your successor).

In this article, we’ll dive into the three remaining areas:  Delegation (empowerment and training), Orientation (evaluation of your business’s health) and Transition (leaving well with a leadership legacy).

Have I practiced delegation by developing other leaders as well as empowering my successor with operational authority? The next step is delegation. Delegation is a discipline and a skill practiced by leader who wants to multiply their efforts and effectiveness through the efforts of other. It is a practice that must proceed your exiting the business and the new leader must be able to be doing eighty percent of your job two years before you leave the company. This insures sufficient time for testing training and team building in preparation for your exit. Delegation is not merely dumping meaningless jobs but rather strategically empowering your successor to cumulatively achieve success in core areas of competencies.

The next action step is empowerment. Empowerment is literally positively promoting your successor to lead at the highest levels of the organization when you are still operationally in command. This is not just a short term experiment. It is both substantive operationally and symbolic positionlly for the new leader and the entire team and work force. Empowerment is your vote of confidence and is the vital training link that allows for a smooth transition both internally and externally for your business success.

  • ACTION STEP FIVE:  Practice disciplined delegation. Have I delegated to the next leader?
  • ACTION STEP SIX:  Model Strategic Empowerment. Have I modeled empowerment?

Do you know clearly the health of your business and the fair market value of your business if you were to sell it? Is your business healthy enough to meet your succession plan time line? Is the business financial model sustainable for your exit and the business future success?

Many small businesses that are successful have succeeded because of herculean efforts of the owner, who is often the owner-operator. Because the business and the owner have an intricate and sometimes complicated arrangement in attempting to appraise the business’s health and viability apart from the present owner may be difficult to quantify. Action step seven requires a reality check regarding your business profitability and your time line projections. Do not overestimate the potential growth of your business with a hypothetical financial projection, but rather a reality check of the past performance of the business. The bottom line question you need to ask is: Is your business healthy and what it is worth if were to be sold on the open market? I recommend an outside objective business appraiser to fix a selling price upon the value. This creates a benchmark for assessing your financial goals.

The next action step is to know your business model and your business cycle. You must have crystal clear understanding of your profitability, your business model, and the products that are you primary profit centers. Businesses, like people, go through seasons of change and expansion and recession. Many businesses have seasonal fluctuations that are predictable. It is crucial that you clearly understand any variables regarding your business profitability, your business model, and any aberrations or anomalies. You must include your successor in all these details as you prepare to exit. It is also critical that your name and your symbolic blessing help your business succeed for your customers and your work force to be retained as you leave for its future success.

  • ACTION STEP SEVEN:  Clarify reality. Do you know the health and the worth of your business?
  • ACTION STEP EIGHT:  Prepare for sustainability. Do you know your business model, profit centers, and customers for retention preparation?

Do you know what your compensation arrangement will be with your successor? Have you decided what your relationship will be with the business operations when you leave?

The next action step, step nine, is to know exactly what the financial arrangement will be as you prepare to leave. As someone once said, “friends are friends until there is money on the table.” The same can be said about family and money as well. How many families have been hurt with inheritance issues? The business must be provided with enough capital to thrive when you leave. The negotiations regarding the compensation package regarding the amount, the timing, the mutually approved vehicle of compensation, and the payout must all be clearly stated and mutually agreed long before you exit the company. The planning process must include the owner who is leaving, the new leaders and the needs of the entire company.

Action step ten is your relationship to the business operations as you exit. It can be difficult to leave, or there may be feelings of intrusion if the former owner does not respect the boundaries of the new leader. It is doubly difficult for a family business. Have you had candid conversations about what is helpful and what may be harmful regarding the former owners’ presence in day-to-day operations? Jack Welch said“companies that lack candor sow the seeds of their own demise.” Is there a mutual understanding between the former leader and the new leader of what your relationship will be with any aspect of the operations in the future? If you are to be involved perhaps as a consultant or coach or even a salesman make sure you and your team know how things are to operate. Remember old patterns are hard to break. Nine out of ten men shave their faces with the same pattern every day. The former owner can become a vital link for future effectiveness or become the elephant in the room for business operational dysfunction.

  • ACTION STEP NINE:  Agreement on compensation. What is your compensation agreement?
  • ACTION STEP TEN:  Clarify your relationship. What will your relationship be with the new owner and operations are when you leave?

Keep running your race and finish well. The baton is not impossible to pass off if you are prepared and concentrate on both running and most importantly passing off the baton to the next leader when it’s time to go. Hold on strong and remember to let go at just the right time. Also when it’s time to let it go, let it go, let it go, let it go. There is no turning back. As a friend of mine, Gary Kinnaman, said “when your keys fall into a stream of molten lava, let them go!“

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