Part one: Why do I need a plan?
Although much has been written about succession planning in large corporations, it is equally important for entrepreneurial companies and family businesses. Without a succession plan, leaders put their companies at risk when they leave, move to another position, or retire.
Why bother if it’s my company, and I don’t plan to leave?
Some founders think of the company as an extension of themselves and cannot fathom why they would need to undertake succession planning. They think that they and the company are one, and they “plan to run the company for as long as it’s fun.” Apparently, these founders don’t understand that the company is a separate legal entity with its own ABN, and as shareholders/directors they are responsible for acting in good faith and doing what’s in the best interest of the company. None of us knows how long we’re going to live, or when the trials and tribulations of running a company are no longer “fun”, so planning for “life after the founder” is definitely in the best interest of the company.
Unlike large corporations with people, products, systems, and sales momentum, entrepreneurial companies are often dependent on the founder for vision, products, sales, and leadership. If something happens to him or her, the company can suffer a fatal blow. A succession plan enables the company to continue running, and mitigates the risk of a CEO being its “single point of failure”.
Founders may worry that developing a succession plan signals they are concerned about their mortality and would rather be “positive.” But just as writing a will to protect your partner and children does not move forward the date of your death, neither does succession planning signal that your “use by date” is fast approaching. In fact, it demonstrates the exact opposite – that you recognise the importance of being proactive and planning for your company’s inevitable transitions – before it’s too late.
Succession planning in family business
A family business without a succession plan is even more vulnerable. Many parents have no formal business training and are often “unconscious competents.” Whatever they have done has enabled the company to get to this point, but they don’t know or can’t explain their decision rules, and so their sons and daughters haven’t learnt what to do, when, why and in what order.
Add to that the need to make choices about which daughter, son or nephew is the best person to lead the family business going forward; who should report to whom; whether all family members sit on the board with equal voting rights; when outsiders should be brought into the business; and why family members need to be measured by the same performance and values expectations as other employees – and succession planning becomes absolutely essential for the survival of the business – long before mum or dad face any health conditions or want to retire.
Not all sons and daughters want to work in the family business, and parents should respect that. But those who do need to understand that leading a family business is not a right, but a responsibility. The health and future growth of the company depends on the next generation being properly prepared, as successors, to take over the leadership roles and responsibilities of the company.
As any company grows, there’s a premium on learning to delegate, handing off old roles and taking on the new ones associated with the next stage of growth. This never-ending process requires that all managers, not just the CEO, develop a succession plan that identifies future staffing needs, assesses each person’s professional development needs vis a vis the company’s needs, creates professional development plans, measures performance, coaches and educates, promotes, terminates, recruits as needed – and repeats the process.
In part two, I’ll look at the steps you’ll need to take in order to develop your own succession plan.
Jana Matthews is the ANZ Chair in Business Growth, Professor, and Director of the Australian Centre for Business Grow that the University of South Australia’s Business School. She has a doctorate from Harvard, has founded five companies, and was on the founding team of the Kauffman Foundation’s Centre for Entrepreneurial Leadership. Matthews is internationally recognized as an expert on entrepreneurial leadership and business growth, has written eight books, and has designed award-winning programs that teach CEO’s and executives how to lead and manage growth. In 2018 AFR identified her as one of the 100 Most Influential Women in Australia.