Finding and selecting a successor can be one of the most challenging tasks a business owner will face. The process is especially challenging because many strategic and human relations issues must be addressed and resolved. When it comes to finding an individual to replace an owner, you’re basically left with two choices – find someone internally or find someone externally.
Selecting an Internal Successor
Interpersonal dynamics create many unanticipated challenges for business owners, particularly if there is more than one possible successor. It may be difficult to accurately evaluate their strengths and weaknesses since you have developed personal relationships (i.e., friendships) with them over the years. And when the reins are inevitably passed on, consoling those that weren’t selected may be extremely unpleasant.
The next generation faces problems of its own. Due to tenure and loyalty, they may consider leadership and equity ownership a right which can lead to disappointment if it never comes to fruition. In addition, some individuals dislike taking orders from “promoted” colleagues because they see the successor(s) as a peer and not a boss.
Selecting an External Successor
If there’s no one internally (or in the family) to take over the business, you’ll need to look elsewhere. Recruiting is a viable option to accomplish this objective and you should use a variety of sources to find the best qualified candidates. Local colleges and universities are also a prime source for future recruits, especially if you offer internship opportunities. Networking is typically key for this initiative but it’s important to note that this strategy tends to take longer to realize, so allow yourself plenty of time. Don’t forget, an external sale of the business can facilitate this transition too – finding a continuity partner for death or disability should be your primary objective if there are no potential internal successors.
Identifying your Successor
Sometimes the appropriate choice is obvious, but often it’s not. An initial choice for successor may not want the job – or may not be right for the job (being a good employee doesn’t necessarily mean they’ll be a good owner). To truly identify a qualified successor, first identify the skills that your successor needs to have in order to run the business (hint: visit our worksheet section for resources). After you’ve found candidates with the necessary skills, establish an open dialogue to determine what they really want. The goal is to have candidates pursue their true passions, not have them accept the candidacy because they feel it is what you want them to do.
Developing the Successor
In a well-executed succession plan, the successor is chosen well ahead of your departure. If properly planned and carried out, this naturally provides an opportunity for the successor to shadow you, enabling them to gradually be exposed to and involved with all aspects of the business. At this stage, you should assume the role of mentor, ensuring that the identified successor is well prepared to take over. The transfer of key knowledge about the company, finances, clients, products, suppliers, service, etc. is critically important to ensure not only the success of the successor, but the success of the business as well.
Timing the Takeover of the Successor
As with any major event, timing is everything. This is particularly true with timing the successor’s taking of the reins. All announcements and introductions should be determined in advance and in order of priority. It is critically important to assure potentially wary clients that the business will continue to operate and deliver products and services as usual. Integrating succession with the strategic goals of the organization and following a process for the timing of the takeover will improve the chances of orchestrating a successful transition.
Asking the Right Questions
Companies that perpetuate successfully into the future are those that operate like a business, no matter who owns it. You can prepare for succession planning by answering the following questions.
- Is the business dependent on the current management team?
- Is there a training plan for successors?
- Are there predetermined criteria for selecting the successor?
- Are there adequate safety nets to reduce the effects of potential mistakes made by the successor?
- Is there a contingency plan?
- Is there a timeline for handing over control?
- Are career paths for other employees mapped out?
- Does the business have the right skill base in the new management team; what gaps need filling?
- What will the owner’s role be after retirement? How about the role of potential heirs?
Conclusion
Selecting a successor is a task unlike any other faced by a privately held business. It’s not unusual for an owner to be concerned about how the business will survive if they are not present. In the face of these concerns, emotions may outweigh the ability to make rational and pragmatic decisions – or in the worst case, no decision at all. For these reasons, it is essential to plan for succession early to manage these issues as part of a process and not at the time of an event.
