Strengthen Your Business With Strategic Succession Planning

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Nearly two-thirds of family-owned businesses don’t have a succession plan, according to data from employee ownership platform Teamshares. Statistics like | SUCCESS

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Nearly two-thirds of family-owned businesses don’t have a succession plan, according to data from employee ownership platform Teamshares. Statistics like these represent a crack in the foundation of business ownership: owners—and critical employees—aren’t ready to have someone take over their roles.

“One of the biggest risks to the growth of privately held companies is owner dependency. As Peter Drucker once said, ‘Entrepreneurial management in a new venture requires building a top management team long before the new venture actually needs one and long before it can actually afford one,’” says Laurie Barkman, adjunct professor at Carnegie Mellon University Tepper School of Business. Barkman, fittingly, is also author of a handbook on business succession planning: The Business Transition Handbook: How to Avoid Succession Pitfalls and Create Valuable Exit Options.

Succession planning can feel overwhelming at first and understandably so. You might have never thought about handing over the reins to someone else to manage your corporate steed, but it’s not as complicated as it sounds. We’ll go over the basics of succession planning and the five steps every plan should include. Plus, we’ll give you some actionable templates to start the succession process yourself.

Succession planning is preparing a role—and the person who will fill it—to be transferred due to a key business leader retiring or leaving the company. This only applies with critical roles. These might include C-suite positions, vice-president roles, key managerial positions or the owner/operator of a company. Succession planning is different from other types of strategic planning because it doesn’t focus on a goal but on preparing for an event. It’s a form of contingency planning.

A successor plan is key to making sure your business has long-term success and continuity. Without a plan to fill a vacant role with a properly trained person, you could be left scrambling if a critical employee leaves the business at an inopportune time. Filling the role quickly with someone that can scrape by doesn’t solve the problems a vacant position creates, either. It could exacerbate them.

Proper succession planning, instead, creates an environment where staff are expected to lean into more demanding and fulfilling roles with the proper training and oversight. It allows for insightful knowledge transfer to occur between senior employees and up-and-coming staff. This happens with the expectation that the knowledge will be used in the future. The undesirable alternative is that the information is forgotten when the senior employee retires.

The steps to succession planning can feel daunting, especially if you’re a smaller, family-owned business. Thankfully, it can be broken down into five digestible steps: assessment, identification, development, creation and implementation.

Taking the right first step is critical to building a comprehensive succession plan. You’ll need to begin assessing and evaluating your current leadership structure.

Start by identifying gaps or areas for improvement for critical roles. Looking for a key way to determine whether a role is critical to your business’ health? Start by assessing if the role is an essential support in carrying out the business’ mission. For example, if you run a bookkeeping business with a mission to help fellow business owners track their expenses correctly and find savings, then the role of a senior bookkeeper is a key component to fulfilling your mission. Without them, you would lose the ability to service clients.

Not sure where to start looking for leadership needs or potential risks? Begin by creating—or reviewing—your business organizational chart. Then, ask the following questions:

If you find roles that have a high risk of hurting the company if they were to unexpectedly leave or retire, those require a succession plan process. Harrison Tang, co-founder and CEO of the people search engine Spokeo, suggests using continual training to minimize these risks. If someone were to leave at a moment’s notice, someone could step in temporarily. He and his team also use absences to strategically train.

“Additionally, to assess the risks associated with key employees leaving or retiring unexpectedly, we provide individualized training to ensure continuity. When a team member is absent, we use it as an opportunity for stress testing, allowing us to evaluate how well others adapt and step into critical roles,” Tang tells SUCCESS®.

Once you’ve found leadership gaps in your organization, finding potential successors is the next step and, arguably, the harder of the two. This is especially true for smaller, private businesses that have a few key employees necessary for the business to function.

“The number one pitfall for succession is whether the organization needs one person too much. It’s a big reason why many small businesses close their doors when the owner retires,” says Barkman.

That’s why identifying potential successors early on is so important.

To identify potential successors, Barkman recommends using the following criteria:

To help you in your search, here are some helpful templates to get you started.

Investing in your employees should be standard practice in any organization. It’s even more vital when it comes to developing the talent that is key to your succession plan. Create an environment where career growth, training, mentorship and development are staples in the business, not just luxuries.

Leaders in your business can offer courses, workshops, seminars and classes on developing both technical and soft skills so employees can feel more confident in their roles. With the advent of fully online learning programs through platforms like Coursera, this is easy to implement.

In addition to general training, key successors you or your employer identified in step two need to be trained for the role they plan to fill. Consider having the outgoing employee coach the successor through job shadowing. Or, have them create a presentation on the ins-and-outs of the role and how they succeeded. Helping cultivate a relationship between these key team members can also set the stage for mentorship. This in turn builds immense trust between the successor and predecessor.

You’ve highlighted critical areas that need a plan in place, found suitable replacement employees and made efforts to develop their skills. Now it’s time to put that hard-earned information to use by creating a succession plan.

Remember: The process of creating a successor plan is not a one-size-fits-all solution. Each company will have different plans and tactics depending on their size and business needs.

That aside, below are some basic steps you can follow:

While creating the plan, remember that it needs to be clear and accessible to anyone who reads it. They need to understand exactly what is required of them—-and their colleagues—to implement the plan.

Quick Tip: If you’re looking for a more fleshed-out approach, look into the book Who Comes Next? Leadership Succession Planning Made Easy by Mary C. Kelly, Ph.D. and Meredith Elliott Powell, MBA.

Want a few more ideas? Here are some robust succession plan templates to use as a starting point when creating your own plan:

Creating the succession plan requires buy-in from everyone involved. When you’re starting out, communicate the plan to those impacted by it, including stakeholders, employees, potential successors and potential predecessors. For the plan to work, everyone involved—or affected—needs to support it.

While starting off on the right foot is vital, it’s not sufficient to keep the plan on course. For that, you need to continually monitor how the plan is going and create measurable objectives that correspond to your desired timelines.

Broadly speaking, there are two types of goals you should review: quantitative and qualitative. Quantitative metrics for a succession plan might include:

Qualitative metrics are a bit harder to nail down, as they are more subjective in nature. However, they’re still important to measuring success. Here are a few to consider:

Keep in mind that an effective succession plan has goals and objectives that are subject to change. A business is an organic entity, filled with people who have changing desires, goals and aspirations. Your succession plan needs to match those changes and be updated as necessary.

Using templates and advice can improve your succession planning efforts, but three additional steps are needed to keep your plan on track.

Data suggests that it takes anywhere from one to two years for a new employee to be “fully productive” in their new role. That’s one of the reasons you need to be proactive in creating a succession plan—even if you don’t have an immediate need for one. Replacing key employees takes an immense toll on a business that isn’t prepared.

To start being proactive, find key roles in the business—leaders you can’t afford to lose. Then start coming up with ideas on transferring the knowledge from the person currently in that role to someone who could eventually replace them. Keep in mind that not all managerial positions are necessarily critical roles. Longtime employees who have important knowledge of company processes or client information can also be a risk if they were to leave suddenly.

In the long-term, taking a proactive approach can set your business up for a transition that, while uncomfortable in the short-term, allows for strong continuity in its infrastructure.

Though a robust succession plan strategy involves replacing key team members, that doesn’t mean your succession strategy can’t start at the hiring and recruiting stages.

Rather than simply hiring individuals to fill a role, hire people that fit the company’s long-term vision and are flexible enough to adapt to a new change in the future. As a CEO that hires often, Tang takes a “diversified approach” to hiring.

“For example, I evaluate candidates based on a combination of leadership potential, adaptability and alignment with the company’s vision… I look for adaptable, growth-minded individuals and ensure they have clear development paths. Every hire is a step toward long-term leadership stability, not just filling a role.”

The final step to getting your successor strategy on track is to continually invest in your team members. Just like hiring people for long-term success and not merely for role replacement, treat your current employees as long-term assets, too. Give them opportunities to train skills that help them in their current position and prepare them for tasks more aligned with critical roles.

Cross-training can also help employees to be more nimble. This is especially helpful in the context of succession planning in a small business. Let’s say you run a small retail store with a manager, bookkeeper and a customer service person (CSP) who runs the till and helps clients as they come into the store. Training the CSP on aspects of store inventory management or vendor communications can help prepare them for a managerial role, even if the position isn’t expected to be vacant for some time.

Succession planning can be a long process involving identifying critical roles, finding potential successors, training them properly and continually maintaining and updating your succession plan to fit your business’s ever-evolving needs.

While the process might seem daunting at first glance, starting early allows you to approach a successor plan in small pieces—starting with critical role identification and then moving into implementation down the road.

Maybe succession planning in your business hasn’t occurred to you before you read this article, and now you’re scrambling for ideas. Or perhaps you’ve realized you’ve been putting it off for too long now that an employee has given their resignation. Whatever your situation, working on a succession plan right now will only set you and your business up for future success.

Photo from Amnaj Khetsamtip/Shutterstock.com

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