Succession – A Plan For All Seasons
Succession planning is critical to any business, especially those which are privately owned. The traditional purpose of such planning is to ensure the continuity of the business in the event the owners and / or the senior management team are no longer actively involved in the business either through retirement, sale or death.
Tactically, the basic premise of this essential risk mitigation process is to identify key individuals within the organization who appear to have the experience, skill, aptitude and willingness to possibly fill the top management positions within some designated period of time. The sooner the planning and execution begins, the better the result should be.
But what if the owner(s) of the private business have no current intention of exiting or selling the business? Is a succession plan then ignored in the interim? Let’s consider some other reasons why a succession plan might just be almost mandatory in any business.
Let me start off using an example. In 1993, I began an association with a gentleman who, to this day, was arguably the most astute entrepreneur with whom I have ever worked. Two years into our seven-year relationship, John (not his real name) disclosed to me that “in five years I want to sell this company and I want the management team to be able to walk away. I need your help in doing this.”
This was a very definitive assertion and request. Over my consulting career, many times I have heard owners say – with general uncertainty – that I want to sell my business in a certain period of time. But rarely have I heard the owner say I want everyone to be able to walk away. I tell this story each time, because our experience opened our eyes to why this whole process is so important – whether you want to sell your business or not.
Over the next five years, John, a couple of other colleagues and myself developed and executed our plan. Our company needed to operate at the highest level of functional expertise in sales, operations, financial management/ reporting and culture. There could be no weak links. While following traditional succession planning methodologies, we ensured we had the best people, trained properly, paid well and shared John’s dream of creating a sustainable and valuable business with opportunities for everyone.
But we soon realized that the plan needed more than just that. Equally important was development and documentation of all our processes. Processes were identified and documented in almost every functional area. Who does what, what are the expectations and who is accountable?
What the whole team created over that five-year period was an extremely well-oiled organization with a potent culture. John, the major shareholder, eventually moved to warmer climates to pursue other interests while the company continued to grow and create value for the shareholder group. John just kept in touch on an exception basis only.
While we tripped many times over this period and didn’t successfully execute every tactic in our plan, John never lost sight of the objective. We had built a company that did not need him, or a few of us either, as it turned out. In 2000 (exactly five years from when we started out plan), our company was purchased by a large public entity. I believe the high quality of both our team and our processes resulted in a low risk acquisition to the buyer which, in turn, commanded a superior valuation. It was like
someone wanting to buy your car – they lift up the hood and hear the clean, purring engine. They say “I will give you top dollar for this vehicle”.
But why would a business owner go through all this hard work over five years without any intention of selling the company? Why would you bother? Here is why you would do exactly the same thing we did – it gives you a significant number of choices you may not currently enjoy. You are free to choose to:
• continue to do exactly the same things you are doing now within the business;
• personally exit working directly in the business and lie on the beach (actually or figuratively) and collect dividends;
• do only the things you really like doing in the business and easily delegate all others;
• spend as much time as you want outside business with family and/ or pursue other interests; and
• of course, sell the business to a 3rd party, management, or other family members (generational transfer)
By having choices resulting from the succession planning process, over time you will also likely experience more joy and satisfaction with in your business instead of solely feeling the burden of ownership. What a great concept!
In conclusion, succession planning is not a can to be kicked down the road because you do not want to sell your business in the near future. It is a critical part of a risk management strategy for any organization. It creates sustainable value for the business, reduces turnover in key positions, creates vision for the business and a legacy so important to many business owners. But most importantly as a business owner, it gives you choices of which others can only dream.