When you hear the words “succession planning”, what comes to mind? In most family-owned businesses, succession planning primarily focuses on developing the next generation of leaders, but what if there was more to it?
Finding that next generation leader is a challenge and makes succession planning an essential exercise in the survivability of the business from one generation to the next. It is a complicated process for those who do it and a potential business killer for those who do not. With approximately one-third of family businesses surviving into the 2nd generation and less than 15% into the 3rd generation, it’s no surprise why succession planning is critical.
Many businesses put a significant amount of time and effort (i.e., mentoring, training, shadowing) into determining who from the next generation will lead the business going forward. Ensuring that the next leader has all the necessary tools for success is key. However, that may not be enough. A leader with the right knowledge and tools can steer a ship, but if the ship is destined to sink, what good are they?
The business that the next generation inherits, most likely will not look like the business of today. In addition, the family could grow faster than the business, meaning that today’s business may not support tomorrow’s family. Ensuring that the family business can evolve, and more importantly, remain relevant in the market is the other component of succession planning.
The ability to evolve and remain relevant requires a true understanding of the organization and the business.
- Understanding the organization — Understanding the organization extends beyond the people and talent. Yes, having the right people in the right positions is extremely important; however, do not overlook the company’s culture and values. The culture and values create an environment that not only attracts talent, but gives them an incentive to stay and truly invest in the company’s success. Remember, the company culture and values are just as important as having the right talent and people.
- Understanding the business — Understanding the business requires thinking beyond the products and/or services provided to the market. How value is created, connected to the needs of customers, and captured (i.e., financials/metrics) are basic principles usually taken for granted over time. Understanding that these elements are linked, how they are linked and that misfiring in one area, negatively impacts them all, is the key to truly understanding the business.
- Understanding the organization and business, in addition to finding that next generation leader, are vital steps in securing the future of the family business. Even if the business is growing now, thinking about the company’s ability to sustain success in the future is crucial.
Remember, the statistics are already stacked against that next generation leader. So, with succession planning, don’t just think about setting the business up for success with that next generation leader, also think about setting that next generation leader up for success with a strong, sustainable business.
Anthony McIntosh is Founder and President of SSE Advisors, LLC, a strategic business advisory and consulting firm, focused on helping clients build and sustain success.