Why Succession Planning Matters

By Generational Equity

06/27/2016

I was meeting with a prospective client in our offices in Dallas a few years ago and as we discussed the business and its future, he sheepishly turned to me and said,

“You know I used to think that I was key to the business; 20 years ago when I first started it I was. But last year I took my wife on a month-long vacation to Asia and was in areas where phone and internet access was limited. I mean, I went for days without calling the office and when I did, I learned that everything was going fine. It just showed me that I was no longer key to the operation.”

Now, he was lamenting this, sharing that he no longer was the key decision maker on daily issues that had to be handled (and even some of the larger strategic ones). But with a huge smile I told him that he should look at this as a positive, not a personal negative (yes, his ego was impacted), since he had solved one of the major issues that buyers are concerned about – succession planning.

The fact is building a “buyer ready” business requires you to do several things, but most importantly, plan for a sustainable future. As great as your history might be, buyers are buying your future, not your past. You may be a genius, very well respected in your industry, yet none of that matters to a buyer IF the company you have grown is largely dependent on you for success.

One common trait most entrepreneurs share is absolute confidence in themselves. By their very nature, this is vital to have. However, the downside is often a challenge in learning how to delegate. If you believe that you are the only mastermind in your business, delegation will be a challenge.

What buyers look for are opportunities where the business owner has made (or is in the process of making) the challenging transition from founder to leader, to mentor, and finally to emeritus guide. The good news is that with some coaching and diligence, entrepreneurs can successfully make this transition. Based on our experience it usually requires specific steps:

  • Acknowledge that building a buyer ready business is the goal (not feeding your ego – i.e., I am the only genius)
  • After this goal is written in stone, examine your current organization for leaders.
  • Once you have completed this personnel review you have two courses of action:
    • Begin to mentor the leaders you have now, helping them transition into key decision makers that you can trust, OR
    • If no potential leaders now exist in your company, go out and find them, hire them, and begin to mentor them

Ah, the Details

It is this last component that strong entrepreneurs have the biggest challenge with. Moving from the founder to leader requires the abilities to surround yourself with talented people and mentor them so that they can develop into your mid- and upper-level management team. I have worked with lots of business owners who had the best of intentions in succession planning but lacked the ability and acumen to successfully hire and build a mid-level management team.

For many, finding a mentor themselves is really helpful in this process. If you are the member of your local/regional chamber of commerce, chances are really good that you can reach out to the leadership of the group and find someone who can advise and challenge you to finalize your succession planning process.

Another great source if you can afford it is to join an organization like Vistage. This group provides CEO/executive coaching, leadership development, and business mentoring services to its members.

Another good source for entrepreneurial education is the National Center for the Middle Market. This group has a knowledge center that is designed to guide you as CEO in a number of areas, including leadership development and succession.

One vital thought I will leave you with this: Even if you are not planning to exit for several years, succession planning can benefit the entire organization because what got you here won’t get you there.

All too often the skills it takes to found a business and grow it to $5 million are far, far different than those needed to then take it to $50 million and beyond. If you recognize this, if you understand that your strengths as an entrepreneur may be your biggest pitfalls when expanding the business even more, then surround yourself with talented people and challenge them to grow by delegating decisions and strategies to them.

If you do, you will most likely be impressed with their skills, your company’s growth, and its ability to eventually transition to a “buyer ready” business.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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