This question is perhaps the most important decision for any parent who has owned a business. Though ownership and leadership are often tied together, I want to focus on succession planning from the management… not the ownership perspective. At times, other factors such as economics and estate planning may dictate successor ownership but it is the successful transition of management that allows the business to move ahead.
It is interesting to consider The Godfather as an example of succession planning. If you recall this classic movie, no one thought that older brother Fredo (Freddy) was strong enough to be a leader and Santino was unceremoniously removed from the process. However, even the Godfather stated that Santino would not make a good Don. Michael was the strong, silent-type who effectively thought out strategies, was effective in execution (poor choice of words, here) and was able to command loyalty and respect. These are some of the traits of a leader and that is what your successor should be.
Like many things in the business world, succession planning is a process and I have assembled a few pointers that may help you deal with it in your business:
- To start; are you ready to step aside? As the current leader, you have to get yourself emotionally prepared for the fact that you will no longer be in charge. Simply stated, if you are not ready to do so, I would not suggest implementing a succession planning process.
- Focus on the business. This process should always have the major income generator front and center; a sustainable business that needs to continue to grow. By design, this has to be an objective versus emotional process. That is easier said than done when family is involved.
- Look for the leader. In many cases, it is the person who has core values similar to yours even though their approach and methodology may be a little bit different. It is those core values that will carry the day.
- Map out management, family and ownership and try to seek common ground. Once you are out of the picture, these three constituencies will have to work together. Consider that as part of your process.
- Don’t be afraid to use your gut. In my experience, your true belief as to who you think will succeed has been right many more times that it has not. Be careful of the advice of “influencers” who may only tell you what they think you want to hear.
- Use outsiders. A close advisor like a board member, your accountant or your lawyer can bring an objective view to the process. Good advisors are anxious to see the key economic engine continue to go forward.
- Finally, it is a process. Keep in mind that it may not always go in a straight line but with some patience and structure, you will get there.
The success rates for succeeding generations are not high. Studies have sighted the success of first to second generation transitions at about 33% and succession from second to third-generation at about 3%. Not great odds, but, with a good process, some perseverance and the right intentions, you can beat those odds. We help companies do it all the time. Just think about The Godfather; it looks like he did just fine.