Brett Davidson explains why you need multiple candidates for your succession plan, not just a ‘chosen one’.
What’s your succession plan? I see a lot of firms who just don’t have one, which concerns me.
Unless you want to be forced to sell your beloved business to some large group or venture capital firm that won't continue the culture of care you’ve worked so hard to create, then you need strong, internal succession options. Even to get the best price for your business, you need strong succession options. This really is an issue you can't duck.
The ‘chosen one’
'You’ve worked hard to create the your business - it’s only natural you want to have successors who will look after it.'
Some adviser owners say they’ve got ‘people’ coming through as successors. But on closer inspection, it turns out they often have just one person in place (what I like to call the ‘chosen one’). I believe that this is a very high-risk strategy - what if that person decides to leave? What then? Or worse still, what if they stay, but come succession time decide it’s just not for them? What would happen to your business?
To illustrate; I was the succession plan for my old business partner in Australia. We got along famously for 15 years, and I was committed to taking over that business. But then I decided to move to London, which threw the succession plan out the window.
The point is, you need multiple candidates for the succession plan, not just a ‘chosen one’. There are two reasons for this.
Firstly, it’s to enable you to have choice and to create some internal competition. What if you had four people coming through, all of whom were hired on the basis that they may have the potential for becoming your future successor? This would be beneficial for a variety of reasons:
- Inevitably, some of the candidates will be better (or worse) than you thought – so it’s nice to have choices and not be worried that the ‘chosen one’ isn’t quite up to the job.
- Some candidates may develop at a faster (or slower) pace than others, making them relatively more or less attractive 5-10 years down the line when it’s time for them to step up.
- Knowing that they’re all playing for the same position keeps everyone on their toes – competition is good for business.
The second reason to have multiple succession options is to help cover the purchase price. One buyer on their own may not be able to fund it all, or may feel too exposed in doing so - especially if the business is as successful as you want it to be. By having more than one succession option, you enable them to create a partnership with someone who knows and cares for the business as much as they do.
Learning from the best
I read a fantastic article in Harvard Business Review a while back on how Proctor & Gamble improved their succession planning, by grooming a pool of future senior managers and CEO’s. A.G. Lafley instituted this succession plan at his first board meeting on becoming CEO. Initially the board resisted this move saying that he’d only just taken over, so this could wait. However, Lafley argued that it needed to be commenced immediately, to provide P&G with a rich pool of talent to choose from 10 years later.
I realise that P&G are a huge global business, so their succession planning is on a much larger scale, but it’s the principles espoused in the article that have direct application to you and your business. If you’d like to read more, you can read the article here .
You’ve worked hard to create the your business - it’s only natural you want to have successors who will look after it. Put some thought into your succession plan and ensure you have multiple options for when you’re ready to hand it over. You’ll be glad you did!