Succession Planning Part 1: How to Choose Your Business Successor

Business owners often think of succession planning as a task for another day– sometime in the far-flung future when it’s time to retire and reap the fruits of your labor. 

That’s not quite the case, though. 

As we all know, life is unpredictable. Any number of things could suddenly force you out of your role as owner, from a sudden chronic illness to an opportunity to move across the country and be closer to your family. Without a succession plan in place, not only are you making one of the most impactful decisions about your business under immense time constraints, but you’re also doing your successor a disservice by giving them less preparation before they move into their new position. 

No matter where you are in your journey as a business owner, now is the right time to start shaping your succession plan because it’s the only way to ensure that whoever’s taking the reigns plans to do so with the same passion that you once led with. 

To help you approach this often emotionally taxing and challenging decision more confidently, we’ll walk you through the steps to setting up a successful succession plan that keeps your business chugging along even once you’ve walked away. 

Step 1: Evaluate What Your Business Needs

Before you can even start to think about who will take over your business, you need to evaluate what your business needs from a leader. 

The proper successor for a retail store isn’t the same as the suitable successor for a marketing firm. Putting someone at the helm who isn’t prepared to propel your business forward according to the needs of your specific industry is akin to setting your enterprise up to fail. 

You’ll need to consider what your business needs today and where you predict it will be in the future with these specifics in mind:

1. What is the current state of your business? What are its strengths, and where are your growth opportunities?

2. What core values and culture shape your business? What core values and culture would you like to see nurtured into the future?

3. What are the key roles and responsibilities should the successor be prepared to take on? Do you want them to be able to maintain the status quo or steer things in a new direction?

4. According to industry trends, what challenges and opportunities might your business face in the coming years? Are there technological advancements or regulatory changes to consider?

5. What are your long-term goals for the business? If it were possible to stay in your role for the next 15-20+ years, what direction would steer the ship over time? 

6. What are your stakeholders’ perspectives, including customers, employees, investors, family members, etc? Do they have an idea in mind who might succeed you? If not, what would they like to see in that person?

Step 2: Creating the Ideal Successor Profile

Once you’ve created an overview of business needs, it’s time to think about what traits a future owner or leader would need to fulfill those expectations. 

At this point, I encourage you to create this profile completely objectively rather than basing it on a specific person you already have in mind. That’s obviously easier said than done, but not doing so is a dangerous way to start succession planning. 

If you’re already dead-set on having a particular person take over, regardless of their skills and intentions with your enterprise, you’re more likely to make concessions or compromises to make your business fit the person instead of helping shape the person to fit your business. 

When crafting your ideal successor profile, ask yourself the following:

1. What leadership qualities are necessary to function within your business/industry? What soft and hard skills do you have that you’d expect your successor to also possess?

2. What professional experience should they have under their belt? Is your business in an industry requiring some certification or official training? 

3. What core values must the successor possess to respect your legacy while moving the business forward into the future?

4. Can your prospect manage both the day-to-day operations and the long-term planning? Are they visionaries, or do they prefer to stick to the status quo?

5. What level of emotional intelligence is necessary to lead your employees? What are their expectations for warmth, personableness, and relateability? 

6. What commitment should your successor have to long-term professional development? 

7. Is there a particular ethical obligation you’ve stressed to your stakeholders that a prospect must follow through on? For example, is part of your branding that you exclusively work with fair trade partners or use organic ingredients, etc.

8. How long should your candidate be willing to work alongside you if you can stay in your business for some time? What is your plan for transitioning responsibilities to your new prospect, and how do you expect them to contribute to that process?

Step 3: Choosing Between Internal and External Successors

Before jumping into interviews and designation discussions, you’ll need to use your successor profile to evaluate your internal and external prospects. 

Even family-owned businesses need to weigh their options, as a family member is not always prepared to take on the responsibilities. You want your succession planning process to ensure you’re ready for any possible outcome. 

Internal Succession

Pros

• Internal candidates are already experienced in your company’s culture and processes and have a stake in ensuring that they continue running smoothly.
• You already know what they’re capable of and where their skills lie.
• Other employees won’t feel as “shaken up” by the transition, so retention and morale will likely remain high.

Cons

• Their familiarity with the business may limit their ability to take things in a new direction, limiting innovation. 
• While they may be exceptional in their current role, a lack of experience as a business owner means they likely have significant skill gaps. 
• There is always the possibility that selecting one candidate over another will cause conflict among stakeholders. 

External Succession

Pros

• External candidates bring fresh ideas that could propel your business into a more prosperous future. 
• Diverse experiences and work within other industries set these candidates up with a broader range of applicable skills than an internal candidate with only experience in your industry. 
• It’s far easier to avoid internal politics.

Cons

• You’ll need to spend a significant amount of time ensuring the potential new owner is the right cultural fit. Otherwise, they’ll struggle to build relationships with current employees and customers.
• It’s a much more in-depth process to onboard external candidates, which means it’s not a terribly viable option if you’re suddenly forced to exit due to an illness, etc. 
• If your prospect comes in with their own ideas that don’t align with yours, it will be difficult for them to carry on the legacy you’ve worked so hard to create. 

Final Thoughts

You don’t have to do succession planning alone. In fact, getting an outside, objective perspective can be far more beneficial. Your exit planner doesn’t have a stake in the game– apart from helping you navigate this difficult transition successfully– so you know that they’re coming from a place of experience and honesty rather than one of personal gain. 

Whether you’re new to owning/leading a business or approaching retirement, now is the time to contact Lori Moen at Catalyst Group ECR. 

As a member of the International Coaching Federation, a Certified Exit Planning advisor, and a Certified Value Builder Advisor, she is an invaluable succession planning resource and can help you plan for the next phase of life post-business ownership. 

Stay tuned because over the next couple of weeks, we’ll discuss how to officially designate and prepare your successor for a smooth, successful transition!