In the movies, the scene opens with the retiring owner of the prosperous, privately owned company calling his son or daughter, or some astoundingly loyal long-term employee, into his private office.
It’s early evening, and the other employees have left for home, leaving a quiet, understated atmosphere. The two reflect on the past and talk optimistically of the future. After some carefully crafted build-up, the owner informs the chosen one that the reins of the business will be passed to him (or her) at the end of the year. They embrace, clink glasses of 12 year-old Glenlivet, and – boom! – the company is presumed to be in great hands for at least another generation.
But real life usually isn’t like the movies. And, ironically, one of the last major decisions you make for your company – who will lead it after you leave – is one of the most important. If you care about your legacy, your employees, your customers, and other stakeholders, you owe it to them and yourself to leave the business in the most capable hands possible.
If you’re selling the company to another individual or investment group and they’re cashing you out right away, you may not have a lot of say in the matter. That’s their choice, and good for them. (And congratulations to you.) But if you’re planning on remaining in the fold as the company’s owner or partial owner, or if you’re entering into an agreement where the sale price of the company will be paid to you over a period of years – and where those payments will presumably depend on the continuing healthy operation of the business – you need to be very careful about who you put in the captain’s chair.
Define Your Needs – and See the Opportunities
Many studies have shown that people unconsciously tend to hire people like themselves. That’s understandable. But, remember, no one’s perfect.
Are there skills that you have never been able to effectively develop, but which might help take the business to the next level? For example, are you – and by extension, your company – so product-focused that your financial performance has suffered? If so, maybe you need a “numbers guy,” or at least someone who has an intuitive appreciation for them, to get a better handle on the company’s bottom line.
Or maybe you believe your company has missed out on export opportunities because you had neither the time nor inclination to look beyond the borders. If so, consider someone with some international business experience.
The point is that while it’s important to find someone who can fit into your corporate culture and hopefully continue running the company without a hiccup when you leave, you can also see the transition as an opportunity to shore-up any weaknesses the company may have had to work through while you were in the corner office. There’s no shame in that. In fact, that’s showing true leadership.
But whatever you determine you need in a successor, you ultimately must choose between promoting an employee from within your organization, or bringing in someone from outside.
Internal Candidates for your Plan of Succession – Pros and Cons
Maybe your successor is working for you already. That would make the search fairly easy, but make sure you take inventory of her strengths and weaknesses, just as you would any candidate. Here are some factors to consider.
Pros
· Familiarity. Obviously, your internal candidates will – or should – know your company inside-out: its strengths, its weaknesses, and its long-term prospects for growth and prosperity. And it works the other way, too. You and your other employees would have a certain level of familiarity and comfort with the internal hire, and that could make for a less bumpy transition from you to her.
· Customers. Even if they’re sorry to see you go, your customers will take some relief in knowing that you’re passing the baton to someone in our organization. No one likes change, especially satisfied customers, but this kind of transition should be less stressful for them.
· Energy. The internal candidate has probably been chomping at the bit, with lots of “if I were in charge” ideas that have been percolating for a long, long time. The promotion allows you to tap that energy, and bring new commitment to your company’s objectives.
· Loyalty. There’s no such thing as a sure thing but, if an employee has hung around and remained loyal as a subordinate, he probably won’t be in any hurry to leave after getting the big job. Stability is desirable in any business setting.
Cons
· Lack of New Vision. Complacency would be too strong a word, but there’s always the danger that even an especially motivated or energetic successor might fall into the “we’ve always done it that way” trap.
· Resentment. When you promote from within, unless the choice was absolutely obvious, there are sure to be some employees in the fold who think, “why not me?” That could be true for an external hire, too, but it’s more likely to occur when the promotion comes from within, because employees have been watching their competition for years.
External Candidates for your Plan of Succession – Pros and Cons
And what about bringing in new blood as part of your succession plan? There are advantages and drawbacks there, too.
Pros
· New Point of View. Outside candidates bring a fresh perspective and new optimism. This can be a healthy shot in the arm, and can translate into new opportunities for your business.
· New Customers and Contacts. If your new leader has previously worked in your industry, there’s a chance that new revenue streams might follow him over. If nothing else, you’ll have access to a new set of professional contacts.
Tip: Industry experience is important when choosing a successor, but more critical in some circumstances than others. Generally speaking, the more technical your business, the more important it is that your leader have an industry specific track record.
· New Skills and Abilities. This was touched on before. External candidates have had opportunities to acquire and develop skills that maybe you and others at your company have not.
Cons
· Compensation. This might not matter in the long run, but you might initially have to pay an attractive external candidate more, or promise more, to lure her away, than you might to someone already in the fold.
· Culture Clash. What if your new leader just doesn’t fit in? Small companies have their own special cultures and ways of getting through the workday. If he turns out to be a square peg, life can very quickly get difficult for everyone.
· It Might Just Not Work. Yikes. There’s risk in any business decision, but turning over a business to someone after you, the owner, have been running it your way for a long time, would be challenging under any circumstances. Bringing in an outsider, even a very talented one, could make it all the more difficult.
The Bottom Line on Succession Plans
Choosing your successor will probably not be easy. You can improve your chances of making the right decision by clearly defining what your company lacks, and by finding a candidate that brings specific skills or knowledge that your business needs, and which you personally might have lacked.
MP Star Financial help your company manage its cash flow more effectively. Call for more information. (800) 833-3765, extension 150.