Management Succession Planning

Two of the biggest pressure points in the life cycle of a small business are when:

• The business becomes bigger than its sole proprietor
• The company’s founder/current leader is ready to retire

Many small and medium-sized businesses fail at these milestones. Successfully negotiating the first requires detail-oriented business planning in advance of major growth. Successful negotiation of the second pressure point requires thoughtful management succession planning. The most thorough business plans include management succession plans, but if your existing business plan does not include plans and a process for succession planning, there is no time like the present to put together a plan for how your company will address this issue when the time comes.

One publication of the Small Business Association, Transferring Management in the Family-Owned Business, suggests a four-stage process for management succession planning. This four-stage process may serve as a useful outline into which you can insert your specific instructions and plans for choosing the next generation of leadership.

1. Initiation.
   Collect the names of the people to be considered as possible successors. Decide whether or not you will conduct an external candidate search. Educate prospective successors about the business. This is a stage in which the current CEO must provide realistic information about the current state of the business and the company’s current values and future priorities.
2. Selection.
   Especially in family-owned or closely-held businesses, this can be the most contentious and conflict-ridden part of the process. Do not make the mistake of selecting the successor based solely on age or some other seniority criterion. The future health of your business depends on selecting a future leader with the business acumen and skills to continue the founder’s vision. It will help minimize hurt feelings if the initiation stage includes the development of a detailed job description and selection criteria.
3. Education.
   This is another area in which family businesses sometimes fall short. Instead of assuming that the chosen successor will pick up the needed information by shadowing the current CEO for a couple days or weeks, develop a program of learning and gradual increase in responsibility. The current CEO, along with his or her closest associates, can identify realistic learning phases. This period can be combined with a probationary period for the chosen successor.
4. Transition.
   Plan the current CEO’s retirement party, and put the new leader’s name on the office door. The outgoing CEO can help make the transition process smooth by publicly announcing his or her departure date and by making a formal agreement about postretirement involvement in the company’s operations.

The nonprofit business assistance organization SCORE has several credible resources for management succession planning.