As the founder of a small business, you are great at building products or delivering services. You were motivated to take the huge risk of starting something from scratch, and the business has survived against the odds. Maybe you love company operations but aren’t as good at the business side of things. This can mean you struggle to lead employees and generally feel like the business runs you more than you run the business. Stuck in daily operations, maybe you haven’t taken much time to look ahead or consider putting building blocks in place for succession planning. Most business founders want to see their businesses survive past themselves but aren’t sure how to make that happen. Here are some important components of succession planning.
The reality of facing succession is probably the most important and hardest hurdle for founders. It can be difficult to think about someone else running the business you have put all your blood, sweat and tears into. It’s a daunting task to try to teach someone else everything you know and trust them enough to run the business the way you would want. Many think the most ideal situation would be to have a clone of themselves.
You have to accept the reality that no one can run the business as you have. But once a business is established, your replacement doesn’t need the same strengths you needed as the founder. Your replacement needs to take your established company and move it forward in the following decades. This could even mean multiple people taking the reins of the business. Succession planning allows the business to address holes in your strengths and create a path to fill in those holes.
All of this requires a humble look at the business and defining what the future should look like. This also requires you to return to the same mindset you had when you started the business. Succession requires that founders get creative, try new things and fail, but — just like when you started — never quit.
Once you’ve addressed your mindset, determine the smart goals for the succession plan.
Business owners come to realize the truth: When deciding between fast, good and cheap, at most, you can choose two of those things. If you need something fast, it can be good, but it won’t be cheap. When thinking of succession planning, you can, at most, pick two of these: a large payday, control or a speedy succession/transition.
The desire for large payday and retaining some control in the company will require a long lead time to find the right person. Most founders would need at least 10 years to make this plan a reality. Having long lead conversations with investors and not being in a rush allows the founder to retain a position of strength, which will allow them to dictate how much control they have after the succession.
Wanting to keep control and completing succession quickly will require you to drop your expectations of a big payday. This plan is most realistic if you are willing to offer an owner-financing deal to a current employee. This scenario usually means your vision may be closely followed in the future.
Many founders would be OK losing full control if they could get a big payday quickly, potentially reaching out to their biggest competitors who could offer the best valuation in the shortest timeline. Sometimes, a big payday also requires that you stay involved and help with the transition. This turns a business owner into an employee, and that can be tough for a founder to take.
Luck and timing could make all three positive outcomes possible, but there is no way to make a smart plan to make this a reality. As most founders have realized, planning on luck is not a good business strategy.
It can be hard enough trying to keep the business running, customers satisfied and employees paid. Taking some of these tough steps to define a succession plan will help give you a guidepost for making future decisions. This will then allow you to ultimately achieve a succession goal and give the business the opportunity to thrive in the future.