Succession planning
Stepping away from a company you built is hard—really hard. You’re faced with a mix of emotions, not to mention a host of legal and administrative questions and concerns. Perhaps that’s why so many leaders put off planning their exits until the last minute. Yet delaying the inevitable only leaves the company and its stakeholders at serious risk of eventual failure.
As a piece from CSQ explains, just 28% of private business owners say they’ve mapped out their exits. The problem, of course, is that change can be difficult to confront and experience. Nothing forces quite as much reflection and consternation as a founder as passing the torch. Even if the torch is handed over to a party that you admire and trust, you’re bound to feel misgivings and uneasiness along the way. That’s just how life works. It’s the rare entrepreneur who can say goodbye to colleagues, clients, investors, and board members without wrestling with a few sentimental feelings.
With that being said, you can’t afford to ignore your eventual exit. Even if you’re not actively planning to leave your post in the near future, you should start preparing for that day now. It may not be simple or easy, but it’s smart. It’s also going to keep your company and its people from dealing with unnecessary and preventable stresses.
As you create your exit strategy plan, remember the following tips. They’ll help you construct a plan that meets everyone’s needs when the big day arrives.
1. Focus on your organization’s true purpose throughout your succession planning.
One of the problems that rears its head regularly during exits is a breakdown of the organizational culture. After the founder leaves, everything starts to crumble. Derek Razo, co-founder and managing partner of financing platform Common Trust, sees this pattern over and over. To counteract the culture erosion effect, Razo recommends an “inside sale” to employees to preserve the organization’s mission and direction.
“Many owners have senior leaders who they really care about,” Razo says. He suggests handing over the keys to those people because they care most about preserving the culture and already have the power and incentive to do so. “Planning an exit well is all about making sure that the exit itself sets the people and company up for success. Employees are often the best stewards of the company going forward, so this means that the purpose and culture of the organization can continue to thrive without the pressures of an outside buyer who needs to flip the company.”
To put Razo’s strategy in motion, start identifying and prepping your next generation of leaders. These should be people who have shown that they are invested in the steady growth of the company based on a shared vision. That way, you can more seamlessly move through an exit transition in the years to come without disrupting the culture you’ve grown. Doing so will help you sleep easier because you won’t have regrets about selling your business to someone who just wants to flip it again in a few years — and doesn’t care if the corporate culture or purpose disappears in the meantime.
2. Prioritize transparent, albeit prudent, communication with stakeholders.
Transparency is often lacking in exit planning strategies. Why? It’s tough to talk turkey, especially in family businesses. A recent survey from Brightstar Capital Partners and Campden Wealth shows that a majority of family-run companies (61%) do not have a written, formal succession plan in place.
According to M&A expert and entrepreneur Touraj Parang, this lack of transparency can come from many places, including long-held biases surrounding what an exit strategy will represent to the public, as well as how it might affect the business’s ability to stay viable. However, Parang concludes that honesty is a wise policy that allows owners to “overcome the exit taboo and open the communication channels with their key stakeholders.”
In other words, it needs to be okay to be open about exiting. But — and this is important — you shouldn’t talk about an exit strategy so openly that everyone knows about it from day one. Your job is to let stakeholders know what’s happening on a “need to know” basis. It’s unwise to tell everyone about the future directions of your business right off the bat. Instead, be selective but communicate appropriately at each stage as the date to hand over the reins approaches.
3. Consider a gradual succession experience.
Speaking of handing over the reins, there’s no reason to do it abruptly. A better choice could be a gradual process whereby you remain visible and accountable. Exiting deliberately and systematically helps everyone feel less of a sense of disruption. It can increase overall confidence that the new leadership team isn’t going to abandon everything the company stands for, too.
Dan Ciampa, a former CEO, is a champion of taking this gradual handover route. “Most people promoted from inside have never been a CEO before and must learn to handle a level of responsibility for which they have had little preparation,” he explains. “Furthermore, they will inherit a team made up of former peers, some of whom may have been rivals for the top job, and will benefit from assistance in dealing with that dynamic.”
You also may feel better about your exit if you’re not just leaving on a single day. Spending time mentoring and guiding your replacement will give you the chance to truly pass along your insights and knowledge. You have insider expertise that is unique to your experiences. Being a supportive figure during your company’s transition to a new president or CEO enables you to transfer some of that key information.
No matter what, you’ll probably always have some mixture of excitement and anxiety surrounding your choice to move on from your founder-leader position. However, planning your exit early and with thoughtfulness is the answer to avoiding major headaches and stresses.
