Keys to Effective Succession Planning

What is the difference between succession planning and planning your exit strategy? The distinction is important, particularly if you decide not to sell your company outright. Knowing who, specifically, will take over after you leave can help the company to transition from one leader to the next more quickly while allowing it to continue to run smoothly during the entire process. On this edition of "Deal Talk," Jeff Allen welcomes Chicago-based business strategist Carl Seidman, who has advised many of America's top organizations. He will be sharing what he believes are the essential keys to effective succession planning.

Questions Answered For You

  • What is the difference between a succession plan and an exit strategy?
  • Why is it especially important in today’s world to have a very well thought out, very detailed succession plan in place?
  • What are the four crucial keys for the successful implementation of a succession plan?
  • Why is a succession plan or reorganization helpful for both high and low performers amongst your staff?
  • How often should a succession plan be re-evaluated?

As a company grows, or as a succession takes place, you need to identify strategically where the business is going to go and what positions need to exist to support that transition.

- Carl Seidman

Key Takeaways

  • Succession planning can be related to exit planning, but it isn't necessarily one in the same.
  • An effective succession plan involves identifying where you as the owner or leader want the business to go, and how you're actually going to get there.
  • Most owners are not great when it comes to communication and consistently giving the rest of their people an idea as to where they are going.
  • You don't want to go through a succession or an exit during a time of volatility and uncertainty.
  • If you are looking to embark upon a succession plan, an important point that you need to think about is: Do you have the right people in place?

Read Full Interview

Jeff: Succession planning, what is it exactly, and if you already have a plan in place, are you sure it's the right one to help ensure the future success of your business? If you're a business owner looking for information on succession planning, you've come to the right place.

From our studio in Southern California, with guest experts from across the country and around the world, this is “Deal Talk,” brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.

Jeff: Thank you for clicking in to the web's go-to source for information and advice from trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value. Joining me for our conversation on succession planning is Carl Seidman, a business strategist, CFO adviser, CPA and trainer based in Chicago. Carl Seidman, welcome to “Deal Talk.” It's good to have you on in.

Carl: Thank you so much, Jeff, happy to be here.

Jeff: We appreciate you being here. First of all, let's start by defining exactly what succession planning is. Is this the same thing as an exit strategy, is it something related? Kind of clarify what that is for us.

Carl: Sure, Jeff. Succession planning can be related to exit planning, but it isn't necessarily one and the same. Succession planning is essentially a process for identifying and developing a plan, the people who are going to take over the business once a change of leadership or change of management has taken place.

Succession planning can be related to exit planning, but it isn't necessarily one and the same. Succession planning is essentially a process for identifying and developing a plan, the people who are going to take over the business once a change of leadership or change of management has taken place.

Jeff: Now it seems that once a upon a time, Carl, that it was always just kind of assumed that the son or daughter of a business owner, or maybe the number two officer or manager would take over the business. But that's not always true anymore. If we don't have a proper succession in place then, Carl, what's the worst thing that could happen?

Carl: The worst thing that could happen is, frankly, could be catastrophic. There are a number of businesses that I've seen and certainly some that I've worked with where a succession plan has not been executed effectively, and sadly enough it's actually led to a fire sale or liquidation of the business. 

There are a number of businesses that I've seen and certainly some that I've worked with where a succession plan has not been executed effectively, and sadly enough it's actually led to a fire sale or liquidation of the business. 

Jeff: Oh my gosh. Nobody wants that. And particularly when people have options. A business owner has an option. He or she can either sell their company to an investor or somebody else from the outside who wants to take it over, or they can hand it over. They've got a succession plan that might include maybe a vice president who might be interested in taking over the company or what have you. So you've got those two options. But let's talk about succession planning. Why do you think that so many of them fail?

Carl: Jeff, I think that a main reason why so many succession plans fail is that most companies don't simply take the time to put one together. They also don't know what goes into a successful and effective succession plan. So many companies will think that a succession plan is, as you mentioned, handing the company over to my son, or my daughter, or to a manager who already exists in the business. But an effective succession plan is really identifying where you as the owner or leader of the business, where you want the company to go, and how it is you're actually going to get there. It's not a default handover to whoever is best next in line to give the reins to. It's truly identifying where you want the business to go, how you're going to get there, and who is going to be most instrumental in getting the business to that point.

I think that a main reason why so many succession plans fail is that most companies don't simply take the time to put one together. They also don't know what goes into a successful and effective succession plan.

Jeff: Carl, they say that exit planning, when you're planning your exit strategy, that should begin pretty much from day one. If you've got a business plan and maybe you haven't even opened your company's doors yet, that you better have an exit strategy in place. Is the same true for a succession plan? Do you think that it should start that earlier? Is that something that is kind of a living, breathing thing that just evolves over a period of time?

Carl: Again, Jeff, I would make the distinction between exit planning and succession planning. And that exit planning is simply, how am I going to go about selling my business? I do work with a number of business owners who are at the age where they want to be done. They've put in 20 or 30 years of work to build value and an enterprise, and get to the point where they're looking to retire. There are many instances where the owner simply wants to get out, make the return, and be done with the business. But there are many instances as well where the owner has put in blood, sweat and tears into this business. Perhaps there are other family members or friends who are working in the business, and it's not simply exiting and making money from the sale. It is handing the reins over to the next generation so that they can continue to grow and nurture the business, so that perhaps one day they can exit, or one day they can pass the business on to the next generation.

 

Jeff: Do you think the fact that these are different times because it's such a competitive market place out there and because there are so many regulations? All of these things kind of combined have made it especially important today to have a very well thought out, very detailed succession plan in place. It's just the fact that these are different times that require a stricter attention to the details.

Carl: Yeah, I absolutely agree. Whether it's a combination of regulations or competition, or simply the fact that we're living in a very, very fast moving economy and environment, you always need to be ready for what's on deck. Whether it's an exit, whether it's a succession plan, whether it's simply changing around your strategy, always have to be looking ahead rather than looking at the path that you've taken to get to where you are today. In that regard, to address your previous question, Jeff, yes, you can start a business and start thinking about your exit or your succession, but you should always be running your business as an enterprise that is nimble, and agile, and always ready to change. And that can be, again, whether it's you exiting the business, implementing the succession plan to the next generation in case of certain circumstances, an emergency, a change of leadership, or ownership, or simply just staying maneuverable and flexible in the environment that is so competitive today.

Whether it's an exit, whether it's a succession plan, whether it's simply changing around your strategy, always have to be looking ahead rather than looking at the path that you've taken to get to where you are today.

Jeff: Carl Seidman is a strategic planner from Chicago. He joins us today on “Deal Talk” talking about succession planning. Carl, you wrote a great piece that appeared in LinkedIn, and for those of you who are interested, you can see it there if you go to Carl Seidman's profile page and you'll be able to probably, as long as you have a LinkedIn account, you should probably be able to pull that up. And the title of the piece is “Leaping with a Net: Keys to Implementing a Successful Succession Plan.” And you cite a study there, Carl, from, I believe it was Stanford University, that had some very compelling points, interesting data points there that I think are quite telling and kind of speak to the reason that sitting down and giving your succession plan some more serious thought, and maybe taking a second look at the one you already have now is really, really critical. And I was wondering if you might be able to share some of the points from that study with our listeners.

Carl: Sure. The five or so points that I highlighted within the article on LinkedIn, they do come from the Stanford study. A few of them relate to each other, and then there a couple that are a bit more autonomous from the rest. But the first bullet point is that companies that plan for succession often do so to reduce the risk rather than finding the best successor. And to elaborate on this bullet point here is companies will implement or craft the succession plan simply to address the changes in their company or the changes in the competitive landscape rather than identifying the right person to whom to pass the torch. To address one of your earlier points, Jeff, is many businesses, if they're family owned or small businesses, may be owned by a father, or a mother, or a combination of both spouses, and then have other family members working in that company. In this instance, what the Stanford study found was that instead of finding the absolute best successor, the company is just handing the torch over to whoever might be next in line. And as many of us listening to this podcast know, that's not always the best solution is to just hand over the torch to the next person. 

The next bullet point is that companies do not have an actionable process in place to select senior executives. Similar to the first bullet point, companies don't know how to find the right people. Perhaps they go with a headhunter or an executive search company, but they're not nurturing their relationships or their networks to truly find the absolute fit for the role they're trying to fill. The third, companies do not know who is next in line to fill senior executive positions. Perhaps they're not looking for a successor in the right way, perhaps they don't have a process in place, but the third, and perhaps very ignorantly, they don't have a line of who's going to be the next to fill the position. They just haven't gone to that extent. 

 

Jeff: When you read that, were you surprised at all by that?

Carl: Yes, and no, Jeff. There are some instances when I work with companies where an owner will get to the age of perhaps 60 or 65 and then all of a sudden decide, "You know what, I'm ready to retire. I'm ready to move on." And they think that the process of succession is going to take maybe six months. But as you had pointed out, this is a process that you should always be thinking about, not necessarily from inception of the business, but for years you should be thinking about who's going to be next in line to take over the CEO position, a director of finance position, a director of sales, a director of marketing, whatever it may be. Think about what positions exist in the future and who's going to fill them. That very perfectly brings us to the fourth point, Jeff, and that is roles are not defined and are often not followed.

As a company grows, or as a succession takes place, you need to identify strategically where the business is going to go and what positions need to exist to support that transition. As I see in many businesses, not all, but many of them, are that leadership does not articulate what positions need to exist that are either currently working in the company or that need to be created. And oftentimes it takes a lot longer to find the ideal candidate, train and develop them so that they adequately fit into the role that they're designed to fill. 

And then, finally, and perhaps the fifth and most overlooked point that the Stanford study articulates is that succession plans are not connected with coaching and internal talent development programs. So what I often see in implementing succession plans is that leadership will identify the right person, they will put them into that role, but then just let it go and hope that all the stars align, and that the person is the right fit culturally and technically. But it is absolutely critical to make sure that the new leadership roles, or the new people who have come into the company, have the proper coaching, mentorship and development to make sure that they don't hit any significant speed bumps and derail the succession process.

...the fifth and most overlooked point that the Stanford study articulates is that succession plans are not connected with coaching and internal talent development programs. So what I often see in implementing succession plans is that leadership will identify the right person, they will put them into that role, but then just let it go and hope that all the stars align, and that the person is the right fit culturally and technically. 

Jeff: Very interesting indeed, because right there that points to the idea that there are people -- very, very knowledgeable people — in an organization who may know everything there is to know about the business. But they may not have the people skills possibly, something that simple to be able to manage other executives, other staff members and people on their team. 

Coming up in just a few moments we're going to talk to Carl about four keys that are crucial for the successful implementation of a succession plan in order to give it a reasonable chance to succeed and work, and lead your company into the future with a successor that is going to do the right job for the company. And just a reminder for you listening to the program: This show is for you and all business owners who are building a business that you can one day sell down the line or pass along to your successors like we're talking about today with Carl Seidman. 

We want to know how we're doing, what you like about the show, and what we need to do a better job of. So don't hold anything back. Let us know by shooting us an email to dealtalk@morganandwestfield.com. Once again, your comments, questions, suggestions are welcome to dealtalk@morganandwestfield.com. I'm Jeff Allen, and we'll continue our discussion on succession planning with business strategist Carl Seidman when “Deal Talk” continues in a moment.


Selling your business may be the most important business transaction you'll ever undertake, so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield, we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process. That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. And Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal and locating the right buyers. Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.


Jeff: Welcome back to “Deal Talk,” where we are becoming the Internet's number one source to help business owners understand what it takes to sell their companies successfully. I'm Jeff Allen with my guest Carl Seidman, business strategist, CFO advisor, CPA and trainer. We're talking about succession planning. And now we'd like to go ahead and kind of get you set up with four key strategies or points to help you create a successful succession plan for your company. These are four things to be mindful of. Carl, let's go ahead and we'll get right to it. Point number one, first key is that we need to align our succession plan with our business strategy. What do you mean by that? Let's talk about it.

Carl: Sure. Let me actually give an example that is very relevant today. I was on a call with a senior financial gentleman at a very large Fortune 700 company. This gentleman basically said the message that we have in our company is that most people are thinking very myopically. And to be a little bit more specific, they’re thinking about what the short term looks like; they're not thinking about what the long term looks like. And when it comes to succession planning, what's absolutely imperative is to think about where you are going as a company in the long term. It's not just about what do the next three, six, nine months look like. It is what does the next year, or three, or five look like. By knowing where you are going as a company many years from now, it will more adequately help you define, articulate and craft what I would call a strategic plan. Understanding what a strategic plan is essentially how are we going to get from where we are today to where we want to be one, three, five years from now. If you don't know that, how can you possibly craft a succession plan that aligns effectively with the strategy? 

The advice that I give to the companies that I work with is craft that strategic plan, start out with one year, and then align what the succession plan looks like with that one-year strategic plan. How is that going to impact others within the company? Operational and financially, what needs to change month over month, quarter after quarter, year over year in order to make this strategy come to fruition? And how do you align the succession plan to that strategic plan?

 

Jeff: Excellent point. That's key point number one. Number two, communicate clearly and consistently. This just sounds like a no-brainer to me, but maybe it's not, Carl.

Carl: Right, Jeff. You may think that in business, I should say owners believe that they are excellent leaders, excellent communicators, very transparent, and very candid with their employees, other leadership and management. But the reality is that most owners — I would say most, I wouldn't say many — most owners are not great when it comes to communication and consistently giving the rest of their people an idea as to where they are going. So when it comes to succession planning, oftentimes ownership or leadership is doing it inside a vacuum. It takes place within the upper echelons of the business and isn't really articulated to the rest of the business. What I see so often is when I work with middle managers and below, they often have no idea where the business is going. Whereas if you talk to leadership and ownership they say, "Oh yes, absolutely, everybody in our company knows where we're going." 

Yes, there are going to be some aspects of the succession plan or exit plan that are private, that do not need to be communicated to the rest of the company. But more often than not there is a lot of information that is happening at the upper echelon of the company that absolutely does need to be communicated elsewhere. The problem that I see is that unknown, that being left in the black hole or being left in the dark creates a lot of anxiety, a lot of trepidation among middle management and below wondering, "Where is the company going? Do I have a job? What's my career path?" And if leadership and ownership doesn't clearly articulate what that is, you're going to see morale take a hit. You're going to see people leave. And you're going to see a lack of trust within the company that leads to a lack of productivity and just not a great environment to be working in.

 

Jeff: By the way, the three-hour monthly meeting is not a good substitute for whatever it is that you're not doing properly to communicate with your team. It's nice to have those meetings and have a bite to eat and so forth, and talk about how things went over the last 30 days, but it really is not a good substitute, and probably is not a good policy for most, at any rate. So you need to evaluate how you're communicating with your team and really how all management is communicating in your organization. Very, very good, Carl.

Key point number three, manage morale. This obviously is very important. Morale is in any case for company, whether you're talking about succession planning or not, Carl.

Carl: Right. This feeds on the second point. With managing morale, when there's a lot of uncertainty and a lot of change taking place in the company, you're going to have a potential impact to morale. There's going to be anxiety, there's going to be skepticism, lack of trust. The point that I make in my article is there's actually going to be two potential results with this potential departure of employees. If you have changing morale that is potentially diminishing because of uncertainty, you're going to have low performers and you're going to have high performers who are both going to consider leaving. 

A succession plan or reorganization can be a blessing in disguise for low performers. They say, "You know what, I don't like what I see. I no longer have a complacent job, I'm out of here." That can potentially again be a blessing in disguise because you don't need to do anything to push them out the door. But on the other end of the spectrum, you have high performers who if they leave it's going to exacerbate the poor morale. And this absolutely must be addressed and avoided. Because if you have leaders who are really high performers, who are guiding others and they say, "You know what, I don't like what I see. I'm out of here," then you can potentially see that catastrophe that I mentioned in the very beginning of the segment. If you don't take the time to nurture and develop, and train people, and make sure that they are empowered to grow the company, you're going to see a mass exodus, and that's the last thing you want to see in a succession or an exit.

 

Jeff: And we've heard over the last several years, there had been a number of studies and important research has been done from universities to other institutions that have talked about recognition of employees and of your team members, other members of management. It doesn't necessarily equate to raises or financial considerations per se, but making sure that they feel as if they are part of the team, that they're contributing to the success of an organization, and that's another show altogether. But certainly that goes into the manage morale key to success for a successful or effective succession plan. That was point number three. The fourth key to a successful or effective succession plan, Carl, consider financial condition. Let's talk about this.

Carl: Sure. As I'd mentioned earlier in the show, you may have a father, mother or perhaps a company owned by two spouses who are getting to the point in which they want to either exit or pass the torch on to somebody else. And a lot of times that happens simply based upon how old they are. The owners get to be perhaps 55, 60, 65, however old they may be and they say, "You know what, now is time for me to leave or to pass the torch on to the next generation of leadership." But we may be in a recession, or the company may be going through a reorganization, or there may be some attrition in customers or suppliers. When I work with companies who are looking to embark upon a succession plan, I always take a look, given my background as a CPA and as a financial advisor, I always make sure that the company is in an adequate financial position to go through a period of uncertainty. You don't want to go through a succession or an exit during a time of volatility and uncertainty. It's just very, very dangerous, and it adds additional fuel to the potential fire.

Again, from a CPA and financial advisor point of view, what I always make sure is that we have an adequate financial cushion, that cash flow is sustainable, that we don't expect any sort of attrition in customer relationships, or supplier-vendor relationships. And that any potential departures of employees aren't going to sack the business.

Again, from a CPA and financial advisor point of view, what I always make sure is that we have an adequate financial cushion, that cash flow is sustainable, that we don't expect any sort of attrition in customer relationships, or supplier-vendor relationships. And that any potential departures of employees aren't going to sack the business.

Jeff: Carl, taking these four keys to an effective succession plan and the considerations that you really have to make, and we just talked about them. Let's go ahead. We can kind of quickly recap them. Number one, we talked a little bit about aligning the succession plan with the business strategy. Number two is communicate clearly and consistently. Number three was managing morale. And number four was considering financial condition. Once we have already taken those into consideration, we put together a succession plan and we're going to start to measure its effectiveness and its alignment with the business, and we're moving forward. How often should we re-evaluate where we're at with respect to that succession plan, its alignment with our overall business strategy, and any changes that we might have to consider making?

Carl: Sure. A really good question, Jeff. What I always recommend, because I do a lot of focus in strategic planning, is strategic plans, I often will recommend an either on-site or off-site meeting at least once a month where we are identifying how we're tracking to strategy and whether it's working towards our goals, or whether it needs to be revised. By making sure we're tracking every month, and then every quarter, and then every year, we make sure that we are on the path that we want to be on. And so it relates to succession if you are actively pursuing a succession plan. That probably needs to be looked at at least once a quarter, if not once a month. You do want to make sure that whoever you've identified is going to transition into the role effectively, that they have the support and the resources that they need. But in terms of actually executing the succession, it is something that needs to be looked at fairly frequently. 

 

Jeff: Final thoughts, Carl Seidman, on today's conversation?

Carl: If you are looking to embark upon a succession plan, the most important points that you need to think about are, do you have the right people in place? Do they believe in the vision, mission and direction of your company and how are you going to get everybody working together on the same page? The absolute worst thing that can happen is if you have people who don't believe in your company and you embark upon a succession plan that they leave, that is absolute catastrophe. You need to make sure that you have all of the right people in place, that they believe in who you are as leadership, that they believe in the resources that you have, and they are going to be with you for the next generation of your business.

You need to make sure that you have all of the right people in place, that they believe in who you are as leadership, that they believe in the resources that you have, and they are going to be with you for the next generation of your business.

Jeff: Carl, this all sounds easy enough to put together, and I think that most of us are probably armed with some information that we did not have earlier. Nevertheless, if there are folks listening to this program today that would like to reach out to you personally to discuss their own specific situation and how you might be able to help them in their succession planning, what can they do, how can they reach you?

Carl: Sure. The ways that they can reach me are either through email. My email is carl@seidmanglobal.com, or certainly feel free to reach out to me and connect on LinkedIn, and you can direct message me that way.

 

Jeff: There you go. Carl, this has been a great conversation, certainly one that has been worth having, as far as I'm concerned. I know that our listeners feel the same way, and I'd like to have you back on the show again to go into another area. I know you're a business strategist and that's something you've been doing for a long time. I know that you've helped many and we'd like to talk to you about some other subjects that we have in mind at a later time if you'll join us again.

Carl: I would be happy to, Jeff. Thank you.

 

Jeff: Carl Seidman, business strategist, CFO, advisor, CPA and trainer has been my guest today. We hope you enjoyed the discussion.

To listen to more “Deal Talk,” visit morganandwestfield.com and click on the podcast link at the top of the site. And if you consult or work with business owners prior to, during, or after the transaction process and you'd like to join us as a future guest like Carl did to share your expertise, contact me directly at 888-693-7834 extension 190, or you can email me at jeff@morganandwestfield.com.

“Deal Talk” is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. Find out how Morgan & Westfield can help you at morganandwestfield.com. For everyone here at “Deal Talk,” I'm Jeff Allen. Thanks so much for listening.

While we take reasonable care to select recognized experts for our podcasts, please note that each podcast presents the independent opinions of such experts only and not of Morgan & Westfield. We make no warranty, guarantee or representation as to the accuracy or sufficiency of the information provided. Any reliance on the podcast information is at your own risk. The podcast is for general information only and cannot be considered professional advice.

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