On Growth

CEOs: Have a Succession Plan Ready

A business leader's legacy is more than just the state of the company when they leave -- it's also how well the stage has been set for the company to succeed in the future.

• By Mike Harvath
• October 28, 2013

The hot news out of Microsoft, of course, is the impending retirement of CEO Steve Ballmer sometime over the next 12 months. At this point I'm not all that interested in getting into the whys or wherefores of his departure. However, I would like to use his retirement as the impetus for talking about succession planning. This kind of continuity planning covers how to go about preparing the company for when the CEO leaves the business for any number of reasons.

Such planning should be part of a company's growth strategy -- even among the small to midsize businesses (SMBs) where we specialize. The big companies get all the press when a CEO leaves, but CEOs are leaving SMBs all the time, as well. Because the IT services industry is only a generation old, most of the CEOs now leaving are those who founded their companies and they're looking to retire or cash out. They're hoping to either sell the company internally (with an Employee Stock Ownership Plan, for example), or they're looking to sell to a third party. In either case, a business planning-continuity strategy is essential, and I'm finding my company getting more involved in this form of growth-strategy planning.

In the November 2010 issue of RCP, I wrote the column "The Right Kind of Exit Strategy," in which I laid out some recommendations CEOs ought to consider as they look to sell their businesses. Chief among the recommendations, regardless of succession circumstances, is don't ever start and build a business to sell it. The main reason for this point of view, quite simply, is that at some point after you've made the decision to sell your business, you'll start talking yourself into making some not-so-smart business decisions. Maybe you'll try to improve earnings by forgoing the investment that in an earlier day you would've made in a heartbeat. Or you won't bring on the technical hotshot or the ace salesperson you salivated for the year before. I see this happening all the time and it's not the formula for successful succession planning.

A second, equally important consideration is that over time you begin to make yourself obsolete. That is, get yourself away from the grind of managing the day-to-day operations. Position yourself to focus on the bigger picture of thinking about, planning for and implementing the bold expansion strategies that demonstrate your company's vision for the future. This is critical because what your successor is buying is not just the tangible assets of the business; what they're buying is a compelling image of an achievable future. It's your job as a CEO to set the stage for this future.

Some mistakes have been surfacing consistently in the succession-development process, such as:

• Not getting a formal valuation of your business upon which to assess the selling price and buy-out terms
  
  
• Not having a formal, written succession-planning strategy in place well before the impending date
  
  
• Or, having one that's too generic, and not adequately customized to the uniqueness of your business
  
  
• Not having your management team participate in the planning
  
  
• Not adequately cultivating your successor
  
  
• Not adequately communicating your plans and status to the employees prior to any transition event

Putting together a succession plan is not unlike putting together any other plan for the business. It starts with recognizing the need and value in doing one, mustering the will to get it done and following the time-tested principles for developing sound, strategic plans in general. The biggest challenge is getting clients to commit to doing a plan in the first place.as there's an abundance of reasons and excuses for putting these things off.

But those who do decide to put a plan in place enjoy a tremendous sense of pride and accomplishment and, yes, even some bravado, knowing that they're passing along to the next leader a vibrant, growing and profitable business. What a great way to create a legacy, a testament to what you've spent your life building.

More Columns by Mike Harvath:

• Finding Your Company's Growth-Rate Sweet Spot
• Seller Beware: Customers Want Vertical Partners, Not 'Generalists'
• Column Archive