Time for a quick quiz. Who is the Number 2 guy at Microsoft behind Bill Gates? Is Herb Kelleher still the CEO of Southwest Airlines? Who took over from Jack Welch at GE?
OK, put down your pencils. Steve Ballmer is the President and CEO of Microsoft. Herb is now Chairman of the Board of Southwest, but. Jim Parker replaced him as CEO and Colleen Parker is the airline’s president. Jeffrey Immelt is Jack Welch’s replacement at GE.)
If you came up short on that quiz, it’s not a surprise. Those leaders have left an indelible stamp on their companies, and yet others now fill their shoes. But when key leaders are ready to move on to new challenges or even retirement, their legacy can be greatly diminished without good succession planning. If their replacements aren’t aligned with the direction, mission and values of the company, they may find themselves on the top deck of a sinking ship.
Obviously, Bill Gates and Jack Welch are superstars in business. But, succession planning is just as critical in entrepreneurial businesses. After all, entrepreneurs are unsung superstars who often do it all. Does General Electric miss Jack Welch’s leadership? Of course. But, if an leader or founder of an entrepreneurial company leaves their top post, their company may be losing their top leader, marketer, sales pro, and product development person all at once. Without a successor picked and groomed, that company may have suffered a fatal blow.
Entrepreneurs often overlook the need to plan for the promotion or departure of a key executive. Without a succession plan in place, a company can flounder for weeks or months, or worse, suffer irreparable damage. Having a plan can make a world of difference, creating a smooth transition when you promote or bring in a new person to continue the success of your company without a loss of momentum.
Developing Your Succession Plan
Four things are essential in good succession planning: Linking your strategy with a needs assessment, selecting people who can grow into these new jobs, management development tools and a performance appraisal system.
Succession planning is strategic planning
Succession planning is not just about identifying your “successor.” A good succession plan identifies the management roles and people resources that are needed over the next 3-5 years to meet your company’s strategic plan. It assesses what skills your current people have and need, and identifies the coaching and education required to advance them. It also identifies what to look for in new hires as well. Although the plan should also address contingencies for sudden departures, it should focus on enhancing the capacity of your people so they can take on more responsibilities as the company grows.
Succession planning isn’t just about replacements; it’s about supplementing and enhancing the team. As the organizational charts grow, planning must include all managers. To grow, you have to be able to hand off old roles to be able to take on new roles associated with the new stages of growth. This never-ending process requires that you develop a plan, identify potential candidates, test them, coach and education them, promote, measure performance, and repeat the process.
Inventory Your Team
The process for developing your succession plan starts with listing all your key people. Include all of your executive team and key managers throughout your organization. Consider your options for replacing each of those people if they were to be promoted or leave the organization. Are there candidates internally to fill their shoes, or will you have to go outside the company for a replacement?
Your first task is to list internal candidates who could fill each position immediately. Internal candidates are appealing in many ways. You already know them, their abilities, their personalities and their fit with your mission and values. Many internal candidates are already on a track to assume greater roles over time as they gain more training, and job experience. Be sure to review the performance development plans for these people to make sure they are receiving the coaching and mentoring needed for their development.
Long-term succession planning often favors internal candidates because of the value of their experience. Managers sometimes groom successors through mentoring over a period of years, with the thought that once the manager is promoted, the protégé can immediately fill the manager’s old shoes. However, don’t discount current employees in the short term. In the case of an sudden departure, you may feel that you don’t have an immediate fit internally, but you might rule out your best bets. With accelerated coaching, mentoring, and training, a current employee may acquire the skills for the job faster than an outsider can “fit in” with your company’s values and culture.
After you’ve identified your internal candidate roll, list any external candidates you’ve met whom you’d like to interview if an opening occurred for a specific position. Additionally, identify recruiters who could help you find candidates with the skills and values you will need. Establish a dialogue with those recruiters about succession planning now. If you have a sudden departure, you don’t want to lose more time by recruiting recruiters when you should be installing replacements quickly.
When you hire anyone, think of them beyond filling your immediate needs. Consider future needs at hiring as well. When you need to hire new people, ask your own employees for recommendations. You’ll find that succession plans often begin at hiring.
Developing Successors
Once you have your key people identified and personnel needs documented, give your succession candidates increasing responsibility by delegating key duties (which in turn frees you to tackle new duties.) Provide coaching, customized education and training. This improves the odds of their success after being promoted.
Get rid of the deadwood. If people aren’t meeting your needs through performance or a mismatch of values today, they will be a weak link in your succession plan. Reward and promote those who share your values and are performing well. Hire new people with the capacity to grow and perform
Performance Appraisal
Revisit your strategic and succession plans as you provide feedback to employees, especially at the annual performance review. Make sure that your people are progressing at a healthy pace, and make sure that they are a good fit for the latest draft of the succession plan. Revise your mutual goals and your training plan to stay on track.
Final Thoughts
Review the succession plan as needed, but at least once a quarter. Add new internal or external candidates to the list who might be able to take over key positions. Remember, this is both a long-term plan, but also an emergency back-up plan. Although you can control promotions and gradual transitions of leadership, you can not predict when your company will get hit with key defections, surprise retirements or even the death of a major member of your top team.
Speaking of surprises, you may find that you will be asked for a succession plan as your business grows. Investors, lenders, partners and board members will want to know who will take over in the short-term and the long-term. A succession plan mitigates financial and operational risk for those entities that have an interest in your business. When they are managing risk, they may suddenly pressure you for a plan. You should take a pre-emptive approach and share your plan with appropriate outsiders as well as your executive team.
Good succession planning will facilitate sustained growth and minimize short-term shocks to the system. Get planning!
Dr. Jana Matthews
Dr. Jana Matthews, founder and CEO of Boulder Quantum Ventures, is an expert on entrepreneurial leadership and business growth. Based in Boulder, CO, she works with founding entrepreneurs, CEOs, corporate executives and top teams to unlock their company’s growth potential. In addition, Matthews consults with foundations, government agencies and corporations that help entrepreneurs.
She has written several books, including the first two books in the Kauffman Center for Entrepreneurial Leadership series (co-authored with Katherine Catlin): Leading at the Speed of Growth: The Journey from Entrepreneur to CEO, and Building the Awesome Organization: Six Components that Drive Growth. For more information, check out www.boulderquantumventures.com.