Business succession is a major milestone in the life cycle of virtually every successful company. And it’s not always clear how to identify successors in a succession planning process — especially in closely held companies that haven’t seen a lot of leadership change.
But if you’re a business owner considering an ownership transition as you plan an exit strategy, you need a solid leadership succession plan in place.
Whether you pursue a management buyout, a third-party sale, or a sale to an employee stock ownership plan (ESOP), your choice of successor is likely to be one of the most consequential decisions you make as a business leader.
That’s in part because your successor will influence and shape your legacy as the company moves forward. It can be overwhelming, stressful, and even emotionally painful to think about turning the page on business ownership, but finding the right successor can alleviate some of the stress and help your company build a strong bridge to its future.
The best succession plan takes a lot more than the C-suite into consideration; you need to know your employees will experience a smooth transition to new leadership, and the same goes for customers, vendor partners, your community, and you, too.
And it’s never too early to start identifying candidates. It can take months or years to properly prepare and train new leaders. So here are a few ways you can begin to identify potential successors, to help ensure your company is ready for the transition when you are.
Develop a Formal Succession Planning Framework
Formal programs offer employees from various departments and experience levels ongoing training, skills development, networking and mentoring opportunities. It starts with identifying mission-critical positions; cataloging the skills, knowledge, and capabilities needed to succeed in these roles; and establishing ways to cultivate them in lower-seniority positions.
A formal framework and process like this does more than create internal processes. Once established, it can become a factor for discussion in new employee candidate interviews and a differentiator in recruiting and retention efforts.
When you can show applicants a career path, rather than merely their next job, that tells them something about your company culture. It also helps remind current employees of their career growth opportunities — and it begins to establish a pipeline of candidates for future leadership openings, to support business growth and continued success. Over the longer term, you’ll develop a stronger talent pool of high-potential employees ready to train and groom for readiness to step into key roles.
Here are seven places to start prospecting for succession planning candidates and winnowing results:
- Mentorship & Coaching Programs
- Performance Evaluations
- 360-degree Feedback
- Successor Candidate Interviews
- Test Tasks for Prospective Successors
- Assessing for Skills, Strengths, Personality, Etc.
- Outside Recruiting
1. Mentorship & Coaching Programs
Require your best, most experienced executives and other leaders to identify employees with strong potential and do some of the vetting for you. You’re not only likely to learn more about the people your executives highlight; you’ll also see those current leaders in action, which can inform your executive successor decisions.
2. Performance Evaluations
Depending on the size and structure of your business, you might need to lean on Human Resources to identify those employees whose performance is truly outstanding. Look for consistently strong results, accountability, demonstrated decision-making skills, a willingness to take on new challenges, and characteristics that reflect strong alignment with company values.
You may even uncover hidden gems throughout the business and proactively address turnover risks by creating new opportunities for employees.
3. 360-degree Feedback
Relationships are an essential factor in leadership success, and 360-degree reviews can go a long way toward filling in your understanding of what goes on behind the scenes. After all, a supervisor’s direct reports might not be comfortable giving 100% candid, direct feedback in a face-to-face context. Yet at the same time, it’s often just this kind of information that can really tell you a great deal about the leaders on your team.
Depending on how you use 360-degree feedback, it can also serve as a valuable growth and development tool in your successor training process, lending your growing leaders greater self-awareness of their impact on others.
4. Successor Candidate Interviews
You may be confident about an employee’s ability to lead and make excellent business decisions, but how do you know whether they plan to be on your team five years from now? What about 10 years? Understanding candidates’ career goals and personal visions for success is just as important as identifying who has the skills and temperament needed to do the job well.
It’s hard to stress the importance of creating the right environment and establishing the right tone for these conversations. Communicate your intention with candor and clarity. A conversation shouldn’t be misconstrued as a job offer.
5. Test Tasks for Prospective Successors
If you have a small handful of candidates, it’s important to see them in action crossing department lines, interacting with more employees than their usual reports, and assessing situations that might be unfamiliar to them in their current roles. Assigning prospective successors tasks and challenges working with teams they don’t typically interact with can show you how they handle the need for more information, and how well they collaborate with teams.
6. Assessing for Skills, Strengths, Personality, Etc.
Just name a characteristic and there’s a test that can help identify who has it in spades. Think about the qualities you truly want in the person who’ll lead your teams. Which values, skills, and personality traits are you looking for? Beyond the skills themselves, consider characteristics like adaptability to change, empathy and compassion, risk tolerance and, yes — ability to mentor, coach, and teach their successors.
7. Outside Recruiting
A truly exhaustive successor search includes prospective candidates from outside your organization. You certainly don’t have to commit to hiring from outside, and even if you ultimately decide to elevate a current employee to become your eventual replacement, reviewing external candidates can help gauge the strengths and weaknesses of your internal prospective successors. With that information in hand, you’re better informed to create an executive development plan that effectively gets them ready for the role.
Whatever You Do, Don’t Wait Too Long
There are plenty of mistakes to be made along the path toward a business transition. It’s easy to assume, for example, that a mid-level employee wants to rise in the ranks or to move on a decision without finding out how rank-and-file employees actually feel about your choice. Often, leaders try to pick the individual who’s most like themselves, a bias that can impede growth potential for the whole organization in the long run.
But the biggest mistake is not starting. Don’t let perfection become the enemy of your success — or your successor. If you’re even just beginning to investigate your exit strategy, take an active role in the process of identifying and preparing your eventual successor.
The same goes for your ownership transition. It’s tough to overstate the potential impact of your business sale decision on employees, customers, vendors, your community — and on you. That’s why you’ll want to download a copy of our free guide to evaluating business exit strategies. Click the link below to claim yours now.