For many business leaders, ownership is the adventure of a lifetime. You establish, build, and grow a thriving company. You navigate early entrepreneurial roadblocks, celebrate major company milestones, and deliver valuable products or services to countless customers.
On the inside, you’ve hired smart, value-driven employees who care deeply about succeeding as a team. You’ve developed innovative products or services, and standardized processes as you scaled and grew a company. You’ve identified employees’ strengths and weaknesses, created growth opportunities for them, and helped them become a strong and successful team.
And that’s why succession planning is so important. It paves the way for a smoother future for the organization as a whole — with or without you.
Even if you have no foreseeable plan to change ownership or retire, leadership transition planning is an essential element of strategic business planning. It helps retain employees by making their career paths clear, and it can serve to protect valuable institutional knowledge that would otherwise be lost when senior team members depart.
At the same time, an intentionally crafted and executed succession plan complements a leader’s exit strategy. It’s likely that sometime you will want to — or need to — leave your work behind. But you care about your business and your employees, and you want their success to continue.
And that’s why the best time to start succession planning is well in advance of even thinking about your exit.
What is Succession Planning?
Succession planning is a proactive, strategic approach to ensuring leadership continuity. Having a succession plan enables the business to prepare for the inevitable changes ahead, rather than having to react to vacancies as they arise. It focuses on identifying and preparing internal candidates to more smoothly transition into leadership and key roles.
High-potential employees are identified and groomed through training and mentorship, and gradually introduced to the challenges of leadership. Succession planning cultivates capable successors who can carry forward the company’s vision.
Not every role in every company needs a succession plan; it’s typically reserved for leaders. But positions that require hard-to-find or proprietary skills are also smart candidates. Succession planning is a growth process, for the company as well as employees. As team members grow the skills, experiences, certifications, and other requirements to step into their next roles, your business also grows increasingly resilient.
Every succession planning process is as unique as the company following it, but generally, it’s stepped out something like this, with employee communication an important part of each step:
- Evaluate your organizational chart to highlight vulnerabilities and key roles.
- Define the knowledge, skills, and responsibilities that will belong to the successor.
- Identify internal candidates for development (where needed, consider external candidates).
- Create individualized development plans for successors that include training, mentoring, shadowing, and incremental progress.
- Establish transition timelines for handing off responsibilities.
- Implement and monitor development and knowledge transfer plans.
- Execute role transitions and continue building the talent pipeline.
The objectives are straightforward: business continuity, smooth role transfers, preservation and sharing of institutional knowledge, and employee retention. Ideally, succession planning ensures that when a key employee departs, a designated successor is prepared to take over the role without disrupting the work.
And it’s not solely about preparing succession candidates; it's just as much about strengthening the organization. It allows for transition periods of adjustment during which the outgoing leader or employee can smoothly hand over knowledge, experience, and insights, as well as facilitate key relationships that support success in the role.
A transparent, well-communicated succession plan can also be an effective employee engagement tool. Teammates often appreciate open dialogue about future plans; it provides a sense of security and direction, knowing that the company proactively prepares for change and has a vision for its future. It also motivates ambitious teammates with a clear career path within the organization.
In short, succession planning is more than a process. It’s a strategic investment in your company’s future.
What It’s Not: Succession Planning vs. Exit Planning
Succession planning and exit planning, although interconnected, differ significantly in their scope and objectives. They operate like two sides of the same coin, each playing a vital role in ensuring a smooth transition in the company's leadership and ownership.
Where succession planning is concerned with finding and preparing key teammates, exit planning is about the owner’s strategy to transition out of the company. It’s much more personally focused.
RELATED: Business Transitions: Sell or Keep Your C Corp as a Retiring Business Owner?
Your exit strategy examines a plan for creating a liquidity event, and all the details surrounding your departure, such as retirement, financial, and tax planning; and whether, when, and how you’ll remain involved after the business sale transaction is complete. Exit planning is about orchestrating an orderly, profitable exit that aligns with your personal, professional, and financial goals.
Both strategies should work in harmony to ensure a seamless transition. Together, they offer a balanced approach to leadership transition — maintaining company stability while also meeting the outgoing owner’s needs and aspirations.
Why is Succession Planning Important?
Some of the benefits of succession planning are immediate and obvious, but the long-term risk-management benefits can also contribute to a company’s future strategic growth plans. Consider these advantages:
- Business continuity — ensuring qualified people are ready to cover key roles whenever needed
- Knowledge capture and sharing — preventing the loss of institutional knowledge when key employees depart
- Contingency planning — when the unexpected arises and a role needs to be filled fast, the company isn’t starting from scratch
- Employee engagement — demonstrating the company’s commitment to cultivating leaders
- Lower hiring costs — nurturing employee growth means you maintain a ready bench for important hires (plus shorter and less costly onboarding and training)
- Stakeholder trust — investors, customers, vendor partners, lenders, and even the community your company calls home can all feel confident knowing your business is ready for whatever lies ahead
Implementing thoughtful succession planning demonstrates your commitment to your company’s future, and the company’s commitment to loyal, high quality employees. It helps sustain a smooth business evolution even as leadership changes.
Pairing a thoughtful succession plan with a clear exit strategy makes it easier to embark on your next adventure with the confidence that your business vision and values are in the best possible hands.
Your exit strategy is likely to have an impact on your approach to succession planning. Explore all your options, starting with our free exit strategy guide. Click below to get yours today.
