CEO, finance director, chief marketer, head of HR — a good business leader wears many hats. But one role they shouldn’t try to add to the list is sole planner of their business succession.
The latest Pitcher Partners Business Radar report has revealed a looming challenge for middle market businesses, with a significant number of leaders who expect to step away in just a few years either ignoring or under-playing the importance of a well-planned succession.
The issue is most pronounced for smaller businesses, with under $10m of turnover or with fewer than 100 employees.
In this category, one in ten business leaders doesn’t believe a succession plan is required.
At least a quarter haven’t started developing a plan and even among those who recognise the need, most plans are either in their early stages or are rough plans at best.
In normal business circumstances this might not seem a substantial challenge — surely there’s still time — but the so-called silver tsunami would suggest otherwise.
Around one million Australian business owners are expected to head for the exit in the next 10 years, as Baby Boomers and the oldest Gen Xers retire. Together, they cover a substantial 40% of SMEs.
When we asked leaders how long before they expected ownership or senior leadership change in their businesses, the average response was 3.6 years.
A quarter were either in the throes of change right now, though, or predicted it to occur within 12 months.
Yet even among businesses that are soon to experience change, 18% don’t think they need a succession plan.
So how can we reconcile the acceptance of leadership change with the reluctance to plan for this transition?
One clear barrier reported by businesses is that other priorities have got in the way — 31% report not having enough time to commit to developing a plan.
It is certainly true that succession planning requires attention. We find succession planning normally takes between five to 10 years as part of a larger strategic review; it can’t be improvised and it’s not a plan you can dash off in a matter of hours.
But that is also a reason to get started long before you expect change to occur.
When asked what had triggered their planning, one in three business leaders said it was the owner’s retirement or exit of senior leaders that had forced their hand, which can be a recipe for disruption.
Another key barrier to planning, though, is reluctance to raise the issue. Some 29% of respondents said they were uncomfortable having the discussion and another 19% said they didn’t have anyone to talk to about it.
For owners used to be being self-reliant, this is understandable but it poses more risks than having to compress planning into a shorter timeframe.
Time ticks and circumstances change. Even a leader who plans to be in place for the long run might decide to step away if a new challenge presents itself.
But without a clear plan for transition all their hard work can be undermined, eroding a successful legacy.
If the owner is hoping to find an internal candidate to step up, they will need certainty about timeframes to prepare.
If it is an external candidate, the outgoing leader will need to ensure this process is smooth and doesn’t trigger a loss of talent, decline in morale or disruption to company culture.
And if the owner is hoping to back their efforts with a sale, the need to plan for this process becomes even more acute. Remembering how many business owners are heading toward a departure lounge, you will need to be prepared and positioned if you want to maximise the value in your sale.
For succession-shy leaders or those without a sounding board, the key to breaking through this barrier is to get advice.
External advisers provide an outside perspective, an emotional check, accountability and someone to bounce ideas off and talk through issues, offering a broader lens to help you successfully navigate the process.
They can also combat the professional isolation that is so common across business leadership.
A good advisor will help you envision the future and strategise the present, and walk alongside you as you navigate the change management, communication and planning required.
Succession is rarely easy, but with the right advice and preparation, it doesn’t have to be so hard.
