Fact: Only 30% of all family businesses survive beyond the founder's phase - and that drops to 12% after the third generation.
One of the key reasons for both family and privately owned business failure is a lack of succession planning. The truth is that most entrepreneurs and owners are great at building businesses but not so adept at planning their legacy. They spend most of their time figuring out creative and innovative ways to develop and sell their products or services profitably, and very little time growing their internal leadership team while preparing them for greater responsibility and succession opportunities.
CEOs, particularly Founder CEOs, need to focus more time managing against outcomes with their staff and less time on performance reviews, personalities and behaviors. Establishing the rigor of goal setting, evaluation and retention (or elimination) of staff is just as important as deciding which product or service to launch (or remove) from the market. And there are many tools available, both online and offline, which can help CEOs do so.
Another challenge is handing off to the next generation. What's Plan B when your heir apparent says No! to taking over the family business? Have you recruited qualified outside talent? Unfortunately, business owners can't always count on their children to carry the torch. They need to have outside talent, on the inside, that work side-by-side with their children. And if your chosen successor says, Yes to the CEO slot, there should then be a plan in place for the outside executive to be a mentor to the new CEO, to sit on the company Board or possibly even to take on an Executive Chairman role.
So how do you ensure effective succession planning? It's no secret. The discipline needs to be driven deep within the organization. Of those few companies that do any succession planning at all, only about half go deep and wide. The keys to victory belong to those firms providing career development planning to all employees at all levels. And this makes good economic sense. Plans that retain top performers not only minimize the effects of talent shortages, they also keep hiring costs down. Talent replacement costs run from 10x to 15x an employee's annual salary - can you afford that expense when you lose an "A" player on your team?
Succession planning needs to be as important as business planning and applied throughout the company. CEOs need to embrace succession plans as a business tool to achieve their own legacies as well as the financial success of the organizations they leave behind. By integrating succession planning with talent development, CEOs can identify as well as alert the rising stars in their companies to potential leadership opportunities and generate more profitable, long-term results.
What's your succession plan?