Most founders of a successful family business sell their business to an outside third party. The 39 percent of family businesses passed to a second generation fail. Why don’t these owners plan better for one of the most important events of their lives?
If only it were just family businesses that didn’t plan well for the future. Most businesses woefully neglect the long term. And it’s not just the top executives who fail at farsightedness—few of us anywhere plan ahead. Before we jump into succession planning, there are some intriguing things to know about how we factor time into our decision making.
Think about some future plans you have. Notice how far out “the future” is for you. Are your plans for fifty years from now? Next week? Tomorrow? We all have certain time frames we naturally use when making decisions or thinking about the future. Those time frames drastically affect your decisions.
I awoke at sunrise on a Caribbean cruise and strolled up to the deck to behold row upon row of beach chairs, each with cup holder and ashtray. My first thought: “Great! Everything I need for a tan. Then perhaps a martini, and maybe a cigar. It’s the good life!” But if I took a thirty-year time horizon I might view this deck set-up as skin cancer, liver failure, or an emphysema station. Maybe it’s time to visit the casino, where I’ll lose 52 percent of my money on average at the blackjack table over the long term. The same situation looks very different depending on your time horizon.
1. Think of a decision you’ve recently made.
How far out did you project the consequences when making that decision?
2. Now change the time frame. Make it shorter. Make it longer (even past the end of your life). Notice how that changes your mind.
Your decisions, your planning, and even how you look back and learn (or don’t) from the past are all affected by your time frame habits. If your time frame is brief, you probably spend a lot of your life in perpetual emergencies and fire-fighting, since, in a brief time frame, consequences of short-term emergencies are more real than the far-off consequences of creating permanent solutions. One of my best friends has such a short time horizon that he can be leaving for an appointment, spot the daily newspaper as he’s putting on his shoes, and spend twenty minutes reading it before realizing he’s just missed his appointment.
Being overwhelmed has driven us to ever-shorter time horizons. With more to do than we can even think about, we attend to the most urgent. That usually means the immediate emergencies. In a world demanding ever-faster results, we compress our time horizons more and more.
Rarer, but just as dysfunctional, is the opposite: a naturally long time horizon. Thinking ahead thirty years is great for insuring long-term success, but you’ve got to solve all the problems between here and there for it to matter. The Perfect Ten Year Plan is useless if you go bankrupt in the first year by not managing the day-to-day cash flow.
We are scared to plan for succession
Most people just don’t have a time horizon long enough to think about succession. If they do look ahead, they don’t like what they see: the day when they’re no longer here. And it’s not just in work; my estate planner tells me most people procrastinate writing their will for years. We avoid it, because in American culture, we’re just not taught to deal with our own mortality. (He’s been nagging me for a couple of years to get my estate plans in order. And I’ll do it—as soon as I’m done writing this article.)
Aside from mortality, there’s ego at stake. Does a founder really want to admit the company can survive without him? Come to think of it, does a founder really want to admit a legacy so fragile that it can’t survive without him? Quite a conundrum. It’s much easier to ignore succession altogether and concentrate on the next six months.
You might be thinking that it’s a leader’s job to do that planning, for the health of the business. Think again—and look in the mirror. It’s everyone’s job to do that planning. None of us want to admit that our companies/teams/families/communities can survive without us. But they can. It’s up to us to make sure that when we leave—and we will leave someday—the transition goes smoothly.
Start planning for succession long, long before you move on. Consider your first job responsibility to be training someone else to take over what you’re doing, so you can put your mind to learning the job above you before you’re promoted. Then when promotion time comes, you can step up with confidence that you have a head start and that your current job is in good hands.
Creating your succession plan
You can’t groom heirs unless you know what you’re grooming them for. Start by identifying all the responsibilities of your current job. Requests are your key to identifying your responsibilities. List all the requests anyone makes of you—customers, suppliers, bosses, employees, the public, even yourself. Each of those requests is a responsibility. Also, list all the requests you make of others. Ask yourself why you make each request. Your answers will be another list of responsibilities.
Now you have it: your real job description (formal job descriptions rarely reflect reality). For each responsibility, list the skills you use to meet the challenge. List the mindsets and attitudes you have, and any specific knowledge you use to fulfill that request.
Now you have a blueprint for bringing a successor—or several—up to speed. You use your real job description to identify who has many of the attributes needed to take over. Discuss the real job description with them, and get their input. Their ideas may differ on how the job can be done. Those differences might suggest alternate skills or approaches that can broaden how you do the job. More alternatives can also broaden the pool of potential successors.
Once you’ve chosen your people, start developing them. In their semi-annual learning and development review (of course you have semi-annual learning and development reviews, even if it’s not mandated by the company), help them choose assignments and experiences that will develop the skills you’ve identified to allow them to step into your shoes.
Juggle many replacements
There’s no reason to settle for a single successor. You can develop several people at once, especially since you can’t count on everyone staying put until you move on. One Fortune 500 company builds succession planning into every job above a certain level. They look for inside and outside candidates, and strive for a 3:1 ratio—three replacements in the pipeline for every job.
Furthermore, don’t assume you’ll be replaced by a single person. When you move on, your responsibilities may be distributed throughout a group, or may be taken over by a team. We all fantasize about being so valuable it’ll take a team to replace us; indulge the fantasy. You can develop some skills in some group members, and other skills in others. Of course, you’ll need to insure the team can work together when it’s time.
One caveat to choosing multiple replacements: Manage the situation delicately. If you tell five people that they’ll all be your replacement, you’ve just introduced competition that might cause four to quit when the fifth gets promoted someday. Simply help them develop, and make it clear to folks that the best way to succeed at any level is ongoing achievement and growth; specific jobs aren’t guaranteed.
Once you’ve got your succession plan under way, start working on your boss’s…with you as the successor. Profile your boss’s job and voila! You have your own development plan. It won’t guarantee you get the job, but you’ll be better and more effective as you move forward, and you’ll have a whole cadre of people able to step into your job when you move up to Chairman.