ENSURE YOUR LEGACY WITH A SYSTEMATIC SUCCESSION PLAN
Aging leadership is a challenge across industry segments as the average business owner is 50 years old. Executives in the baby boom generation are now between 57 and 75 years old, and many do not have succession plans to guarantee the survival of the businesses they worked so hard to build. Succession planning is vital for younger executives as well. The “Great Resignation” magnified the need for planning, where 33 million Americans have quit their jobs since the spring of 2021. The sudden loss of leadership often throws organizations into a downward spiral with no clear direction, loss of critical employees and plummeting revenues as once-loyal customers struggle to connect to the new regime. In this guide, we discuss how you can ensure your legacy with a systematic succession plan.
A high proportion of small businesses are family-owned. However, statistics show that only a small portion of companies successfully transition to the next generation. Further, companies without a succession plan struggle to maintain employee morale and engagement, negatively impacting sales and customer retention. A successful succession plan covers four primary phases starting with preparation. First, organizations must meticulously document procedures, update systems, or replace them with modern applications designed for tomorrow’s industry leaders and ensure a smooth knowledge transfer. Second, choosing the best successor without concise evaluation criteria and plans poses an enormous risk. Third, transitions are most successful when existing leadership can slowly transition knowledge and responsibilities to the new management team. Finally, executives can exit the business with a continued role as mentors or advisors to ensure continued success for the company, customers, and employees.
An effective succession plan covers four primary phases starting with preparation. First, meticulously document procedures, update systems, or replace them with modern applications designed for tomorrow’s industry leaders and ensure a smooth knowledge transfer. Second, choose the best successor using concise evaluation criteria. Third, slowly transition knowledge and responsibilities to the new management team. Finally, exit the business with a continued role as a mentor or advisor to your successor to ensure continued success for the company, customers, and employees.
Why is succession planning so important?
According to the U.S. Bureau of Labor Statistics, only 36 percent of businesses survive ten years, and only 12 percent make it to their twenty-sixth year. In fact, less than one percent of companies reach the century mark. According to the U.S. Bureau of the Census, about 90 percent of American businesses are family-owned or controlled, with an average lifespan of just 24 years. Less than half make it to the second generation, and only 13 percent make it to the third generation.
Founders and owners across industry segments are aging. For example, the average age for finance, insurance, and real estate business owners is 54 years. Other industry segments with owners over 50 years of age include wholesale trade, agriculture, forestry, fishing, mining, services, public administration, and manufacturing. Conversely, construction, retail trade, and transportation industries have younger ownership with an average age of less than 50 years.
Succession planning is vital for older business owners. However, succession planning has many benefits for younger business executives. For example, a 2015 Software Advice survey concluded that 94 percent of employers said a succession plan positively impacts employee engagement.
Succession plans inspire younger workers between 18 to 34 years old. A survey revealed that 90 percent of younger workers would “improve” their engagement level if a clear succession plan were implemented. However, 29 percent of businesses did not have plans defined. Other benefits include improved training and employee development, brand integrity protection, lower employee turnover, reduced recruitment costs, and risk mitigation. Below is additional research supporting the importance of succession planning.
• 86% of leaders believe succession planning is an “urgent” and “important” priority, yet only 13% believe they do it well.
• Only 35% of organizations have a formalized succession planning process.
• 40% of family business owners expect to retire. But of those planning to retire in less than five years, less than half have selected a successor.