Succession Planning - How SME Owners Can Plan a Smooth Exit

By Bill Withers - Founder of adapt and author of Succession Thinking

There are five principles owners should follow if they want to ensure their business remains in safe hands, achieves growth and success, and leaves the best legacy.

In a report on SME succession, the Canadian Imperial Bank of Commerce (CIBC) found that inadequate business succession planning was a growing macroeconomic risk in Canada. It showed that 60% of business owners aged 35 to 64 had yet to start discussing their exit plans with their family or business partners.

In Australia, 80% of SMEs are owned by baby boomers, and they have an aggregated valuation of roughly $3.5 trillion.

Given the similarity between the Australian and Canadian economies, we can extrapolate that the macroeconomic risk is the same in Australia.

For businesses to succeed, they need to become familiar with the idea of Succession Thinking™.

Succession Thinking™ was the product of my experience as an SME owner-leader of three businesses over the last 35 years. I found that, at times, the business was not providing what I really wanted. I subsequently discovered that many owners end up in this situation: financially secure but unhappy.

A big cause of this unhappiness is that they are unclear what they want the business to deliver with respect to their part in it. They need to hand over accountability to others. However, handing over accountabilities and decision rights to others is very challenging!

Succession Thinking™ enables an SME owner-leader to build their business to get what they really want. Instead of succession planning, the business is built to ensure that succession is an outcome. This has a significant impact on how you design and build your business.

The five principles of Succession Thinking™ provide a method for building a business that gives you what you really want, including facilitating your own role succession. It is wise to apply the following principles as early as possible. Kicking the can down the road often compounds the problem of getting what you really want.

Principle 1: Seek Role Clarity

To become a succession thinker, you need to acknowledge that you have different roles. The lack of visibility of these roles can create confusion for all, including for you. By acknowledging this, you can apply the principle of role clarity across your business.

The starting point is the clarity of your role and the distinction between owner, director, organisation leader, team leader, and technician. This is the first principle because you can't do the owner's vision work until you acknowledge that the owner is accountable for it.

Many SME owners are on the hamster wheel of operations, and the habits and behaviours needed to execute operations roles (team leader and technician) are very different from those required by an owner. You need to 'park the car' to do the work of the owner.

Principle 2: Build Your Owner's Vision

The owner's vision combines the star on the horizon with the guardrails of the business. The star is where you want to head, and the guardrails help you get there. The guardrails will remain in place as you hand over accountabilities to others.

The owner's vision is unique to each SME owner because of their life situation, attitude to risk, and what they want for different stakeholders. However, in general, SME owners value the following:

• Sustainable dividend returns (and funds for reinvestment)
• Business must be ready for sale if the right offer is made
• A financial valuation that is continually maximised
• Critical stakeholders (employees, customers, and suppliers) must be cared for
• Discretionary time should be maximised 'I am not a victim of the operations of the business'

This is typically the owner's vision, and it assists with defining the destination or the 'star on the horizon'.

Additionally, they must understand the guardrails with respect to factors such as the market domain, capital expenditure, and values. The superpower of an SME is being able to identify the custodians of the vision. Many organisations don't have this ability; hence the vision can evolve into a pure focus on ROI.

Principle 3: Build Leadership Beyond You

The central measure of your success as a succession thinker is when you've been able to effectively delegate roles that you no longer want to handle. This will not happen without an understanding of how leadership works in your business.

Distributing leadership to others is key to both growing a business and delivering on your vision. The problem of single leaders, or leaders who don't know 'your business way' (see Principle 5), is a major issue.

In my book, Succession Thinking™, I discuss the concept of anti-fragile leadership. This deals with the issue of owner-leaders who have had to re-enter their business because they appointed a general manager who didn't work out.

A key point of this principle is to separate organisational leadership from team leadership (operation leadership). Although building great team leaders is challenging, it is far less challenging than developing organisational leaders - the people who set and implement the strategy.

Principle 4: Build Culture Beyond You

SME owner-leaders can harness the advantages of having a small system. You have the right to define your culture. There are no constraints on how you build your culture. This is how you can differentiate your business.

To be a succession thinker, you need to attract capable and aligned people and have them contribute for the long term. As the vision custodian, you define the guardrails of your business values. This is not a cynical exercise in making up values. It's about identifying what you really value and how you wire those values into your business.

Building culture beyond you is about building sustained trust - psychological safety and accountability. This empowers you to hand over decision rights to others.

Principle 5: Build Your Business Way

'Your business way' is a set of data that specifically supports SME owner-leaders. As a succession-thinking leader, you need a place to store 'your business way' so you can provide clarity and support to current and future stakeholders.

This will encourage leaders to build a resilient and adaptive business. It also supports the clarity of the owner's vision and the delivery of that vision.

This is one of the most powerful discoveries but the most difficult to communicate. It's important to understand what differentiates your business in the marketplace - your core points of difference or unique sales proposition. I believe that 'your business way' is your true point of difference. The data that describes this is:

• Business guidance, including owner's vision, purpose, values constitution, goals and objectives, organisation maps (how you organise yourself beyond the organisation chart).
• Teams, including teams who service the stewardship (owners and organisational leaders), customer and support teams - all data that describes the teams and their measurement of team effectiveness, as well as the systems each team uses to define 'how we work'.
• Team members, including cultural data, roles, and connection to teams.

This data is valuable to the SME owner-leader in building for the long term. There is no value in having this data in a high-turnover environment where all the incentives are to optimise for the short term. It is very valuable when building for the long term, where you want to provide context to your people. This data represents evidence of value to all your stakeholders.

The application of this family of interdependent principles is key to adopting Succession Thinking™.

* Credit to mpamag.com.au for hosting this article on their publication