The Canadian Imperial Bank of Commerce (CIBC) wrote a report about SME succession, which stated that inadequate business succession planning was a growing macroeconomic risk. The CIBC found that 60 per cent of business owners aged 55 to 64 had yet to start discussing their exit plans with their family or business partners.
In Australia, 80 per cent of SMEs are owned by Baby Boomers. These businesses have an aggregate valuation of roughly $3.5 trillion. Given the similarity in the Australian and Canadian economies, we can extrapolate that the macroeconomic risk is the same in Australia. In other words, Aussie small business owners need to plan for when they can no longer run the show.
What is succession thinking?
For businesses to succeed, they need to get familiar with ‘succession thinking’. Succession thinking was the product of my experience as an SME owner-leader in three businesses over the last 35 years. I discovered that at different times, the business was not providing what I really wanted. Many owners end up in this place: financially secure, but unhappy. A big cause of this unhappiness is a lack of clarity about what they want from the business and how they fit into its success.
In short, business owners need to hand over accountability to others, but handing over accountability and decision rights to others is challenging.
Succession thinking is a method for SME owner-leaders to build their business to get what they want. It involves building your business so that succession is an ultimate outcome from the beginning. It is the opposite of kicking the can down the road and viewing succession as an event that will begin happening in the distant future.
Succession thinking has an impact on how you design and build your business, so it is wise to apply the following principles as early as possible.
Principle 1: Seek role clarity
To become a succession thinker, you need to be clear about who does what across your business. This means distinguishing between owner, director, organisation leader, team leader and technician.
The reason this is the first principle is because you can’t do the owner’s vision work until you fully embrace the owner’s role. Many SME owners are on the hamster wheel of day-to-day operations. However, the habits and behaviours to execute operations roles (team leader and technician) are very different to those of being an owner. If you want to focus on the overall vision of your business, you need to step back from operations and focus on doing the work of the owner.
Principle 2: Build your owner’s vision
The owner’s vision is where you want to head and how you will get there. All SME owners will have their own vision – it will depend on your life situation, risk tolerance, and what you want for different stakeholders. To provide a general example, however, many owners value the following:
- Sustainable dividend returns (and funds for reinvestment)
- The business is prepared for sale if the right offer was made
- Financial valuation is continually maximised
- Critical stakeholders (employees, customers and suppliers, etc) are cared for
- Discretionary time is maximised (not falling victim to the business’ operations).
You might like to use the above to help you define your vision.
One superpower of being an SME is that it’s easier to identify who the custodians of the vision are. Many large organisations don’t have this ability, and their vision can evolve to pure ROI.
Principle 3: Build leadership beyond you
The central measure of success for you as a succession thinker is when you’ve handed over roles you no longer want to do. Distributing leadership to others is key to both growing a business and delivering on your vision.
To build leadership beyond you, your successors must share your vision and understand your Business Way (see principle 5). You also need to build organisation leaders – people who set and implement your vision and strategy – as opposed to operation leaders.
Ultimately, the situation you want to avoid is having to re-enter your business because you appointed a general manager that didn’t work out.
Principle 4: Build culture beyond you
To be a succession thinker, you need to attract capable and aligned people and have them contribute for the long term. Building culture beyond you is about building sustained trust – psychological safety and accountability. This empowers handing over decision rights to others.
SME owner-leaders can harness the advantages of having a small system. You have the right to define your culture.
Principle 5: Build your Business Way
Your Business Way is a set of data that describes what your business believes in and how it delivers it. This consists of:
- Business guidance: including owner’s vision, purpose, a values constitution, goals and objectives and organisation maps (how you organise yourself beyond the organisation chart).
- Teams: including teams that service the stewardship (owners and organisation leaders) customer; support teams; all data that describe the teams and their measurement of team effectiveness and the systems that each team uses to define ‘how we work’.
- Team members: including cultural data, roles and connection to your team.
Establishing a Business Way can provide clarity, support and evidence of your value to current and future stakeholders. There is no value in having this data in a high people turnover environment where all the incentives are to optimise for the short term. However, it is very valuable when building for the long term where you want to supply this context to your people.
It is my view that your Business Way is your true point of difference. Your Business Way will help you understand what sets apart your business in the marketplace. It also describes your core points of difference or unique sale proposition.
As a ‘succession thinking’ leader, you need a place to store your Business Way that is accessible for future leaders.
Conclusion
Succession thinking is key to building a resilient business that thrives. By clarifying your role within the business, establishing a vision, leadership team, culture, and your Business Way, you can build an organisation that lasts beyond you.
This article first appeared in issue 46 of the Inside Small Business quarterly magazine
