Business Finance

What Is Succession Planning—and How Do You Do It?

May 01, 2021 • 10+ min read
Executive manager shakes hands with her successor
Table of Contents

      It’s been said that great chess players can always see the right moves ahead. They know their endgame and are able to move toward it with precision. Running a small business isn’t so different, as you’ll need to consider similar elements if you hope for great performance in the future.

      Succession planning is like playing competitive chess, acknowledging the fact that some of your key pieces will be taken off the board over the course of the game. If your rook and knight were to go, what strategies would you employ? What if you lose 5 pawns? And, shudder to think, what if your powerful queen leaves the game?

      If you’ve prepared for these scenarios, you’ll be able to move forward with your game strategy. And you do this by identifying ways to continue functioning at a high level when your key contributors depart the company due to new opportunities, life demands, retirement, or tragedy. Note that we’re talking about “key contributors” and not “leaders”strong businesses get crucial contributions from individuals at all levels in the company. So you should be just as prepared for your all-star graphic designer to leave the company as you are for your head of sales to go.

      The talent within your business is your lifeblood. You might replace that talent by recruiting someone from the outside or elevating someone already within your organization. What matters: you aren’t caught flat-footed when the need arises. The last thing you need during these difficult times is an arduous recruitment period that drags on for 18 months. Think of what you’d lose and the opportunities you’d miss out on.

      These factors can be even more pronounced in family businesses, where legacies loom large and desired successors might also come from within the family.

      “In Hollywood, many sequels were created in the 1910s as a cost-saving measure that allowed directors to reuse sets, costumes, and props,” explains the Harvard Business Review. “Sequels have become big business in Hollywood because they build pre-awareness—the audience’s sense of comfort and familiarity with the concept that often leads to big box office numbers today. Family business sequels have similar traits to cinematic sequels. But in family business, it’s not sets and costumes that are reused; it’s ownership structures, role descriptions, and decision-making processes. On paper, defaulting to a family business sequel makes perfect sense. After all, what worked for the senior generation should work for their children, right? Enacting sequels also often offers the path of least resistance: it doesn’t require the senior generation to change their own responsibilities in anticipation of succession (or after) or to change how their organizations make decisions. But that path can lead to significant challenges.”

      As noted by these Harvard researchers, succession planning shouldn’t simply be considered a glorified copy machine. If you try to replicate what used to be, you’ll never find out just how amazing your business can be. For this reason, succession planning is all about looking beyond the status quo, evaluating the available options, and strategically choosing the most impactful ones.

      What Is Succession Planning Groundwork?

      Executive manager shakes hands from a different angle

      A proper succession plan is developed long before a key performer walks into your office to announce that they’ve accepted a job offer from a competitor. At that point, anything you’d try to implement would be more appropriately dubbed a “reactionary move” than “planning.”

      You might be tempted right now to think these types of projections don’t apply to you. “We’re a small operation and we’re all loyal to each other,” you could be thinking. “None of us are going anywhere.”

      While this is a touching sentiment, it’s also 100% idealistic. No one can predict what the future holds, and there is at least 1 important member of your team who will not be working at your business in the next 5 yearsguaranteed.

      The first step to succession planning is acknowledging that entropy exists in your business and people will departthen you’ll need to identify which positions are most essential to your success and which contributors will be the most difficult to replace. If you were putting these 2 factors in a Venn diagram, the overlapping answers would be the perfect place to start your planning.

      What you’re looking to realize in this step is the list of essential skills your business needs to succeed. In some cases, these skills will be linked in your mind to a certain person. For example, you might feel that you always need a salesperson on your staff like Evelyn. But what is it about Evelyn that makes her so incredible? The skills and talents she offers are what you’ll be looking to find after Evelyn leaves your company, not necessarily her clone. If you’re looking for a clone, you’re choosing to stick with the status quo and denying yourself the opportunity to set your business up for the future.

      “There was a time when people stayed in their jobs for many years before receiving a promotion,” observes small business expert Barbara Bean-Mellinger. “Business moves at a much quicker pace today, and employees expect to be appreciated and move up in their companies. So employers look for workers who can do the job today with an eye toward what they might do in the near future. They look for some skills that have always been in demand. Other skills are newer and designed for modern business, which is always changing.”

      So make sure to list out the skills you need both today and tomorrowthen you can determine where those skills live in your business. As mentioned earlier, you’ll want to highlight the amazing things that Evelyn brings to your sales team. And you should probably add Dave’s full stack developer skills to your list. And Tashia’s mastery of human resources.

      Now is the time to get real about your business’s future. If Tashia is reaching an age where she might want to retire, it’d make sense to create her succession plan first. Ideally, you’ll have succession plans throughout your organizationbut you can triage your efforts, starting with those who bring the most to your business and are most likely to depart.

      Outlining a Succession Plan

      Okay, how are you going to replace Tashia’s skills and also bring new skills to the position that can empower your business in the future? The first place to look is right under your nose. There are often individuals in your organization who can more than “fill” the position if they’re developed properly.

      When you find internal candidates, you’ll need to decide what they’d require to be “developed properly.” If the candidate is currently the next in line for the position, they’ll likely have many of the skills and experiences necessary to take over. But you might have spotted a special employee who is currently in a different role, which would require more development.

      What’s important is that your potential candidates can do the following:

      1. Meet the basic requirements of the role
      2. Rise up to match the current strengths in the role
      3. Offer future growth for the role

      If you feel that someone in your organization can provide these 3 things, you’d better have a conversation with them. It’s easy to make assumptions about people’s career plans. But without confirming intent, how can you possibly make a plan? It’d be a hypothesis at best, and you could easily be caught in a bind if a role becomes available and your targeted replacement says “no thanks.”

      Your conversation with a potential candidate could start with asking what they aspire to in their careers. If they reply that they would love to move into a role similar to what you’re planning for, let them know the good news. It’s a great sign that their hopes are guiding them in a direction that also aligns with your aspirations for the business.

      If they don’t mention the role you’re planning for, that’s okay. Hear them out and then let them know your thoughts. Perhaps they haven’t considered this specific opportunity because they didn’t even know it was a possibility for them. Regardless of their reaction to the job, they’ll undoubtedly feel recognized and valued by your invitation. What more could you possibly want? You’ll leave the meeting with crucial details to guide your strategy, while your employee will go back to their current role knowing that you appreciate their contribution and see big things in their future.

      These conversations are particularly important for family businesses. Given the traditions that abound in such businesses, employees could feel like heirs to certain positions. It’s always a mistake to give someone a new opportunity based solely on their last name. They must earn it and show they have the skills to build upon it.

      Of course, this is easier said than done. Emotions can run high in a family business, so an extra dose of thoughtfulness is in order.

      “Look outside the company for advice,” says the Harvard Business Review. “Engage with other business families to understand how they have managed their transition process. While their situation may be different from your own, getting insight into their approach and the reasons they chose their path can shed light on your own challenges and decisions. For example, how did they decide to transfer ownership to the next generation and why? Whose expertise did they seek in the process? How did they build alignment in both the current and future generations? Be open during these discussions, as they often introduce new perspectives that you haven’t previously considered. And seeing examples can often help build the courage you need to break tradition.”

      As long as you’ve created a profile for what’s needed in the job, you’ll have a clear system for contrasting a candidate with your requirements. This helps to remove the emotion from the situation and reach decisions that are easier to agree upon.

      What Is Succession Planning in Action?

      Executive manager smiling with colleagues

      Internal hires bring lots of benefits, but you will almost always want to consider outside talent as well. This doesn’t mean it’s automatically an inside-versus-outside scenario. By setting up a program for employee referrals, you’ll consistently find talent that mirrors the strengths of your current team. This approach can provide the best of both worlds.

      An effective employee referral program requires a few key elements. First, it should be easy for employees to submit a name. Second, you should communicate with the referrer. Let them know that you’ve received their submission, then keep them in the loop throughout the process. If you set up an interview with the referred candidate, keep them informed. If you decide to pass on the candidate, that also deserves a candid conversation.

      Finally, you should include an incentive for referrals. The dollar amount doesn’t need to be large, but there should be some sort of takeaway that shows your appreciation. Possible alternatives to the traditional cash bonus include PTO, company stock, or a personalized reward such as a gift card to their favorite restaurant.

      “The value of employee referral programs is unequivocal and compelling,” explains recruitment guru Jeff Hyman. “Referrals deliver the highest quality candidates in the least amount of time and for the lowest cost per hire. Plus, over the long term, referrals fit in better, outperform, and stay around longer than candidates hired through other sources. If that’s not the holy grail, I need to change what’s in my cup. Make your employee referral program best-in-class and you’ll build a workforce that outshines and outpaces your competitors.”

      On top of your internal efforts, you should look for other ways to develop a deeper talent pool. Attend industry events, network with universities, and serve as a magnet for your business by letting friends and family members know what type of talent you’re looking for.

      Your ultimate goal here is to choose the successor. Once you’ve done that, your plan has transcended the speculative stage and become actionable. Congratulations! You now have a perfect strategy in place that will bring unbridled happiness to your entire team and prosperity to your business for years to come!

      Pump the Brakes: the Reality of Succession Plans

      Confident mature business woman leader coach speaking at meeting

      Of course, things rarely go exactly as you might’ve planned, so it’s important to have contingencies in place. Having a plan B isn’t a concession—it’s a strategic solution that can convert a catastrophe into a win for your business.

      Use the same methods for finding your primary candidate to also locate a solid alternative. These individuals are often found internally in jobs that aren’t directly related to the position: their abilities are readily apparent, but they’d need more training to get them ready for the new role.

      You can start giving training opportunities to both your primary successor and the alternate in advance. For example, if the current employee were to take extended time off for a vacation, illness, or family matter, let the potential successors share some of the responsibilities that arise from this absence. These on-the-job learnings always transcend whatever job duties might be listed in the binders often handed out to recruits on the first day of a new job.

      Eventually, the current employee will become a former employee. Speak with this individual to lay out the details of their transition. It’s usually advantageous for the successor to spend time with the current employee, so they can watch the job’s tasks be performed and get a feel for some of their nuances.

      How long does the current employee think this training should last? Their opinion should help to guide your plan. But you should also consider the previous experience of their successor. If the training is too short, your new hire might feel like they’ve been thrown in the deep end of the pool. If the training goes too long, they might become too indoctrinated in the status quo. Remember, you don’t want a clone—your goal for the successor is for them to innovate the role and provide new strengths in the future.

      Each time a succession occurs, take notes on the effectiveness of your plan. Which talent sources were most beneficial in the search for a successor? What processes could be improved? Was the successor’s training with the departing employee effective?

      Reflecting on these questions and authentically rating your team’s performance is key to improvement. You’ll learn what works and what needs to be improvedand when the next departure arises, you’ll be better able to manage it.

      One final thought: who is going to replace you? There are plenty of small business owners who have planned for every role in their organization except their own.

      You can avoid serious issues down the road by creating a succession plan for the role you understand most of all. By identifying candidates now, you’ll be better able to provide training opportunities and help prepare your replacement to not only continue the great traditions of your business but to improve upon them.

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      About the author
      Grant Olsen

      Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on and Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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