No Plan for a Succession Plan? 5 Practical tools to get your business on the road to succession planning

thinkstockphotos-186131464

Published by Divestopedia

Every day, business leaders who have been at the helm of their company for many years have fleeting thoughts about what the future might hold.  How long do I want continue to work?  Should I sell my business?  Who could manage my business?  Is it time to make a move?   Perhaps the biggest question may be this: how do I even get started with addressing these questions?

It’s not uncommon for business leaders to meet with their advisors from time to time; to develop their personal post-sale financial plan, establish family trusts, or work through tax planning strategies.  Although all of these are necessary and important tasks, there is often one very important component missing: how to bridge the gap between a post-sale retirement plan and the current state of a company.  In other words, business leaders might be good at planning for life after selling their business, but are not so good at undertaking the succession planning process.   Why is this the case?

One reason could be so simple that it isn’t fully appreciated: many businesses don’t do a very good job of planning, period.  Annual budgets: we don’t need that.  Business planning: too much trouble.  Sales planning: all sales budgets are too inflated to be useful, right?  Technology planning: we just buy the new stuff every few years.  It’s no wonder the succession planning process never gets off the ground.

Here’s the problem with businesses that don’t plan: since planning is a process that is developed through practicing it, these companies don’t have the opportunity to generate competency in this important area.  A disciplined planning process, starting with shorter term and more straightforward plans, such as an annual budget, can help staff members develop the competency to approach more complex initiatives, such as business and succession planning.  What’s more, the corporate history and financial results that are compiled during the process represent an information base that is integral to succession planning.

So, in the spirit of walking before you can run, here are 5 ways to get the planning process started in your company today:

  • Get the right assistance—as with any new task, it can be much easier to design a process and overcome roadblocks by engaging the right advisory expertise. Business advisors that have helped companies work through the annual budgeting or business planning process can provide valuable insight into establishing an appropriate approach and avoiding common pitfalls.  This course of action typically brings far more value to a business than its actual cost, in terms of time savings and identifying best practices for use over the long term.
  • Develop standardized documents—as with any key process, taking the time to develop templates and documents that can be used repeatedly is a much better approach than starting from scratch every time. A standardized budget template, including information to be collected, supporting calculations, assumptions, and financial statements in the proper format can greatly expedite the process and help users become more productive when undertaking a new initiative.
  • Assign roles and responsibilities—the planning process should be the responsibility of all key management team members within a company and not just a task relegated to a particular department. Ensuring that roles are clearly defined and that a number of people are responsible for providing information to be included in the budget, for example, has benefits of at least threefold: better information, planning training across the organization, and enhanced “buy in” of the result.
  • Set (and adhere to) timelines—like any other initiative, the planning process requires formal deadlines that are not simply kicked down the road if they are not met. Planning can sometimes take a backseat to other activities that are considered to be more relevant or immediate, and maintaining this type of attitude will not enable a business to develop the competency that is required to support more complex initiatives, such as succession planning.
  • Keep planning relevant—one of the fundamental mistakes that companies make is failing to keep the planning process top-of-mind, resulting in budgets and other plans becoming quickly irrelevant as soon as they have been developed. It’s critical to ensure that actual results are compared to plan consistently throughout the year (monthly is ideal) and variances investigated and resolved.  It’s no wonder that companies that fail to do this find little value in the planning process.  Even more, striving to meet or beat the plan is the real challenge, so don’t miss out on this valuable opportunity to enhance corporate performance.

Although this might seem like a lot of work, think of it as an investment.  The key is to start today, take a gradual approach, and build planning into your regular business routine.  Doing so will get you one step closer to starting the succession planning process, as well as actually implementing your post-sale financial plan.

Grow Within your Means? Yes, You Can!

ThinkstockPhotos-477677833

Generating growth in the business world can be a tricky thing.  Companies do whatever they can to grow, but many find themselves unprepared when success happens.  On the other hand, some businesses take mighty steps in advance of growth: hiring staff members, moving to a bigger location, and buying new equipment, only for increased sales failing to materialize.  Business leaders often struggle with which road they should take: forward, back, stay put?  Sometimes this indecision can be a good risk mitigation strategy, and at other times, it leads to opportunities being missed.

Growth, however, does not always have to involve adding significantly to a company’s expenses.  This might sound surprising, but by applying some careful thought and creativity, it is possible.  The potential is compelling, as in situations where revenues increase and expenses decrease, profits can multiply in ways that you might not have thought possible.  There are ways to generate growth by getting the most out of what a company already has and is likely still paying for; and however you look at it, it’s a great time to grow:

  • Utilize your existing workforce to the fullest—hiring staff members is a long term commitment, so ensure that you are not using it to resolve a short term problem. Each and every staff member should be fully utilized with a meaningful workload, so identify inefficiencies and work smarter.  Using cross-training and reassignment of tasks across departments and hiring part time/contract staff during peak periods can all help.  Standardized procedures, templates, and documents can be used repeatedly and eliminate the wasted time associated with “reinventing the wheel”.  Ensuring that staff members have the right technology to increase productivity is a must, recognizing that more is not always better.
  • Take a fresh look at your premises— consider reorganizing work schedules, adding shifts, or servicing customer markets that could be accessed during off hours. Ensuring that your online and social media presences are as robust as possible also represent opportunities to spur growth.
  • Take things in stride—turbo speed growth isn’t always the best approach, as it can be difficult (and risky) to service and maintain. Long term success is often better achieved by taking a gradual approach, raising the likelihood of profitable growth that is also cash flow positive.  View this as creating the basis for the next level of expansion.
  • Look to fill product and service gaps—identifying partners who have products and services that fit well with your own, or would be of interest in your marketplace, can be a great way to grow. Each partner works within their own resources, but benefits from offering products and services to each others’ customers.  It’s also no secret that groups who work together can generate additional productivity, simply by collaborating and working smart.
  • Take a short term focus—view growth as a series of small steps or advancements. Stay away from long term facility commitments and equipment loans, as they are expenditures that remain well into the future.  Generate growth that has a likelihood of being sustainable over at least a moderate period of time, such as a couple of years, before committing into the long term.  This approach can be repeated over the years, resulting in managed growth that mitigates risk.

Much of what is required to achieve success in this regard is not glamorous, but rather, represents good, fundamental business practices.  Take stock of what you have, make it run like a charm, utilize it to the fullest, and monitor, measure, and refine.  Do it well and be prepared to welcome the kind of growth that will be with you for years to come.

Leaving a Leadership Legacy: Big Skills in the Leadership Space

ThinkstockPhotos-479188196

Published by The Canadian Society of Club Managers in CMQ (Winter, 2016)

Most people recognize that leaders have the ability to impact many aspects of an organization. One of the key areas is people, including staff and management team members at all levels.  There is a perception that leadership involves guiding the masses, who, if not for the leader, might never find their way forward.  This is a concept that is quite dated.

Leaders have the ability to create an organization that is empowered at every level, in terms of continuous learning, improvement, advancement, and dare we say, independence. Envision a place where staff members understand their role, take steps to perform it efficiently, apply innovation and improvement where it makes sense to do so, and strive to take on and learn more.  Staff members know what to do and how to work well with others, putting their hand up only when help is needed.  Micromanagement isn’t practiced here.

Instead, managers are able to free themselves from mundane and repetitive tasks that consume far too much time in a given day: the questions of what to do, who should do it, and why. Instead, they are able to focus on things that actually improve how a club functions, is perceived in the marketplace, and perhaps most importantly, where it’s going in the future.  If this sounds like an elusive place that doesn’t exist, think again.  It’s all a product of what empowered leadership can do.

Trouble in the Club

One of the realities of being a leader is that the higher you rise, the more people you have reporting to you. Although many might represent indirect reporting relationships that don’t actually interact with you on a daily basis, rest assured that they are out there, keeping a keen eye on how you lead.  When leaders operate on a basis of insecurity, indifference, or a lack of purpose, a wide range of negative outcomes can result.  Regardless, there is a missed opportunity to “leave the place better than you found it”, in terms of advancing the capability of staff and management team members and how they approach their roles.

Believe it or not, some leaders have a strong need to be “needed”; to be the referral point for all the questions, the one who provides all of the directions, and is the proverbial “smartest person in the room”. This type of approach misses the opportunity for staff members to stand on their own two feet and creates an unhealthy dependence on the leader (for both the organization and its people).  Looking sharp in this type of environment actually doesn’t make you valuable; rather, such leaders are a barrier to an organization’s ability to grow and make progress.

Leading Large

One of the most powerful things that leaders can do is put everyone in the organization in a position to do more.  Development can be fostered well when it starts at the top, as an example of how all staff and management team members should operate.  Here’s how to get started on the empowerment path:

  • Focus on the bigger picture. Insecurity can arise from scenarios where people feel that they are “giving up” something to someone else. Delegating some of your tasks to a member of your senior team shouldn’t create feelings of insecurity, such as “what if they do a better job?”; rather, it should increase the level of organizational performance overall, a goal in which you should find comfort.
  • Establish professional development plans. Performance management shouldn’t just focus on what a staff member did in the past or where they currently are. Include an action plan of two to three items that are to be successfully learned over the next six-month period, such as taking on a new area of responsibility or completing a training program. This approach helps to keep the focus on progress that can be applied, measured, and built upon.
  • Be a learning organization. Make it a requirement for all staff and management team members to commit to learning on an ongoing basis. Approaches could include taking on new responsibilities, completing courses or training programs, or mentoring a peer. Remember that teaching and transferring knowledge is also learning.
  • Don’t settle for less. Seek to replace those who aren’t on board or don’t consider development to be part of their job description. Negative attitudes and opting out of what’s expected don’t just harm the role at hand, they also hold back the rest of the organization. Effective leaders can’t afford to carry this type of baggage.
  • Reinforce the vision. Remind staff and management team members that your organization is a place of excellence where everyone can soar. Show them how this behavior fits with where the organization can go in the future. An environment where people see the opportunity to make progress in their role and are empowered to do so is a great place to be.

Developing and empowering staff and management team members to a level of independent competence represents an opportunity to create a lasting legacy. If you think that sounds powerful, that’s because it is!  Those who have the courage and ability to make it happen differentiate themselves in the leadership arena more than they know.

Accounting for Business Growth and Transition Course Now Available!

I’m pleased to announce that my new course, Accounting for Business Growth and Transition, is now available!

Growing companies are dynamic places and there are a number of specialized issues that could arise during the lifecycle of a business. These include the complexities related to expanded operations, entering new markets, and undertaking business transactions.  It’s critical to understand these areas proactively, as well as how to add value to the company during the process.

Too many companies barely manage to do the minimum; resulting in the accounting function being little more than a place where transactions are recorded and reports are filed away.  The opportunity to learn how to develop and manage an accounting function that not only helps to improve operations on a day-to-day basis, but also provides a valuable support in times of transition is a powerful one!

This course addresses a range of areas that might be encountered during the evolution and growth of a company. Topics include organizational structures, consolidated financial statements, foreign exchange, due diligence requirements, and understanding approaches for structuring a business transaction.  Those who work in the accounting function will gain an understanding of how to take a leadership role in creating a value centered department that can play a key role in not only a company’s current operations, but also in whatever the future might hold.  Register today!

 

 

The Succession Conundrum: Business leaders, the weak link to successors, and the companies who try to finance them (Part 2)

Published by the Canadian Venture Capital Association in Private Capital

If succession planning is a challenge for business leaders, potential successors might describe the process as mysterious.  While a business leader or founder has typically been at the helm of a company for some time (if not a prolonged period of time, in many cases), potential successors are often just trying to find a way to get to the table.  One day, the founder is keen to “step back” from the company, while the next day, “retirement” seems vague and far in the future.  For someone wanting to aspire to a leadership (and ownership) role, this type of situation can be a difficult to deal with on an ongoing basis.

Whether a potential successor is a longstanding “2-IC” (2nd in Command), management team group, or family member, their vantage point might provide relatively little information in terms of how the company actually operates, the business leader’s true expectations around succession, and what it would actually take for a transaction to occur.  Add in the mixed messages that can be so common with the issue of succession and it might be enough to cause a potential successor to scramble for the door, vowing to create an opportunity all their own (and on their own terms).

This reality should be sufficient to get the attention of business leaders who are contemplating succession, if not outright relying on it as a means to monetize their ownership position.  Given that a recent survey conducted by the Canadian Federation of Independent Business (1) found that the top barrier to succession planning is finding a buyer/suitable successor (56%), those seeking to exit their business should recognize that finding (and keeping) a potential successor is not to be taken lightly.  Unfortunately, too many potential successors find just the opposite to be the case.

The Successor Perspective

Something that many potential successors have in common is that they are keen; to implement their ideas, take the company in a new direction, and just “get started”.  Many have a reasonable expectation that succession will occur at some point in time, either by virtue of previous conversations on the topic, or perhaps, in the case of a family business, where succession is “expected”.  Call it an informal succession plan.

As a result, potential successors want to better understand how and when a transaction might occur.

This is particularly true in the case of individuals who have invested a number of years working in a company, learning how it operates and directly contributing to building its wealth.  They reach a certain age or point in their careers when they truly need to know: (i) if a succession opportunity actually exists; (ii) when it would occur; and (iii) what the financial implications would be, particularly in terms of the cost to undertake the transaction.  In the absence of this information, a successor’s next best alternative is to move on to other opportunities, and given the effort they have invested in building the company (often, to the direct benefit of a shareholder group in which they are not included), this is understandable.

The Opportunity

Identifying a qualified and willing successor is only the beginning of the succession process, as there is often still plenty of learning to do in order to fully assume and conduct the leadership role.  But even before this can happen, the parties need to be able to arrive at an agreeable value and the successor has to have the ability to pay, either by way of their own funds or through securing financing (in the absence of either of these options, it often comes down to the departing business leader to agree to be paid over time).  Since the  Canadian Federation of Independent Business survey found that valuing the business (54%) and securing financing for the successor (48%) are the second and third highest reported barriers to succession planning, all involved in the process need to take note.

For potential successors to chart their course, there are a number of things that can be done on a proactive basis to better understand the particulars of the opportunity, as well as getting a plan into place.  Seeking advice from those who have undertaken or financed business transactions can help to bring context to the situation, in terms of its appeal and how to help move the process forward.  Here’s how:

Look in the mirror. The truth is, not everyone is cut out for a leadership role. Leading a company, in terms of both the role and ownership aspects, can be significantly different from the experiences of a potential successor thus far, including the scope of responsibility, level of risk, and degree of commitment.  As an example, in the event of insufficient cash flow, owners typically bear the responsibility to inject additional funds or decrease their own compensation to cover shortfalls.  This type of uncertainty might fall outside of a potential successor’s risk tolerance level.

Potential successors need to take a hard look at all aspects of assuming a leadership role, objectively balancing both the risks and rewards of ownership.  Advisors can help by providing independent feedback or helping successors to undertake a self assessment to better understand the types of roles in which they fit best, before proceeding any further.

Assess the situation objectively. Due to the inherent uncertainty that often clouds the succession process, potential successors need to be able to get to the heart of the situation, to first understand whether or not an opportunity actually exists.  This uncertainty is a relatively common frustration, and the reality is that succession is only going to happen if a business leader is committed to undertaking the process.

Advisors can help potential successors to see the situation for what it is, as well as suggest approaches to further discussions with the business leader or how succession could occur.  In addition, successors might need to take action to put the situation in context, by identifying other possible succession opportunities as a comparison.  Although business leaders might not like this very much, the reality is that there are situations where succession simply will not occur, no matter how much a founder might indicate otherwise.

Communicate.  Given that succession can be a sensitive topic, it’s not uncommon for the parties to have difficulty having meaningful conversations around the issue; this can be particularly true in family businesses.  Since succession represents a complex business transaction with numerous details to be considered and negotiated, it won’t just magically happen.  Given the sensitivities, these conversations tend to get deferred and delayed, making succession seem less likely as each day passes.

Starting the succession dialogue between the parties is critical, to map out an agreeable approach, but to also identify situations where an arrangement might not be possible, allowing both sides to pursue other opportunities.  Advisors can help to start the conversation in a non-confrontation manner, in an attempt to find common ground, where it exists, and cover off areas that need to be addressed.  This approach can also help to fill in knowledge and experience gaps that are common in the case of potential successors.

Financial implications. Discussing money is often tough, not just because of the calculations and various financing structures, but simply because the parties might find it difficult on a personal level.  In the case of family businesses, parents might be sensitive to the financial situation of their children, while the next generation might be concerned about not “offering enough” as compensation for all of the work that has been put in to building the company.  Couple this with a founder’s understandable desire to receive fair compensation to finance the retirement they have been dreaming of and negotiations can stall.

Potential successors often do not have a lot of experience in this area, and financial partners can be helpful in terms of transferring knowledge and suggesting approaches that could meet the needs of all parties.  Regardless, those who are serious about taking on a leadership and ownership role at some point in the future need to ensure that their professional development program includes business financing, sooner rather than later.

Although it’s true that good successors are in short supply, all potential successors need to take a hard look at not only what is required of them, but also whether or not the opportunity at hand is viable.  In times of investment (and that’s what succession is), bringing a professional approach to the table is a must to ensure that the right deal gets done.

Source:

Passing on the Business to the Next Generation, Canadian Federation of Independent Business, 2012

The Succession Conundrum: Business leaders, the weak link to successors, and the companies who try to finance them (Part 1)

Published by the Canadian Venture Capital Association in Private Capital

Business succession planning is tricky; part old, part new, part money, part emotion; it’s no wonder that so many business leaders put it off.  The reality is that an abundance of Canada’s small to medium sized businesses (more than half, according to a survey conducted by the Canadian Federation of Independent Business) don’t have a succession plan at all.  Since companies in this category are responsible for generating approximately one half of the Canadian economy, there is undoubtedly cause for concern.

Consider some of the key survey findings (1):

  • 51% of business leaders surveyed indicated that they don’t have a business succession plan.  Of the 49% that have a plan, only 9% have a formal, written plan
  • Approximately 48% of business leaders plan to exit their company within the next five years
  • 48% plan to exit their business by selling to buyers unrelated to their family, while approximately 37% plan to sell or transfer the business to family members
  • The top barriers to succession planning include finding a buyer/suitable successor (56%), valuing the business (54%), and securing financing for the successor (48%)

Those who have even a moderate interest in the issue of business succession likely realize that various surveys and sources of information have yielded similar results.  Delving beneath the surface, however, reveals interesting implications for business leaders, their potential successors, and those who seek to finance the transition, some of which should be sufficient to kick-start those seeking an exit anytime soon into action.

The Business Leader Perspective

Since over 85% of business leaders surveyed identified retirement as their reason for exit, it stands to reason that many have invested a considerable amount of time and effort into building their company.  As a result, a transfer of ownership represents the primary opportunity to monetize value that has appreciated over what could be a lengthy period of time.  Although this increase might be significant as compared to that of inception, business leaders are often dissatisfied with the offers they receive, which reinforces the need for thorough, early, and practical succession planning to maximize value wherever possible.

What’s even more compelling is how dependent a business leader’s ability to cash out at what they consider to be an acceptable value actually is upon the ability to identify a potential successor who has the: (i) skills to lead the business; (ii) interest in doing so; and (iii) ability to secure financing.  This is a tall order, since many successor candidates might only meet one or two of these requirements.  Couple this with a lack of experience in terms of developing a business plan to take a company forward in a manner that provides the necessary level of comfort to secure enough financing to close the deal.  In the absence of third party financing, business leaders are left with the gamble of whether or not the company, under new leadership, will be able to generate a sufficient amount of cash over time to pay what could be a significant portion of the proceeds related to the transfer of ownership, a scenario that doesn’t end well far too often.

The Opportunity

Business leaders and those in the financing field both have a vested interest in terms of how Canada’s succession planning future plays out; the former wants to cash out and the latter wants to roll cash back in.  In order to avoid a time-consuming stalemate in a situation where time is of the essence, an opportunity exists to help potential successors become real successors, by providing the tools to take companies forward; the right skills, plan, and leadership ability (and a bit of extra effort to help get the deal past the goal line wouldn’t hurt!).  Here’s how:

Business leader skills. Many potential successors have played a second tier role in their careers, without having had the opportunity to ascend to the CEO level. Since the top job can be quite different from what has been the experience thus far, potential successors need a transfer of knowledge, mentoring, and practice in abundance, prior to formally assuming the CEO role.

Existing business leaders can help by creating professional development plans, delegating areas of responsibility in a meaningful way, and taking the time to provide practical mentorship.  Potential successors often complain that leaders don’t take the time to provide meaningful coaching; sadly, this is too often the case.  Doing so can be the difference between a well prepared leader and one who stumbles out of the gate.

Investor ready business planning. Many potential successors don’t have experience with developing a business plan that is sufficient to secure financing, let alone the process of raising capital.  Business leaders who have lost interest in the company, not stepped up internal planning and control processes, or haven’t had the need to seek financing for long periods of time don’t help the process, resulting in a lack of information and competitive positioning to develop a compelling business plan.

Business leaders can make sound business planning a reality by ensuring that the right systems and information are in place within the company to support successors in putting together a plan that can be financed.  Making the effort to critique existing business models, consider new markets, and understand important industry developments can help to identify opportunities for the company well into the future, all of which bodes well with financial partners, and, in turn, benefits those who are seeking to exit.

Leadership ability. Those who have spent years at the helm of a company understand the importance of leadership skills, particularly in terms of the impact to the business as a whole.  Being a good manager doesn’t ensure that a company will be well led, a reality that is too often overlooked when passing the torch.

Recognizing the value of practical leadership development programs and forums and encouraging involvement can help to groom the business leaders of tomorrow.  Starting well in advance and providing practical opportunities to put learning into practice are not only a powerful combination for success, this approach can also identify situations where an individual is not a good fit for a leadership role.  Business leaders that do not encourage this type of development are effectively “boxing themselves in”, in terms of viable succession options.

Facilitating the exit. Financial partners can work with companies approaching (or well past) the need for succession by bringing options to the table, in terms of acquisitions, mergers, successor candidates, and other types of transactions.  In the case where financial partners identify “to do” items to improve a company or go-forward plan to the point where a succession transaction could be financed, facilitating the introduction to advisors who can help makes all the difference, as the complexities of the succession and financing processes make it difficult for business leaders and potential successors to identify the right advisory resources.

The reality is that business leaders have to “help potential successors to help them”; the same is true for financial partners.  In the absence of this approach, it might be difficult to affect a successful transfer of ownership in many cases.  Seasoned business leaders know that a big part of their role is to create an environment that will make those around them successful; addressing the issue of succession really isn’t any different, in this regard.

Where does this leave potential successors?  This topic will be considered in the next installment of The Succession Conundrum.

Source:

(1)  Passing on the Business to the Next Generation, Canadian Federation of Independent Business, 2012

Does your CEO Successor have the Right Stuff? Avoid these 5 candidate types when selecting a potential successor

Published by Divestopedia

For many reasons, business leaders can find themselves at a loss when trying to identify a potential successor.  Part of this could be due to the founder having started the business many years ago and building the leadership role around himself.  Similarly, a particular business can be so synonymous with its founder, that it’s difficult to imagine anyone else actually taking the company forward.  Sounds typical, right?

What does this mean in practical terms, when a business leader is in the process of seeking a potential successor to assume their role?  Financial and transactional issues aside, ensuring that potential leadership candidates are truly CEO material is a key issue; one that often gets clouded by other matters, leaving the business leader in a state of confusion.  Combine this with probably not allowing sufficient time to undertake the succession planning process and watch the desperation begin to appear.  Suddenly, potential successors start to look a lot more ideal than they actually are.

Here’s the reality of the leadership role: CEO’s require the ability to oversee a company across all functional areas, including administration, sales and marketing, finance, products and services, as well as liaising with various external parties, such as financial partners, customers, and regulators.  As a result, a CEO is not typically on the “front line” of delivering services; rather, they reside a level or two above the action so that they have the right sightline to oversee all key areas and resources.

So, if you’re not sure who your successor should be, start off by understanding who the next CEO shouldn’t be.  The following types of candidates typically don’t represent a good choice:

Can’t let go of the detail—some people work at their best on the front line, analyzing information, understanding detailed problems, and perhaps working directly with customers. Their focus is narrow (i.e., departmental, as opposed to organizational), and they might even regard tasks that fall outside of their direct area of focus as an interruption or annoyance.

Although they often excel in their current role, these people, by their very definition, typically don’t make good CEO’s.  The reality is they lack the skills or interest to oversee a company across various functional areas and are at their best when working in a specialized area, such as product development, sales, or technology.  Lots of businesses make the mistake of promoting this type of person to a broader, more senior role than they can handle, when they probably should have been left in their current position.

Winner by popularity alone—taking the approach that being a CEO is all about being popular and liked might be more common than expected. The reality is, CEO’s often have to make tough decisions that won’t be popular, but are in the best interest of the company.  Selecting a successor because “he’s a great guy” or “people will like her” isn’t a good approach.  What a potential successor can bring to the role is what really matters, so don’t get caught up in polls and popularity contests.

Winner by family alone—family businesses bring an added layer of complexity to the succession planning process, and if the goal is to have the company survive for the long term, being a family member isn’t reason enough to be its next leader. Again, skills, experience, and what is in the best interest of the business should prevail, unless you want to be one of those companies that doesn’t last for generations.

Thinks the product is the business—although products and services are an important component of any company, they do not represent the whole company. In the absence of cash in the bank, the ability to invoice and receive payments from customers, a qualified sales force, reliable distribution, and sound operating systems, the product or service alone, in relative terms, isn’t worth much.  Good successor candidates understand how a company as a whole operates and all of the pieces that are needed to operate a business, as opposed to just focusing on products and services.

Doesn’t have a long term focus—leading a company requires the ability to see not only where you are, but also where you are going. Real growth typically doesn’t happen in the short term, and with business cycles fluctuating over time, a good CEO needs to have the patience and ability to ride it out and take the company forward.  Potential successors that are not able to do this typically lack the long term commitment and stability that are required in the CEO role.

Surprised by this list?  The reality is that many business leaders don’t think about succession from this perspective; it’s more about “who do I know?” or “who is the best fit from what we currently have?”.  Instead, it’s best to take a more strategic approach and seek out candidates who really have the right stuff to thrive in the CEO role, now and well into the future.