Running a business is filled with many unknowns. A competitor could introduce a new product, a valuable employee or customer could leave or the market could become saturated with new competitors. Unless the business is closed down, one guarantee a business owner can rely on is that someone will become the successor of his or her business. It is essential that a business owner communicates what is important in a successor given that approximately one half of all business owners’ exits are forced or unplanned due to disagreement, distress, divorce, disability or death. When choosing a successor, the business owner should understand the time the process takes, the qualifications required for the position and the importance of preserving family wealth.
Developing a strong exit plan and choosing a qualified successor takes time. The first step is to create a process for determining which successor would be the best fit for the company. This process usually takes 6-12 months to complete. However, the process doesn’t conclude with the selection of a successor. Time needs to be allotted to groom the candidate for the difficult task of running the company. The successor also needs substantial time to work closely with the business owner to learn the nuances of running the company before the business owner leaves.
Most business owners’ initial preference for a successor resides in their family. However, they need to look beyond family ties and consider which successor is the most qualified and has the highest skill to lead the company to the next level. Sometimes this is a relative, but often it is not. Essential qualifications include experience in the industry, leadership experience, good communications skills and a strong desire to grow the company. This person could be a current employee (who is or isn’t a family member) or an outside individual whose qualifications are best suited for the position.
For example, fashion designer Ralph Lauren was able to identify the need to look outside his company. Many thought his son, David Lauren (executive vice president of advertising and communication at Ralph Lauren), would be his father’s eventual successor. However, Lauren appointed an external fashion executive as CEO.
Most business owners’ wealth comes primarily from their business. The ability to preserve this wealth for their family is often directly linked to choosing the right successor. When the successor shares the same vision of the company as the business owner, there is a far greater likelihood the company will survive and the wealth will be transferred to future generations.