Don’t Wait: Plan Succession

Transcript

Hello, I’m Rick Dennen, Founder and CEO of Oak Street Funding. It's always important to consider having a succession plan in place early in your career. Today I will be covering succession, how to prepare your successor to take over, the possible risks of not having a succession plan early and more. 

Why do so many business owners delay succession planning?
Many business owners delay succession planning because things are going well, things are progressing, you're making money. Why would you need to change? Changes can cause problems, and so you just continue down the road. You continue with the next day, the next week, the next month, the next year, and next thing you know, it's three to five years down the road and you haven't done anything about succession. And I think that's easy to do. I think it's very emotional for people and business owners who have started something from scratch, built it up, and to turn it over to somebody else is pretty hard to do. And I don't think people think through the emotion of having someone else running, you know, their legacy, their baby. And I'm going to talk about some other things, you know, on how to prevent that from happening. But I think that's probably the biggest risk is that or the hardest part of it, and the reason for the delay. It's just easy to keep doing what you're doing without making change. 

What are the risks of not having a succession plan in place early?
I think the biggest risk of not having a succession plan is if there's an unexpected event, you know, the obvious one, and the biggest one that comes up is a health risk, a health scare, something that occurs, you know, could be with the owner, operator, it could be with a spouse or a family member, but it could dramatically change the amount of time, you know, the leader of that organization spends in the organization. So I think it's critical that having that successor in place, training them, making sure that you've evaluated their skill set, you put the test to them, you've seen what they can do, and you're going to be real comfortable turning the business over to them when the time is right for you to step aside. 

How can a leader prepare the next generation to take over?
Some of the ways I think a leader can prepare is to truly understand the talent that you have working for you. It might be somebody that you see further down the chain that's got a tremendous upside potential. They're smart, they're social, they can sell, they understand financing, they understand operations, you know, but they might be seven years away, 10 years away from being able to take over the business. It might be somebody that's two years away from doing that. But I think the way that you can prepare them is start to engage them in more and more of the business, have them review monthly financial statements with you, understand what their financial skill sets are. Take them to the largest customer, make sure that they're developing relationships with strategic partners and large customers, and even, you know, how they lead other people within the organization. Those are the key things so that when it's time for you to step aside and turn it over, you'll know it. And you're going to have the utmost confidence in that successor, in being able to take the business. You know what I like to say? Take it to the next level. It's fresh thinking, it's new thinking. Allow them to take it to the next level. And you're going to have to do that with a lot of confidence and somewhat be humbled a bit by not overstepping their authority, not undercutting them with every decision they make. You got to be able to let them fly. You got to let them make mistakes. And that'll happen over the first year or two. But if you train them properly and provide them with leadership skills and every opportunity for success, I think that's, that's the greatest chance you have of this succession working out. 

What roles do outside financing or strategic partnerships play in smooth succession?
You know, I briefly talked about this earlier, where these strategic partnerships in customers could be paramount to the future success of the business. So as time goes on, as that approaches, that succession, time approaches where you need to turn it over, getting them out to the strategic partners and to the large customers and making sure that those relationships are going to be perpetuated even after you step aside. And that's critical. You don't want to lose your largest customer or any of your top five customers or somebody that's providing you lead flow or business down the road. 

What’s the one thing you wish every business owner understood about succession before it’s too late?
The one thing that I've mentioned earlier in one of the vlogs was that it's emotional and this is something that is akin to having raised a family. You built something up from scratch. But if you want it, transfer this legacy. If you want the best thing for your employees, the best thing for your customers, the best thing for the business as a whole and the valuation of this, it's to transfer this with a successful successor, okay? It means making sure that they're going to be successful in what they're doing, successful in taking this business to the next level, even running it differently than the way you used to run it. New, fresh ideas are good to have. It doesn't mean you're not going to have input. Doesn't mean you're not going to have a say. That's not what I'm talking about here, but it's giving that management team that's been beside you for 5, 10, or 20 years, giving them the opportunity to step up with confidence and with the ability to make mistakes as you did when you grew the business. And I think if you do that, you're going to end with a much higher, more successful company down the road. Having a strong succession plan in place can give you peace of mind and set your successor up for success. 

Conclusion
I hope this has given you some clarity as you think about the future of your company. Thank you for joining me in this third video of our three-part series. Check out the previous two videos of this series to get more information on topics like mergers and acquisitions and debt versus equity. Thanks again.
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