An important aspect of developing a succession planning process is building bench strength. As you look around your organization, who are the individuals who could eventually replace you? Who are the bright stars who are capable of moving up the organization chart?
If your answer is, “There really isn’t anyone who has the talent and capability of ultimately replacing me,” then your organization lacks bench strength. Not only does this limit your future succession options for the business, but it also may limit your upside potential to sell the business at some point. Many buyers of small businesses rely on internal management to run the business after they purchase it. If you plan to exit the business after you sell it, then you need to have capable management to run it prospectively.
Several years ago, one of my clients who was getting into his 60’s did an assessment of his company. He had owned and run the company for more than 25 years. It was modestly successful. But he determined that the company was probably not worth very much, because there was no one capable of running the business in his absence. His management group was adequate, but not stellar. So he decided to make some changes.
His first major change was to build bench strength within the organization. He invested in much higher level talent in all his key management positions over about a three year period, which did cost him short-term profitability. However, within a couple of years of his initial investment, the company doubled in revenues and more than doubled in profits. A few years later, his company doubled in size a second time. The better talent he had invested in helped him to grow the business beyond anything he had experienced in his first 25 years. Not only did he now have candidates within the organization who were capable of eventually replacing him, but the company’s value grew at about five times.
If you don’t have high level talent in your organization who are capable of replacing you at some point in time, you need to consider building some bench strength to ensure limitless future succession opportunities.
Contact us at 215.441.4600 or Email if you have questions or would like to discuss how this topic may impact your business.
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