Succession planning is all about the long-term continuation of success through the next generation of owners and managers. Discussions of long range success generally bring up the subject of growth. This is a natural discussion because inherent with the concept of being successful is the assumption that successful businesses are vibrant and “growing” businesses. Furthermore, there are many who believe that succession and growth are synonymous. This belief is based upon the assumption that if you are preparing for the continuation of success there must be growth because competition is increasing and margins are decreasing.
Predominantly, growth is needed for succession because assuming the business has the same margins in the future as it does today, it must grow if multiple successors are going to achieve the attractive lifestyle of the current owner. As I’ve said many times, the first succession imperative is “teamwork”. I now contend that the second succession imperative is “growth”. The status quo is not an option for the future. In order for a business to withstand the challenges associated with the transition of the ownership, leadership and management, there must be growth.
Growth from my perspective can come in two forms; bigger or better. What I have witnessed in my many years of working with business owners is that their fundamental assumption of growth is “bigger”. Bigger involves expanding operations via opening new outlets, starting new businesses or buying businesses. However, I contend that the first and most important growth objective for those seeking succession is not “bigger”, it is “better” — as in increasing volume, efficiency, net profit, management teamwork, management bench strength, etc. At the risk of sounding crazy, I contend that “better” is the foundation upon which a prudent business owner pursues “bigger”. The low hanging fruit of growth is in “better”. The freedom from the burden of additional debt is in “better”. The peace of mind that working capital is sufficient to withstand unforeseeable challenges is in “better”.
Reciprocally, I contend that bigger and better are not good teammates. Bigger does not naturally make you better. In fact, bigger can dilute management disciples and distort long-standing core values and processes. Bigger reduces working capital or increases debt. Bigger creates a level of stress that generally creates a distraction from the business basics.
No doubt there are benefits of bigger including economy of scale, greater profits, reduced market vulnerability, reduced product vulnerability, more excitement and more opportunity for successors to show what they can do. However, as Howard Hughes discovered with the “Spruce Goose”, bigger is not always better.
Check back next week for my post, For a Successful Succession, Trust the Trustworthy, on letting go of the reins and allow your successor(s) to take over.
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