For entrepreneurs and business leaders in their fields, succession planning rarely crosses your mind in the early stages of your endeavours. It remains as ‘something to address one day’, often when retirement looms.
However, the most successful business transitions tend to happen with proactive planning, rather than by accident. The result of careful, strategic, methodical planning from an early stage can have much more preferable outcomes, resulting in far less stress when it comes to crunch time.
The reality is that delaying succession planning until you enter your twilight years in business, and begin pondering your exit, can create a plethora of stress. It can also affect your business’s value and leave your team vulnerable during a critical time of transition. Whatever your business venture, understanding when to begin planning for your exit is pivotal for protecting everything you’ve built.
The best time to start a business succession plan is much earlier than you’d expect. Ideally, you should set one up within the first few years of establishing your enterprise.
This might seem counterintuitive when you’re still determining your market position, scaling your operations, growing your team, or entering new segments. However, early planning provides some much-needed breathing space to identify potential successors, develop your new leadership team, and create a solid framework that evolves alongside your company.
Starting this process early also addresses an evergreen consideration, particularly for high-earning professionals. As founders and directors build successful tech businesses, pension planning is one area that can become complex, with you, as a potentially high earner, likely to reach the lifetime allowance of your pension pot. As such, integrating other factors like pension strategies, tax and estate planning, dividends, shares and investments transparently and collaboratively will be crucial to establish from an early stage. This is a key part of comprehensive financial management.
While it might not seem like it on the surface, a time when your business is experiencing growth is often an ideal opportunity to establish succession plans and frameworks. It could be upon securing a major contract, expanding into new lucrative markets, or achieving a substantial revenue milestone. Periods of momentum like these create an attractive environment for developing future leaders, and potential successors can observe and participate accordingly. Use this time to help them understand and grasp the growth-driving decisions and reasoning behind them, and let them behind the proverbial curtain of your operational mindset.
The UK digital sector faces ongoing skills shortages, making it essential for businesses to nurture their qualified talent. When team members exhibit exceptional leadership qualities, a deep understanding of the business’s value proposition and a propensity for top-level thinking and decision-making, it’s worth considering a development pathway for them. Create a succession route for the most committed, diligent, and driven talent to consider not just retention but also to oversee things after your exit.
Life is rarely predictable, and at a moment’s notice you could be facing health concerns, changes in your family, or other significant life events for you or your loved ones. Approaching retirement age shouldn’t be the primary catalyst for succession planning; sometimes, you may need to step away, either for a long time or permanently, without much in the way of a warning sign.
Having plans already in place exponentially helps move this along with minimal turbulence, and last-minute planning during a time of crises doesn’t always produce the best outcome. Many business sectors move rapidly, and it pays off to think ambitiously and proactively to integrate succession planning into your business strategy well before these inflection points inevitably arrive.
For tech businesses considering acquisition, investment or sale, a comprehensive succession plan significantly enhances the overall valuation. Investors and acquirers (be they individuals or companies) will admire businesses that can thrive well beyond the input and involvement of their founder(s). Succession planning provides tangible evidence of this, proving to suitors that the business is operationally resilient and well-equipped for what the future holds.
Even if those inevitable acquisition, merger, or sale plans don’t involve keeping 100% of the incumbent leadership team, the fact that they have been established says a lot about the value you, as an entrepreneur, have placed on the people and purpose of your enterprise after you’ve gone.
Effective succession planning – especially in the digital sector – requires consideration of both operational and technical knowledge transfer. Unlike traditional industries, tech businesses often depend on specialist technical knowledge and expertise, mutually-beneficial and innovative relationships, and proprietary processes that are the result of the founders’ deep, unique thinking.
Your succession plan should document (as a guide):
Starting your succession planning journey today doesn’t mean you’re stepping away tomorrow. It means you’re building a resilient, valuable business that can thrive across multiple leadership generations, protecting your legacy whilst maximising the return on years of hard work and innovation.