Management Succession Planning: A Key Strategy to Increase Business Value
In today’s ever-evolving business landscape, long-term stability and growth are crucial for a company’s success. One of the most critical aspects of ensuring this continuity is through “management succession planning.” By preparing for changes in leadership and critical positions, companies can significantly increase business value. This article delves into the importance of management succession planning and how it plays a pivotal role in enhancing the overall worth of a business.
Here is the video on Management Succession Planning:
1. Ensuring Leadership Continuity
Management succession planning is crucial for ensuring that when key leaders depart—whether due to retirement, new opportunities, or unforeseen circumstances—a well-prepared individual or team is ready to step up. The absence of this planning can cause disruptions, poor decision-making, or loss of valuable time in finding a suitable replacement. All these factors can impact operations and, consequently, decrease business value.
2. Protecting Company Reputation
A company’s reputation often hinges on its leadership. A seamless transition in leadership roles reassures stakeholders, employees, and customers that the organization is stable and forward-thinking. A robust management succession planning system can significantly enhance a company’s perceived value in the market, leading to a tangible increase in business value.
3. Retention of Institutional Knowledge
When leaders depart without appropriate succession planning, they take with them valuable institutional knowledge. Management succession planning ensures that there’s an effective knowledge transfer process. As a result, businesses can retain their competitive edge, further helping to increase business value.
4. Attracting and Retaining Talent
Top talent is always looking for companies that promise growth and stability. The presence of a management succession planning system showcases an organization’s commitment to its employees’ development and its long-term vision. This, in turn, attracts and retains high-quality talent, which is a pivotal factor in driving and increasing business value.
5. Encouraging Strategic Growth
Management succession planning isn’t just about filling a soon-to-be vacant position. It’s also about aligning the company’s long-term vision with the right talent. This proactive approach means companies can adapt to market changes more efficiently and capitalize on new opportunities. This strategic agility directly contributes to an increase in business value.
6. Enhancing Investor Confidence
Investors look for stability and growth prospects in companies. A robust management succession planning system indicates that the company is prepared for the future, which can translate to increased investor confidence. This confidence can drive up stock prices, contributing to an increase in business value.
Conclusion
Preparing for future changes in the dynamic business world is not just advisable but imperative. Management succession planning is a strategic tool that ensures leadership continuity, protects the company’s reputation, and fosters growth. Companies that prioritize and implement these strategies are not just safeguarding their future but are also taking proactive steps to increase business value. The significance of management succession planning cannot be stressed enough, and its positive correlation with enhanced business value is evident.
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Below is the transcript of our video on the topic:
Dave Lorenzo:
Are you ready to increase busienss value? We’ve got key driver number two, management succession planning to increase business value. You’re not going to want to miss this episode of the Inside BSS Show. Hey, now I’m Dave Lorenzo and I’m here with my buddy, my pal, my partner Nicola Gelormino. Hey Nicki, G, how are you today?
Nicola Gelormino:
Hey Dave. Great. How are you?
Dave Lorenzo :
I’m great. Here’s what we’re talking about today. We’re talking about the second key driver to increase business value in any business, and that is management succession planning. Now, there are three things we focus on when it comes to making sure that the management team is the best it can be so that you can extract the most value for your business, whether you want to exit or whether you want to borrow money, or whether you want to sell off a piece of your equity or you just want to make sure you’ve got the best possible value for your business at any point in time.
Three Elements of Management Succession Planning to Increase Business Value
Those three elements when it comes to your management team are number one, making sure you have the best of the best at each position in your management team. Number two, making sure that you have fantastic retention strategies in place that will make you the employer of preference so nobody ever wants to leave.
And then number three, making sure that you have an eye on the future so that when you’re scaling from 10 million to 50 million or 50 million to 300 million, the talent can help you scale that business. My experience most of the time, the talent that takes you from 10 million to 50 million is different, 50 million to a hundred million is different, and then 150 to 300 million probably different people.
Identifying Top Talent to Increase Business Value
You need to have an eye on the future and your talent needs to have an eye on the future as well. Nicki G, let’s start off by talking about recruiting top talent. And for me, I’ve spent my entire career recruiting top talent in every business that I’ve had you and I have. We spent an entire summer, last summer recruiting top talent for an organization that we’re a part of, and one of the things that I think is essential to getting people on board, the people who are the best in each position is first and foremost knowing who the best are.
You have to be able to go out and assess each person, each position and making sure you’re getting the best person at each position. For example, when you’re starting your business, if you only can afford to hire two people and you need somebody who’s a jack of all trades, that jack of all trades better be phenomenal at one of the key elements of your business. The jack of all trades should either be a phenomenal financial person and they can also dabble in operations, or they should be a phenomenal operations person who knows a little bit about how to navigate around their spreadsheets so they don’t spend you into the poor house, right?
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You’re only going to be able, when you’re starting to hire top talent in probably one role as you scale, you should look to understand who the top talent is in each of the roles that you need.
In the legal space, when you’re ready to hire a chief legal officer or a general counsel for your company, who’s the best that you can get? Who knows your industry inside and out, and who’s a great lawyer who understands business in the financial space, who’s the best that you can get that knows how to produce great financial statements that knows the nuances of managing, borrowing, and leveraging capital that knows the nuances of the operations of your business in your industry, but is also a numbers person?
Those folks are critical. Even if you’re not ready to hire them, understanding who the best are for each of the seats on your management team, that’s essential because when you are ready to exit, whether it’s a private equity company that’s going to look at you or a family office or you’re going to sell, say to your partner, you want to point to your management team and say, we’ve got all stars in each position.
They’re poised and ready to take you to the next level. Recruiting top talent starts with knowing who the best are in your field in each of the spaces that you’re going to have around your table. Now here’s the thing. A well-capitalized startup can probably go out and hire rock stars for each position, and that’s why they grow exponentially quicker.
If you’re bootstrapping, again, you got to get the jack of all trades, but they should be a specialist in one area and be adaptable to learn the other areas. When you are ready to add value and use this as a value driver, this is the second place we look because by upgrading your talent in some of these areas, you’re able to add an exponential increase to the value of your business. And I’ll tell you the place where I look to improve the talent first when it comes to adding value to a business is either in the sales or marketing function.
Here’s what happens: If your products are great and your operations team is great, and most entrepreneurs, they build a better mouse trap and that’s why they get into business in the first place and they go out and they hand their mouse trap out, people use it and they say, how can I pay you to get more of these? The way to exponentially increase the value of that business is with more sales, better sales or more of a sales effort or more of a marketing effort.
When I come into a business and I see a business that’s producing a great product with a great experience and their growth is stalled out, or it’s only like five 10% a year and it should be 50 or a hundred or 150 or 300%, I look at the sales function, I look at the marketing function.
If I immediately improve the talent in the sales and marketing function, that business explodes exponentially. From a management team perspective, if you’re looking to unlock value and your operations is good, your products are good, and you got your financials down the place to go is sales marketing, improving the talent there. That’s what I look at when it comes to recruiting for top talent and the management team.
Nicki G. talk a little bit about retention and how management succession planning helps increase business value. Let’s say we get everybody in the right seats on the management team. We’re convinced we got top talent. How do we keep ’em?
Retention of Top Talent in Management Succession Planning
Nicola Gelormino:
Sure, and this is critical because it is the essence of management succession planning. You’ve identified the talent out there and you absolutely need excellent talent in the top positions to increase business value. Once you’ve identified them, you should already know exactly what you’re going to do to make sure that you keep them at your company.
You want to reduce any sort of turnover. Obviously that’s an impact to your business, but should you be thinking about that will make these employees really want to stay with you When you work to get to that next level, it is about making sure one, first and foremost, they have to be compensated well, if you’re not compensating them well, they know what their value is, they’ll go somewhere else. It’s got to be what the pay is, whether regardless of the pay structure, making sure they’re well compensated, it’s in line with the market.
Heck, it should be competitive in the market for what you’re offering them. You need to offer good benefits these days. There are folks who are looking equally at benefits as they are at pay because we’re just in that type of environment right now. Both of these things are critical for management succession planning and they increase business value.
Providing outstanding benefits make you more competitive. By thinking about the whole package that you’re going to offer to get that top talent on board beyond just what you are paying them, you will increase business value and make management succession planning easier. Employees want to know that the company cares about them.
That’s the foundation of management succession planning and it helps increase business value.
How do you do demonstrate that you care? By thinking about how to support them. Maybe that’s through resources at your company, making sure that they have everything they need to be their best to be successful in your organization. That is critical. If they don’t have the right resources, they can’t perform at a top level, so that’s of utmost importance. Also, they want to be heard. They want to feel like their voice matters inside of your organization. Make sure you’re communicating with your employees and allowing them to have a say in matters that are important to the business.
The more employees are engaged and feel that their voice is being heard, they’re going to want to support your organization, increase business value and stay with it in the longterm beyond making sure that they’re having that great experience. You also need to be thinking about what can we do looking forward into the future to make sure these employees are staying with the company (management succession planning).
Top talent is coming to organization not only to have a great experience to be their best, but they’re thinking about their future. These are people who are the top of their game. They’re looking for a long-term home. They’re looking to position themselves so that they are achieving their maximum potential as individual professionals. So you’re going to help them do that by thinking about what that looks like moving into the future. So Dave, let me turn it over to you at this point because this is really our number three point today is making sure that you’re able to focus on the future with these employees you’re bringing on board.
Dave Lorenzo
So this is a recruiting and a retention strategy. So one of the ways that I’ve been able to recruit in entrepreneurial ventures, I’ve been able to recruit people from larger companies is by helping them understand that their future is tied to the future of the company. Let’s say that you want to scale from a hundred million to 300 million and beyond in your business, and you know that you need a really sharp operations executive. To do that, you need somebody who knows the ins and outs of every aspect of the operations of your business, and they’re at a multi-billion dollar per competitor.
Now, they’re not the number one at a multi-million dollar competitor or multi-billion dollar competitor in your industry, but they may be the number two or the number three, or they may be the regional head of operations. In order to recruit them over, you have to be able to sell them on the future of your company and where your company is going to go. If you can get them, you can increase business value and solidify management succession planning.
If you want top talent to stay with you, you’ve got to sell them on the future and where your company is going to go. We as entrepreneurs spend all of our time selling everyone on the future of our companies. This is what we are offering. I mean, you make widgets, you have a mousetrap. Nicola and I are in the business of helping you with your business to improve the value of your business, but what are we selling you on? What do we sell the people who work with us on the future?
We’re selling you on the future of your business. We’re selling our team on the future of our business. The way you retain top talent is by helping them see where they fit into the future of your business and helping them see how that’s going to pay off for them in the long run.
Now, pay can be money, it can be equity, it can be playing an integral role. Without them, you don’t get there. All of these things are part of the employee life lifecycle, part of the employee experience, and that’s what you got to sell management on at every level in your organization. You are an important part of our future. We can’t get there without you. When you recruit, you’re selling them on, I need you to play an important role. We can’t get there without you. They have to be a part of your future.
So much of what makes us entrepreneurs, so much of our DNA is wrapped up in being what Dan Sullivan calls a rugged individualist, right? We’re running into the fire every day and we don’t care if people give us a no. We’re just going to keep pushing until we get a yes.
The problem is to scale from one to 5 million or from five to 50 million, we need a team. We need other people. So we have to take that ego and push it down and say, look, I need you, your top talent, so I’m going to pay you at the top end of the pay scale, and if you stay with me for the future, you’re going to participate in this growth potentially.
We’re going to give you equity, we’re going to give you really great bonuses. We’re going to give you benefits that are at the best, the highest level of our industry benefits that we can possibly provide, and we’re going to make this experience phenomenal for you. At every level you are thinking about management succession planning and how it will increase business value.
This leads to an improvement in the value of your business because if you’re the employer of preference in your industry, you get the best talent. If you have the best talent and you have a retention strategy in place, your business is worth more.
Nicola Gelormino:
Top talent is what’s going to take your business to the next level. Management succession planning helps increase business value. This is top value driver number two in our 10 point series.
We’ll be back here with our third point on how to increase business value on the next episode. This is the Inside BS show. I’m Nicki G, and you are
Dave Lorenzo:
The Godfather of Growth. Dave Lorenzo.
Nicola Gelormino:
If you enjoyed today’s show, watch another episode and be sure to join us for point number three.
Dave Lorenzo:
We’ll see you tomorrow folks.
Dave is a renowned business strategist and the co-founder of Exit Success Lab, where he shapes the company's strategic direction and spearheads content creation, and business development initiatives. His responsibilities also include advising clients on capital acquisition and developing and maintaining relationships with family offices and private equity funds.
In addition to his leadership at Exit Success Lab, Dave is a celebrated author and speaker. His expertise and dynamic presentation skills earned him the title of New Speaker of the Year in 2022 by Vistage Worldwide, Inc., a testament to his influence in the field of CEO consulting and peer advisory.
Dave's client roster includes executives from numerous FORTUNE 500 companies like Pfizer, Marriott, Textron, and IBM.
Key Areas of Expertise:
-- Enterprise Value Enhancement: Drawing from his experience, Dave designs growth strategies that set the foundation for maximum value realization.
-- Organic Growth Enablement: Dave facilitates business expansion by understanding market nuances and capitalizing on the team's strengths, solidifying brand presence and market dominance.
-- Client Lifetime Value Augmentation: Emphasizing deep client relationships, Dave Lorenzo devises methods to optimize retention, purchase frequency, and profitability.
-- Strategic Exit Planning: Whether envisioning a sale, merger, or generational transition, Dave offers comprehensive guidance to ensure smooth transitions congruent with your aspirations.
-- Stakeholder Engagement: With a keen focus on relationship-building, Dave Lorenzo creates an environment of transparency, trust, and mutual respect.
-- Professional Network Connections: Dave's well-established circle connects CEOs to industry leaders, subject matter experts, and pioneers, minimizing risk while maximizing opportunity.
-- Family Office and Private Equity Ties: Dave's partnerships with financial professionals provide CEOs with invaluable resources and diverse strategic opportunities.
Dave Lorenzo received his MBA from Pace University. He also holds a Master of Science in Strategic Communications from Columbia University in New York City.
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