Recently awarded the prize by tht London Imperial College for his outstanding MBA thesis on succession readiness, Nigel Russell-Smith discusses his findings which challenge the strategic and entrepreneurial acumen of even high-growth business owners.

The actual issues of ownership succession are well documented, however all too often owners’ views on succession are represented by intermediaries. To get a clearer picture and to challenge some widely held assumptions I conducted my own research, which involved a detailed survey and interviews with a large number of business owners at CEO level, mainly from The Sunday Times Fast-Track 100, from established and relatively new businesses representing a broad cross-section by size and industry. The results reveal an interesting insight into the succession views and activities of these businesses.

Of particular interest is how fast-growth SMEs fare, and whether they can be judged more entrepreneurial and strategic from their approach to succession. The premise is that to be so successful in their growth, they are likely to be more strategic in nature. If also entrepreneurial, they should have exit and harvest in mind as one of the key long-term strategic initiatives of the firm. Both of these aspects should in theory be revealed in their attitudes towards succession planning and their progress to date.

Immediately apparent is that 'succession planning' has different meanings for different people, and those who see succession planning as a broad and long-term strategic activity are in the minority.

• Is succession planning a personal issue for the owner alone, or something which is a key consideration for all those involved in running the business? Views here vary.
• Is succession planning always related to the future sale of the business? Many think that the need to plan for unforeseen circumstances is in fact the crucial aspect.
• The focus for many is that succession planning should be concerned with the gradual devolvement of responsibility and participation of the owner, so that when it comes to exit, the firm is not dependent on his or her knowledge to any great degree. But what of grooming, financial planning and corporate governance?
• For a large percentage, exit strategy commonly consists of a somewhat idealistic vision of a trade sale in 3-5 years.
• Many firms with no specific exit goals still claim to have made plans for succession.

Contradicting accepted industry assumptions about businesses' readiness and consequently their vulnerability, a major finding of the research was that over 95% of the businesses surveyed do not have a documented succession plan! More than half of all owners have made no plans whatsoever for their personal succession. Half again thought that it was either a “do it now” or “near term strategic priority” for them.

Almost everyone recognizes the need to plan ahead for succession at some point – why then have so many done so little to mitigate this major risk before it could be too late?

In general it is either not a priority now – maybe when exit is being considered – or they just haven’t thought about it. Perhaps the belief of nearly all owners that the business would survive without them could be a factor. But if that were to happen tomorrow, how many businesses would stumble or never fully recover? What would it do to key relations, and how much knowledge and leadership drive and vision would be lost?

The vast majority of family businesses indicate they have no exit strategy or plan for succession. Why? Akin to drawing up a will or arranging life insurance, people inherently do not like discussing a future without them in it, particularly with close family members. However, this poses a major risk. The survey revealed:

• Not one owner who had identified a potential successor expected that successor to want them to relinquish all involvement in the business after their departure. How will those businesses fare if either individual becomes unable to participate?
• None of the firms surveyed had a Family Constitution – confirming assumptions that these are not used as beneficially as they might be in tackling succession issues – an area for consideration by business advisers.

The issue of whether or not the plans and philosophies of the family should be incorporated into or divorced from the strategic activities of the firm is an interesting aspect.

There is a school of thought that suggests strategic activities are a low priority for smaller firms, who are often unaware of succession related issues and only give consideration to exit and succession when the owner thinks about leaving the business or is approached with an offer – effectively too late to do any useful succession planning.

In addition, high-growth entrepreneurial firms are generally not considered in relation to succession issues as though they are somehow not susceptible to the risks. One might consider that achieving the growth and success of these high-growth businesses means they are inherently more entrepreneurial and strategically oriented than those with less impressive performance. So what does their approach to succession tell us about their entrepreneurial nature?

Two key measures of orientation to entrepreneurship are:

• Operation of the company for sustained profit and growth
• Strategic activity designed to plan for exit and harvest maximum value

For the true entrepreneur, starting a business is ultimately about growing it, selling it and maximizing return for the risks they have endured. Most of these businesses do see strategic planning as a high priority for establishing a vision and a must for success. Why then after years of hard work do so many take such risk when it comes to one of the most important aspects – eventually leaving the business?

Of course these results do generalize, and there are undoubtedly some very seasoned and successful entrepreneurs involved in these companies. But they do question whether the notion of true entrepreneurship in respect of strategic planning for growth, exit and harvest is alive and well in some of our most successful SMEs.

Differing owner perspectives and a lack of formal planning present opportunities for professional advisers. Any assumption that plans for succession are already in place is a dangerous one and belies the real situation of many businesses.

Many owners surveyed have experienced succession related problems, and many expect to do so again, anticipating a major issue. Surely then the opportunity exists for experts to raise awareness and provide services which help companies tackle this widespread problem.

In the UK, support on succession is provided by public organizations such as Business Link, but they tend to see succession as a family business issue. Although diagnostic and consultancy services are available, no use was made of them here, possibly because Government tends to try and raise awareness of these issues by targeting intermediaries rather than business owners, so many businesses don’t know the services exist.

Accountants, consultants and organizations like the Institute of Family Businesses recognize many of the issues, but do not tend to provide services for succession planning as an area in its own right, instead providing piecemeal services like tax planning, valuation, grooming or transaction. Also, these firms do not attempt to pro-actively broach the subject of succession with their clients, even on an informal basis.

Business owners need to understand that succession planning is not just about their own exit or the sale of the business, but covers a range of personal and corporate activities, often over many years. Professional advisers in a position of trust should see it as their duty as well as a business opportunity to raise further awareness of these issues and offer tailored solutions and practical advice. Hopefully then we might avoid the potential unnecessary loss of many businesses.

Many business owners appear to believe that the fate of their success, when they retire or leave and what they can harvest, is entirely in their hands at a time of their choosing. Of course this is a misconception. Life has a habit of springing surprises on us. Economics of a global or local nature will always impact business and no firm is immune. In terms of ownership succession, the future is never certain and the time to act is now.