When you're knee-deep in the weeds of launching your startup venture, success and exit planning are likely the last thing on your mind.
In between chasing investors, perfecting your product or service, managing cash flow, recruiting, and securing premises, among other responsibilities, it’s understandable if you’re not thinking about what to do with your venture after you leave. You’ve barely got your business off the ground, so why would it even cross your mind? Why worry about who will run it after you’re gone?
The reality is that succession planning in a company isn’t exclusively about preparing for retirement or death. It’s a strategic imperative that builds resilience and stability into your business strategy from day one. For startup businesses, teams are inevitably smaller, and every person counts, so having a succession strategy can mean the difference between overcoming unexpected obstacles and setbacks, and watching your venture collapse in front of your very eyes.
Let’s explore why establishing a succession plan early on can be valuable.
Why startups are vulnerable to failure
Early-stage businesses face challenges that established firms don’t, and these have been widely documented. Startups tend to operate with skeleton teams where each member wears multiple ‘hats’ and possesses unrivalled knowledge and familiarity with the company. Losing a key person, perhaps due to resignation, individual circumstances, illness, or long-term injury, can immediately disrupt startup businesses, creating a domino effect that profoundly affects how services are delivered.
Consider these real-world examples. A co-founder suddenly falls seriously ill and requires extended medical leave. A lead web developer receives a lucrative offer from a bigger industry name that they cannot refuse. A key sales executive decides to launch their own niche venture. You also may want to retire early and leave your business in the capable hands of somebody else. These are all plausible scenarios as a startup founder and, without proper succession planning, such situations can derail months or even years of hard work.
Specialist Chartered financial planners
PFM Associates deem succession and exit planning to be "a key issue" for startups, particularly as these businesses scale and attract investment. Investors and stakeholders seek concrete evidence that a company can survive beyond its founders, which solidifies its business with maturity and long-term prosperity in its sights.
How strategic succession planning adds value
A solid succession plan doesn’t just protect your company against disasters; it adds a tremendous amount of value.
It proves that your business has systems, processes, and strategies in place that ensure it can operate in the absence of, or without the involvement of, the founders or leadership team. Should potential investors or buyers swoop in, they’ll feel more reassured of its success if you’ve entrusted processes and people that keep generating revenue.
It boils down to understanding the expertise that every individual has, how key processes work, and where potential vulnerabilities lie. It will force you to identify and document vital business, operational, and procedural knowledge that might feel alien to an outside party. This will strengthen your operational foundation and make your business more enticing to future acquirers.
Steps for startup succession planning
- List every vital role in your business and identify who could step in if you become unavailable.
- Document essential processes and operational procedures.
- Ensure that critical login credentials, client relationships, and audit trails are accessible and secure to the relevant personnel.
- Initiate regular team discussions about succession scenarios and business continuity, pinpointing where additional training or involvement is necessary.
- Establish clear emergency contact procedures and ensure someone outside the immediate team understands what to do if you must be forced to exit your business, or do so voluntarily.
Making succession plans work for your startup
The key to successful startup succession planning is proportionality.
You don’t need to create a structure that resembles an industry giant or international corporation, but you do need sufficient plans in place to ensure your business can continue with confidence. Start by identifying your most vital roles and the people you trust the most, then gradually flesh out your planning from there.
Guest contributor
