What Every Startup Needs to Know About Succession Plans
Has Succession taught us nothing?
The Emmy-winning television show depicts the havoc that can be wrought by a CEO’s failure to name a successor. However, a 2016 Harvard Business Review survey showed that more than half of companies don’t have a contingency plan in place if their CEO were to suddenly step down.
You’d think company leaders and board members would be spurred into planning mode. But maybe they don’t have HBO.
Or maybe they don’t think succession-planning best practices apply to them. After all, when a company is growing or stable, the last thing its leaders want to think about is what they’ll do in case of an emergency. And why waste time planning to fix something that isn’t broken?
Such neglect comes with risks: “Not having a truly operational succession plan can have devastating consequences for companies,” said Stephen Miles, a succession planning expert.
Succession Planning Best Practices
- Regularly self-assess.
- Get the board aligned and involved.
- Develop internal leaders to eventually step up.
- Ask what the company needs three years from now.
- Establish criteria for the role.
- Embrace the search, with or without a recruiter’s help.
- Don’t put off planning — even if things feel fine.
To understand how successful tech companies plan for the future, we spoke with seasoned executives and consultants across the industry. Their responses have been edited for length and clarity.
Succession Planning Experts
Margot McShane is managing director at Russell Reynolds Associates, where she co-leads the firm’s Board & CEO Advisory Partners in the Americas. She specializes in advising clients on succession planning.
Jim Franklin served as chief executive officer of SendGrid, an email marketing platform, from 2011 to 2014. He is an instructor at the University of Colorado–Boulder and a board member of several tech companies.
Manish Sood is the founder, chairman and chief technology officer at Reltio, an enterprise cloud data management platform. He served as the company’s CEO from 2011 to 2020.
CEOs Should Regularly Self-Evaluate
Sood: I would suggest that every founder or CEO do some introspection to make sure they are not just trying to figure out how they can remain CEO. Just as they evaluate each team member and look for the next best possible person to bring in, the same thought process has to be applied to their own role. This is about making sure you’re aligning to your North Star: the vision that you’ve defined for the company.
Before I started the company, I asked myself, “What is the North Star that will allow us maximize our opportunity?”
I had to mentally prepare myself that at some point, if and when the time is right, I would have to think about how to create a succession plan for my own role.
I went out and looked for my own replacement, because we wanted to figure out — given where we are with the growth that we have achieved over the last several years, and the foundation we built — what would allow us to go and run even faster, over the next three to five years?
CEOs and Boards Should Work Together
McShane: Unless there’s already an established culture at the company of succession planning, it could be a very sensitive topic for the CEO and raise all sorts of questions. But all things being equal, the CEO is very much included in that process, and should feel comfortable with it. You don’t want them to feel like their job is in jeopardy or they’re threatened (that’s a separate conversation if that is the case). You want them to feel as in charge of the process as possible, which mainly means that if the board suggests it, the CEO takes charge of the situation themselves, and drives it.
Develop Bench Strength
McShane: If there’s an emergency, you want some good options. So let’s talk about people on your team who have that potential. Let’s assess them. And then let’s talk about a development plan to figure out how they could develop and grow to eventually be someone who could run this company.
That’s just the best practice anyway. It puts less pressure on the CEO to be all things to all people. And the board likes to have some options that way. If you do this in the right way, it makes the CEO feel fortified and also makes her or him feel like their investment — and when I say investment, I mean a lot of what CEOs at this stage care about are the financials of the company and their legacy.
The best practice is that this isn’t a CEO succession process. It’s a succession process. And one of the pieces to that is not just identifying immediate successors who might be direct reports to the CEO, but looking below that first level of management to the next level to think about how those individuals, what their potential is, how they could develop and coming up with their plans, so that you’ve got bench beyond just that immediate CEO succession level.
Determine What Your Company Needs Next
McShane: The main thing to start with is understanding the business context and strategies, how those are evolving, and then creating a success profile — a job spec — for the CEO. The spec of the CEO today often isn’t what they’re going to need six months, three years, five years from now, because their strategies will evolve, which means the requirements and the skills and experiences might look different.
Franklin: I advised a company that was looking for a new CEO. I asked them if they wanted a candidate with “culture fit.” They said yes. But I told them they didn’t: “Your culture is ‘ABCD.’ That’s gotten us to where we are today. And there’s some pros and cons to that. But maybe we need to let go of A and B values; they were good back in the early days. And let’s keep C and D values, and add E and F values, maybe around things like accountability and execution. Let’s go find a CEO who is a ‘CDEF’ culture person.”
Review Your Leadership Criteria
Franklin: We first came up with 10 criteria and asked ourselves: ‘What problem are we trying to solve? What are we looking for?’ We wanted a late-stage CEO with crossover investment experience, who had IPO experience, would live in Colorado [where the company was based], and meets our four-H culture criteria — honest, hungry, humble, happy.
Sood: We were looking for a person who had the experience not just growing and scaling private businesses into profitable growth businesses, but also doing it as a public company. Because at some point, all of the growth companies need to figure out ways of making that kind of transition. And you essentially have to prepare the entire organization to go through that process and journey about 18 to 24 months in advance of that becoming a realistic possibility. So how do we prepare the company for it? And who would be the right person who has had that experience? That was our orientation in looking for the right candidate.
McShane: We have a whole methodology from psychometric data, deep dive interviews, references. We have a bunch of data on what makes a good CEO. And we determine where they are in terms of their potential to be a CEO, where they are developmentally from a competency standpoint. Then we talk about it with the client.
It’s going to depend on the individual and the company. One of the hardest things to do as a CEO is to be the only one making the decision, and sitting alone with that, but also, to be able to truly lead and manage all functions. Many first-time CEOs may have managed some of the functions, but they haven’t had to orchestrate and coordinate all of them. So rounding out their experience set is a key part of all this.
Get a Communications Strategy in Place
Sood: The communication and transparency around this both internally and externally was extremely important, because our business is in a position of strength. And this change is only going to add to that strength. So we wanted to make sure that, not only did our own team understand that as clearly as possible, but the rest of the customers and partners and the rest of the ecosystem that we work with.
[When I stepped aside from the CEO role] I wrote a blog post that communicated why we made the decision and the entire thought process behind it. And that was shared externally. But it started internally, emphasizing that it’s a decision that was made not overnight but by design.
Embrace the Search
Franklin: We made our criteria, then thought, let’s work our networks and have some coffees. Timebox it to 30 days. There goes a month. Now let’s get a recruiter, try to get them to understand how to interview for our value system, set up a weekly cadence call. Do waves of interviews. Break the interview teams in two. Maybe one team focuses on interviewing about CD values and takes the first five out of 10 criteria, and the other team focuses on interviewing about EF values and the other five criteria. Then you have the pre-call call, the call and the post-call call. It’s a lot of work. We funnel it down to like three contrast candidates for wave one. Maybe one is a really experienced CEO who knows our growth stage, one is good at domain and one is local. And we have to discuss how we’re going to trade these off. We interviewed 33 candidates in 15 months.
Sood: We started the succession process late last year. I told the board that, given the milestones that we were already hitting, this was the right time for us to start thinking about and preparing for this kind of transition. So the first step was getting the board aligned. The second step was formalizing the criteria that we were looking for in a new CEO. The third step was to retain a firm that had a track record of succession planning for companies that were looking to grow faster.
Don’t Put It Off
McShane: Usually, for a smaller company that’s high growth and disruptive, you have so much on your plate, and your business is changing all the time. The last thing you’re thinking about is developing leaders, let alone succession planning. But it’s a win-win if you’re doing both. It’s going to make the business better, and people are going to care more. It’s going to show professional maturity on your part. It doesn’t even have to be overly formal, but there’s no reason not to do it literally from day one. And at the very least, you’re going to end up with a better team because of it.