In the formative years of a fast-growing company, the words ‘founder’ and ‘managing director’ or ‘CEO’ tend to be interchangeable. Although some entrepreneurs make a point of putting others in charge almost from day one, in most cases the individual who comes up with the idea is also responsible for taking the product to market. In the eyes of the staff – and probably the customers – the founder is the company.
However, successfully growing a business is in part an exercise in progressive delegation. On day one, the founder is probably taking personal responsibility for everything from sales through to chasing up late payments and hiring new staff. Three or four years later, if the company has grown, much of that work will have been handed over – perhaps reluctantly – to a growing team of departmental managers.
“One of the things that often happens is that the new manager introduces changes and begins to do things differently.” Doctor Jill Miller, Chartered Institute of Personnel and Development (CIPD)
Even further down the line, the time may be right for the ultimate act of delegation – a full-scale handover to a new MD or CEO, with the founder stepping aside, perhaps to take a non-executive role or to cash in and leave the company altogether. This will be a major turning point in the lifecycle of any company, which is why it is so important to ensure a successful handover.
Why step aside?
Company owners might choose to step down for any number of reasons. It could be the realisation that the founder doesn’t have the experience, or the inclination, to take the business to an IPO, move into foreign markets or mastermind a string of acquisitions. In other instances, it’s a desire to move away from the day-to-day running of the company and take a more strategic role.
“What you often see is a founder choosing to split the leadership role,” says Doctor Jill Miller, a research adviser at the Chartered institute of Personnel and Development (CIPD). “For instance, a new CEO will focus on the operational side of the business while the founder focuses on the strategic side.” That can mean the owner being re-cast as a chairperson or simply as an active and interested controlling shareholder.
Another trigger might be staff retention: build a good management team and you inevitably gather talented and ambitious people around you. If they don’t get an opportunity to put their ideas into action they’ll go somewhere else, perhaps to a competitor.
Managing the transition
Whatever the situation surrounding the handover, it can be a tricky transition to get right. As Doctor Miller points out, the arrival of someone new at the helm will have an immediate impact on employees.
“One of the things that often happens is that the new manager introduces changes and begins to do things differently. Employees react by saying, ‘Wait a minute that’s not how we do things round here’.”
There may also be concerns among customers and along the supply chain. Founders typically play an integral role in winning orders and their relationships with customers are often personal. Obviously, this will change and evolve over time – for example, when a new sales director takes over – but many customers take comfort from knowing that if a problem arises, they can still call the owner.
Working in tandem
So how do you keep everyone happy while you hand over? “One way to do it is to have the owner and the new CEO or MD work with each other, side-by-side, for a period,” says Dr Miller. “That gives employees and customers an opportunity to get to know the new boss while someone they know and trust is still present. At the same time it gives the new CEO or MD a change to get to know the company and to understand how things have been done.”
However, this is not without its challenges. If the owner plans to stay on, he or she will certainly have a continuing vision for the business: a balance has to be struck between guiding the company from a backstage role, and undermining a talented MD through too much micromanagement.
“These situations can be very emotional,” says Dr Miller. “There is sometimes a case for bringing in a business mentor to advise on how to get the handover process right.”
To ensure a smooth transition, the handover process could be pre-empted with the formulation of a succession plan and, in some cases that will mean looking internally. This has the advantage of applicants who already know the company and its customers well, and it can be good for morale. “People will be able to see that there are opportunities available to them,” says Dr Miller, who advises that all internal succession should be transparent and open to a range of candidates.
When assessing external candidates, Dr Miller recommends complete clarity of intention. “The owner should be clear about his or her expectations. Equally the candidate should be clear about what he or she expects.” The aim is to find a candidate who is aligned with the goals of business.
By making the expectations of all stakeholders clear at the earliest opportunity you will pave the way for a smooth handover and establish the guidelines by which the success of the handover can be judged.
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