Academic journal article Entrepreneurial Executive

In It for the Long Haul?: Succession Planning within Small Entrepreneurial Firms

Academic journal article Entrepreneurial Executive

In It for the Long Haul?: Succession Planning within Small Entrepreneurial Firms

Article excerpt


Small businesses, whether family-owned or not, need to plan for the eventual turnover of key contributors, especially owners/founders. Those firms that have not implemented or communicated a formal succession plan may not have qualified people to lead them in the future. A study was conducted among small manufacturing firms to explore succession planning practices. Only 40% of the firms studied engaged in formal succession planning. Key determinants of succession planning were top-management support of the initiative and having someone who possesses the knowledge to adequately implement succession planning. For those firms that had a formal succession plan, what determined whether or not they kept it a secret from employees was whether they believed the employees included in the plan would feel a sense of entitlement to the promotion. The results are discussed and recommendations are made for the small business owner/consultant.


It has been reported that no more than three out of every ten small businesses survive past one generation of leaders, and only 16% survive to the third generation (Janjuha-Jivraj & Woods, 2002; Watson & Everett, 1999; mall businesses failure, 1996). Certainly, economic/financial issues are responsible for a lion share of small business failures. Many others are caused by the inability of the firm to overcome the loss of key contributors (Lussier & Sonfield, 2004).

No matter how successful, every small business will, at some point, experience the loss of key contributors. Examples of such losses may be in the form of an engineer (whose skill-set may not be easily replaced) or a sales associate (who has built strong relationships with key customers over the years). Oftentimes, these losses are in the form of an owner/founder (whose vision helped build and sustain the culture). In fact, given that half of all U.S. small business owners are aged 60 or older (Fleming, 1997), it appears that planning for the eventual urning over of the reigns is more important than ever.


Succession planning is a contingency plan an organization develops to address the eventual loss of key human resources. More specifically, it is he process of developing key people through a process that identifies candidates and tracks their progress and development (Nardoni, 1997). Succession planning has gained wider acceptance in the corporate world. Studies conducted show 67% of those surveyed reported that succession planning had grown in importance in the last decade (J. Howard & Associates, 2003). The emergence of succession planning in larger firms can be credited to the teamwork and bureaucracy needed to run a large organization. In addition, the corporate boards of large organizations have forced senior management to consider succession planning (J. Howard & Associates, 2003). One poll of executives found 100% of those surveyed believed it useful to identify and groom a successor. However, the same study found that only 72% were actually grooming people for these key roles (Messmer, 2002).

Small businesses have an even greater need for succession planning, but face unique challenges. First, key decision makers in small businesses can be more critical to the organization than key decision makers in larger corporations. Small businesses will rely on key decision makers more, while larger corporations generally have more management depth, processes, and procedures. Secondly, small businesses have a limited internal talent pool from which to draw, making replacing the loss of key decision makers more difficult. Yet, according to a study conducted by the American Society of Chartered Life Underwriters & Chartered Financial Consultants, less than half of all small businesses engage in formalized succession planning (mall businesses failure, 1996). Why? Perhaps some do not fully understand the necessity to prepare for the future. …

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