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Succession Planning for Startups: Key Considerations for Founders and CEOs

Published On
June 5, 2023
Read Time
Jay Magdani

In every startup, there comes the point when the person who toiled, sweated and drove success has to take a backseat and hand over the reins to someone else. 

Yet, few startups work on smooth succession planning.

Often, founders are so immersed in building and scaling the company that they forget to plan for the future. This results in a chaotic leadership transition that undoes years, if not decades, of hard work. 

So, thoughtfully planning success is critical for the business to continue thriving. Let’s elaborate. 

Startup Succession Planning: A Change in Mindset

Without a succession plan, startups often struggle to find a successor who can continue to drive growth and maintain its culture and values

Besides, uncertainty and instability can damage the company's reputation and performance when a founder departs suddenly. But accepting that it is time to move on is not easy. 

So, how do founders start identifying and developing future leaders?

1. Start Early

First, bring a change in your perspective and look for signs that indicate it’s time to let go of control. 

Second, begin succession planning early. It’s vital to lay the foundation at an early stage because it can take years to identify and then shepherd the right person to take over.

2. Develop a Leadership Pipeline

Finding a replacement is challenging. A good rule of thumb is to have a transparent process that can spot future leaders within the startup. 

Mentor and coach your employees, so you have a pool of qualified candidates when it is time to pick a successor.

Besides the CEO, invest in developing internal successors for other roles and functions like CFO, CTO, and CMO.

3. Consider External Candidates

Internal candidates are the obvious choice for succession planning at startups. But don’t overlook external talent. They can bring new ideas and perspectives and may have experience in areas that internal candidates lack.

4. Communicate the Succession Plan

Planning, patience, and transparency are the keys to unlocking successful succession - not just before and during the handover but also afterwards. So, communicate the same to employees, investors, and board members via town halls, emails, and live-streaming.

Reassure the stakeholders that you are still committed to the startup and will continue to help as responsibilities and decision-making are handed over. It’ll build trust and confidence in future leadership and keep everyone aligned.

5. Plan for the Unexpected

Success is never guaranteed, irrespective of how much you plan. So, anticipate bumps in succession planning and create processes to mitigate them. 

Broadly, plan for two types of contingencies: 

  • The carefully considered candidate for CEO fails and has to be rejected. In this case, the founders should be ready to return to the business.

    A phased succession that involves the founders working alongside the new CEO for a few years reduces the risk of this scenario.

  • A sudden illness, death, or unwillingness to carry on can lead to unexpected departures.

    Plan for them by appointing an interim CEO and outlining a process for selecting a permanent successor.

Wrapping Up

History is littered with examples of poor succession planning in startups.

For instance, after Steve Jobs was forced out of Apple in 1985, the company struggled under a series of CEOs, losing its innovative edge. Jobs returned in 1997 and turned it around.

However, its success is not a sure shot, even when a succession plan is in place. Disney is a perfect example. Bob Chapek was dismissed in less than two years, and Bob Iger, the previous CEO, had to return.

So, take steps to ensure your startup has the right plan to maintain stability and drive growth, even in the face of unexpected challenges.

Need help with succession planning? Try Scalix.

Scalix is an integrated platform that offers founders access to a community, capital, customers, and convenience that help build sustainable and scalable startups.