HR & Management

Not having a succession plan led to my business going under

7 min read

01 February 2017

Jan Cavelle continues her diary series, charting the decline of her manufacturing firm, by explaining how a succession plan was never really put in place.

In my first column in this series I introduced some of the key factors that led to my 20 year-old business entering insolvency, and now I’m going to touch on succession plan relevance.

Some seeds of the end of your business can be sown unwittingly right back at the beginning, when few of us dwell on the very available data on the short shelf of even the most successful businesses.

Of the top Fortune 500 firms, over the last 60 years an astonishing 88 per cent have gone bankrupt, shrunk beyond recognition, merged, or been acquired.

US economists are saying that this is speeding up – 75 per cent of the current Fortune 500 will be gone within a mere ten years now.  The survival rate of even the best is getting shorter and shorter.

There are a few of the very best entrepreneurs who start and follow through with a very specific and ambitious plan of a few years huge growth and a glorious retirement funding exit. An even smaller number meet this goal.

A large percentage of us, myself very definitely included, think little, if at all, about where the end might be at start out. The succession plan is not stressed nearly enough in business advice. Many people have, and still are, just launching into an indefinite long-term plan. It’s one full of excitement (or just too busy finding a solution to put food on the table as I was) but with only the vaguest, unformed notion of closing it down or selling it one day.

So I wasn’t planning the future. A succession plan wasn’t on my radar initially, anymore than an exit was. As the business grew, however, so did my children and a solution for both presented itself as we became a “family business”. This warming thought causes the majority of families a great deal of problems. Rarely is a business/family relationship trouble free for either parent or offspring.

My own son came into the business at 17 as a temp and ended up staying seven years. The dynasty appeared to all to be set in stone – he was my succession plan. The reality was that 17 is a great deal too young to settle down and it later became clear to both of us how unhappy he was. He was trying desperately to do “the right thing”. As a mum, I had to put his happiness first and kick him out to find his own way – which incidentally he has done extremely successfully.

So, my personal exit by succession was not going to happen. The business suddenly had no personal motive, it no longer needed to feed my family. The family business that it became no longer had a family in it. The business and I lost had both lost our way, and became purposeless.

It became worse as my son, with my complete blessing, decided travelling was good but emigration was better. I had a total meltdown and that is something to be avoided if you are trying to run a business. The early years of care-free growth and success had definitely came to an end.

When finally kicking back up, I realised that the only good solution was to try and build up the business to sell. I was horrified to be told, on a high-flying entrepreneurs growth course, that to realise a decent sale, you would need net profits of at least £300,000. However, sales had never really been a huge problem to us, and I was never one to shirk a challenge, so I swallowed hard and drew up a business plan to achieve it.

It never quite happened. Not all businesses are scaleable. It is still debatable in my mind if mine was quite simply in this category. It most certainly wasn’t scaleable ready then.

During those formative growth years a solid, the business team would normally have been brought in and embedded. Instead, I rationalised my son was there, we were doing well, and not that large, and did not do so.

Instead, I thought it was a great thing to allow internal progression. Like flotsam, they had risen through the company ranks to senior status, a mix of third-rate, disinterested people (and some more ambitious) but on entirely private agendas. By the time my son left, we not only certainly did not have the calibre of people to take it to the next level, we did not have the calibre of people to run it decently while I recovered. The staff had started to run wild and would never be the ones to hand over to through a succession plan.

Check out Jan Cavelle’s first column: Charting the decline and end of my 20 year-old business

I hope you find my going into insolvency columns useful in your business journey – a little honesty and perspective never hurt anyone. I’ll be touching on exit planning, succession, forming a team, problems of a supply chain and the compensation culture. It’s been a roller-coaster ride for me, and I look forward to sharing it with you all.