You may recall the character Mini-Me in the Austin Powers movie: Austin Powers: The Spy Who Shagged Me. The comedy character was fashioned to resemble Mike Myers character, “Dr. Evil”. While the movie as made for entertainment, the concept of having a Mini-Me is something many entrepreneurs and Boards of more established companies often neglect to consider before it is too late. Succession planning is a critical part of building to maintaining a successful business.
Replacement of a key management figure may include a search firm seeking a new hire. The fees for the search firm alone run around 35% of the salary plus bonus for the first year. This would make an executive search fee around a $70,000 - $120,000 price tag if the salary were $200,000 plus bonus. Then there may be a signing bonus and the compensation for the first year. Now the business can be paying more than $300,000 in the first year. Then there is the loss of time of having someone run the business or a possible fee for an interim executive that may run the business. The costs can easily be a significant drain on the resources for any small company.
Two things that can help are:
· Take out Key-Man life insurance payable to the company. In one company I worked with, the interim costs estimated before hire of a new CEO approached close to $1M. The insurance was intended to help offset the costs and reduce the funds used from operating capital.
· Grooming a replacement can cost very little and it provides your Board with options. Sometimes, it is possible to identify and groom a potential replacement within the company ranks. The Board may ultimately decide to select an alternate for the permanent position, but the individual possibly could serve as the interim executive.
The same suggestions may apply to other key positions in your company. Suppose you lost your lead person for product development and all the corporate knowledge for this function was with a single person. How long might it take your company to recover and get back on track? How much time might be lost from launch of your product? Finding ways to ensure retention of key corporate knowledge and capabilities is critical.
People move on to new companies and usually without much announcement. People die and it is difficult to plan alternatives when feeling the effects of a painful loss. You can plan for unknown events that may have a serious impact on your company. For this reason, succession planning is worth consideration by all executives and Boards of Directors. Great planning may help the business continue functioning with as little downtime as possible. The planning may also include financial planning that reduce the drain of your financial resources should such an event occur.
The bottom line: find the Mini-Me(s) in your organization and train them. Planning for unknown events may save lots of money and lost time. In fact, the planning may save your company from total collapse. When the company leader is gone, the team may not be able to rally and continue. Your Mini-Me may be just the ticket to keep things going!