Entrepreneurs and Leadership Succession Planning

For 31 of the last 35 years, I’ve had the opportunity to observe founders and families at three remarkable companies wrestle with the challenge of developing additional senior leaders. One company had 850 team members, one ranged between 85 and 150 (with seasonal spikes), and another had 45. Despite their differences, all faced the same fundamental challenges that I’ll explore in this post and expand on further in the coming weeks.

Let’s start with why they were doing this.

In one case, the company was growing aggressively. The founders felt they needed more leadership capacity to manage growth and believed they’d benefit from someone who had managed a team of similar size (they had not). In another, the founder wanted to step back from day-to-day operations and prepare the business for sale. In the third, the founder and next generation were already deeply involved, and a third generation was beginning to enter the business.

While there are other motivations, most leadership succession efforts fall into one (or more) of these categories:

1. The company is growing and would benefit from additional leadership.

2. The founder or owner-operator wants to focus on other priorities, such as strategy or a potential exit.

3. The value of the company is typically higher when it is not dependent on the owner for day-to-day operations.

4. Ownership wants to develop and prepare additional family members for leadership.

So, what’s the big deal?

Entrepreneurs have usually hired, and developed, dozens of people over the life of their company. They’ve identified them, hired them, and helped them grow into outstanding contributors the business depends on every day. Why is this hire different?

This time, they are hiring or developing someone who will represent the company at a much higher level, both internally and externally. Someone who will make decisions the owner has historically made themselves. Someone they must rely on to keep them appropriately informed. And someone who will now be familiar with details of the business that, until now, only the owner has known.

This isn’t easy. It’s one more challenge on the long list that comes with owning a business. But when done well, it opens the door to many new possibilities.

Models of Leadership Succession

Leadership succession generally falls into one of three models (or hybrids of them):

1. A leadership team

2. A General Manager / COO / President

3. A next-generation family member

Let’s look at each.

Leadership Team

In this model, the owner assigns primary responsibility for major areas of the company. For example, the shop or warehouse might report to a Plant or Warehouse Manager, while office staff report to an Office Manager. Sales often continues to report directly to the owner.

This frees the owner from minute-to-minute operational decisions and allows more time for growth and long-term thinking.

In practice, however, the owner is often still involved in all decisions of real significance. Front-line leaders learn how the owner likes to run the company and mimic those priorities. But spending outside routine purchases, overtime, and employee corrective action often remain on the owner’s plate. It is their company, after all.

This is a great first step, but its impact is limited. Sometimes it’s all the company can afford. For some owners, it’s the beginning of learning to let go. For others, it provides time relief without a willingness to truly share responsibility. And that’s okay, it’s still their company, and their risk.

General Manager / COO / President

This is a much bigger, and more challenging step.

To get the full benefit, the owner must give up sole ownership of certain decisions and genuinely share responsibility for others. If one exists, the leadership team now reports to the COO.

Whatever title is chosen, this is not an all-or-nothing model. Some functions may continue to report directly to the owner. Sales, finance, or product development are common examples. This may reflect the COO’s experience or the owner’s unique skills and comfort level. Over time, as the COO gains familiarity with the business and the owner gains confidence, responsibilities often shift away from the owner.

In my experience, this is the most challenging model for owners. We’ll explore it further in future posts, but the big issues tend to be:

1. Decision-making. Owners are accustomed to being involved in every significant decision. They must do the work to build confidence in someone else making decisions they can live with. This is challenging when they still have all the risk.

2. Awareness. Owners are used to knowing not just the numbers, but the subtleties. Things like team dynamics, personal challenges, and undercurrents have been helpful for them to know. New systems and shared understanding are required to stay informed without being in every detail.

3. Overlapping authority. When both owner and COO are present, team members may be unsure whose direction to follow. Clear definition of roles, and active coordination between owner and COO, is essential. Without it, both the COO and owner may be frustrated, but more importantly the team will be negatively impacted.

Next-Generation Family Member

This model shares many challenges with the other two, plus a few unique ones.

1. Qualification. Family members may be promoted based on potential, as many leaders are. But others in the company may assume favoritism, making success harder. The family member must have thick skin, determination, and hustle to overcome this. And the owner must coach them through this reality.

2. Access. Family members have more access to the owner and in depth information than non-family leaders. This creates a burden to exercise judgment about what to share, when, and with whom. Owners must actively coach around this to avoid unintended team issues.

These three models cover the primary alternatives, with many combinations and variations in practice.

Requirements for Success

Despite their differences, all models share four requirements:

1. Clear responsibilities and authority. Assumptions here are costly. Owners often believe expectations are obvious when they are not. Writing things down and talking them through reduces misunderstandings.

2. Thoughtful selection. Tenure does not equal leadership readiness. Promoting someone before they’re prepared can harm both them and the organization. Sometimes the best gift to a loyal team member is capable leadership above them.

3. Deliberate communication. You need to establish systems for information flow—and clarify when to bypass them. You must clearly define what matters most: the company’s purpose and values that guide decisions. And don’t forget to review progress regularly and expect some bumps. Development takes time before it saves time.

4. Transparency and trust. Sharing responsibility, and information, is hard for owners who have carried the load alone. And whose personal finances and the company’s are often intertwined.  Start by acknowledging that openly. Trust builds through honest dialogue, patience, and shared experience.

Summary

For entrepreneurial companies of all sizes, leadership succession is a major inflection point. Depending on the company’s stage and the owner’s readiness, it may range from developing functional leaders to hiring a COO who runs the business day to day.

This step is easy to underestimate. When handled poorly, it becomes a major distraction and drain on the organization. But when done well, the benefits are substantial: energized leaders, better outcomes for customers, and an owner free to focus on what’s next.