Why I’m Against Succession Planning at Startups

I have to admit I’m not a fan of succession planning in general, at startups in particular, and especially when the successee is involved in the process. Why? Because the process quickly ends up presumptuous and political.

In my experience, the successee is more concerned with being a “good guy” on the way out than with what’s best for the business. Consider the retiring CFO of a $500M company. Eighteen months before he wants to retire, he starts succession planning, picks his favorite division-level finance chief, anoints her the chosen one, and starts the grooming process (“one day all this will be yours”). The chosen one starts showing at meetings to which she’s not usually invited, and demonstrates some new swagger with peers.

The CFO eventually retires and the CEO and board replace him not with the chosen one, but with an experienced CFO coming from a $2B company. Feelings are hurt, strong performers are demotivated, and hub-bub generated — all for nothing. The chosen one didn’t even make the first cut of requirements in the job spec. The retiring CFO didn’t (and shouldn’t) get a vote.

The thing to remember with startups (and high-growth companies in general) is that you don’t want to hire the person you need now; you want to hire the person you need three years from now. And the odds that the person you need three years from now is working for the current boss today are pretty low. Put differently (and most certainly when going outside for a hire), the job should grow into the person; the person shouldn’t grow into the job.

The default succession plan for almost any startup executive – including the CEO – is therefore to go hire someone from outside who’s overqualified for the current job. If you wonder why someone overqualified would take the job … well, that’s why the Gods created stock options.

Before you think I’m an anti-career-development cretin, this is not to say that companies should always go outside to backfill key roles. Sometimes people are able to grow within fast-growing organizations. I myself did this as I rose from technical support engineer to director of product marketing over 7 years at a company that grew from $30M to $240M along the way. So I’m all in favor of it; it just doesn’t happen very often. And more often than not, managers who consistently only want to promote from within are actually saying they’re afraid to go outside and find strong direct reports who will challenge them. Remember, I’m talking about patterns and rules here; there will always be exceptions.

The reality is in high-growth startups, just “holding on” to your current management or executive job is both hard enough and a big growth opportunity. Running product management, sales, or HR at $10M is quite different from running it at $300M. During my tenure at Business Objects, as we grew from $30M to over $1B in revenues, only one other team member and myself “held on” during that growth. Out of about 15-20 people that made up the broadly defined leadership team, every other person got replaced, sometimes two or three times, along the way.

That’s why I think succession planning – making plans for how to replace Jane when Jane is healthy, happy, and doing a great job for the company – is a waste of time. Let’s keep Jane focused on growing the business, which is hard enough. If she gets hit by the proverbial bus, well, let’s just deal with that when it happens. We pretty much know what we’re going to do anyway (i.e., call a recruiter).

The best argument against my viewpoint is the case we’ll call Marty. Let’s say Marty would be a great candidate for the CFO job. He’s a great controller, has great leadership skills, and strong business sense — but hasn’t spent much time in FP&A. After Jane gets hit by the bus, we might think “darn, Marty would have been great if we’d moved him into FP&A last year to develop him.”

My two-part response to this is:

  • Yes, sometimes it makes sense and if Marty’s got his act together he’ll be pushing for the FP&A job if it opens up along the way — best developing himself and positioning himself for any eventual CFO opportunity. Since there is always risk associated with any outside hire, Marty should pitch that the risks associated with him learning the job are less than those associated with taking a new person into the organization.
  •  The decision whether to give Marty the job will come down to how fast the company’s growing and whether the company is better off with a talented-but-rookie FP&A head, an internally promoted FP&A manager, or a veteran outsider. Yes, we want to help develop Marty, but if the company’s growing super-fast, then just “hanging on” should provide plenty of development and financial benefit (i.e., stock option appreciation) for him along the way.

Some would note that if we turn down Marty for the FP&A job, he may quit because he feels he has no opportunity for career growth. I understand; I quit a job myself once for that very reason. But I did so in an environment where company growth had stalled and I wasn’t going to get either financial reward or career development for sticking around. If the company is growing fast, then Marty will get both. If it’s not, most of the principles I describe here don’t apply because this post is about succession planning at startups and high-growth companies.

In fact, succession planning makes a lot of sense at low-growth companies, where the organization is static and people move through it. If you want to retain your people over time, you better think about those career paths, and rotate your Marty’s through FP&A to keep them having fun and learning. And, in those environments, the best person to take over for the retiring CFO might well be one of his/her direct reports (and dangling that opportunity might well help retain a few of them along the way).

The real problem is when big company types come to a high-growth company and say “let’s do succession planning (because we did it at my last company and it’s just something that one does)” – and nobody asks why.

Most of the time, in a high-growth startup, it won’t make sense. Or, if you make a succession plan, it will simply be 1-800-HEIDRICK, 1-800-DAVERSA, or 1-800-SCHWEICHLER.

2 responses to “Why I’m Against Succession Planning at Startups

  1. Maybe you should set up a discussion with Ben Horowitzt, who argues the exact opposite – hire for the job as it is now, and maybe for the next 6 months.

    • I suspect we’re not as far apart as it might appear. Some people when they say “hire the person you need three years from now” get it wrong — and hire someone who can’t do the job now, which is a huge mistake and one I’ve seen many times. And, if you could find someone who could both do the job now *and* still do it three years from now then it’s hard to argue that that person isn’t better than someone who can only do the job now.

      So, net/net, my advice is first and foremost to hire someone who can do the job now — but your ideal candidate, for senior exec spots at least, should be able to do it in three years, too.

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