We’ve worked with a number of small-business owners who take pleasure in being indispensable to their firms. This is easy to understand: most of us have experienced the profound satisfaction of imagining how quickly things would fall apart if we were to walk away. The office, the project, the team, the crew, the family—they’d crumble helplessly without us. They owe us. They need us. Right?
Maybe. For the vast majority of us, it’s not entirely true, and that’s a good thing. If we were all as indispensable as we like to imagine, the entire nation’s infrastructure would be hovering on the brink of collapse. Mass transit, wireless networks, news agencies, port authorities—if people learned that any of these could be disrupted by a single person’s disappearance or dereliction, they’d be nervous. They might wonder whose idea it was to create systems that could be compromised by a single point of failure.
When people rely on an organization, they expect it to have a certain amount of redundancy, so that it won’t grind to a halt if it loses one or two employees—even high-level employees.
Small business is subject to this expectation. They should not be utterly dependent on their owners. We don’t say this because we love replacements: we wouldn’t want all small-business owners to be featureless cogs in corporate machines. We just don’t think they should be the only ones capable of running their operations. There’s too much risk involved.
This principle is similar to the principle governing concentration of sales: if a firm depends on one customer for a large percentage of its revenue, then it’s in a precarious position. The high-percentage customer could ruin the firm on a moment’s notice. So it goes with leadership.
If a small business’s ability to function rests on one key person, then it contains a single point of failure, which makes it a less attractive partner and a less attractive investment. To potential customers, clients, and lenders, it looks a bit like a house of cards.
Thus, indispensability is linked with higher risk and lower value. It’s satisfying in the short term, but in the long term, it’s not worth it.
A good way for small-business owners to avoid the trap of indispensability is to develop a dedicated second-in-command. That is, someone else who has the managerial acumen to keep the business running, and who can contribute to the owner’s day-to-day decision making. A second-in-command creates a promise of resiliency and continuity—qualities that small businesses need to project if they’re going to move to the next level.
Developing an effective second-in-command requires a years-long investment in disciplined, targeted skill-building. In fact, the amount of effort required to prepare someone for the role of business ownership calls attention to entrepreneurs’ talents. Far from making entrepreneurs look replaceable, seconds-in-command make them look all the more impressive.
A small-business owner needs a second-in-command to act as backup, because if a small business can’t function without its owner, then it’s in danger. That’s why in our practice, we urge entrepreneurs to ask, “What would they do without me?” Most people think of this question rhetorically, but entrepreneurs ought to think of it as a starting point for serious transition planning.
Skill Sets: The second-in-command versus the go-to person
In order to clarify what we mean by “second-in-command,” we’ll take a moment to differentiate the second-in-command from another, similarly useful archetype: the go-to person.
The go-to person knows the company’s product or service inside and out. He or she is there to provide fast, creative answers to operational problems that go beyond the training of regular staff. A go-to person has advanced knowledge of the industry and is expected to contribute that knowledge to the company’s overall strategy, but isn’t responsible for developing or implementing the company’s vision. His or her job is to make sure the product does for the customer what it’s supposed to do. Management skills involving growth, finance, and sales lie outside his or her expertise.
By contrast, the second-in-command knows the company itself inside and out. He or she is of course familiar with the product, but focuses more on what it takes to deliver the product. His or her advanced knowledge is of the behind-the-scenes processes that allow the company to keep serving its customers. These include things like hiring and promoting personnel, negotiating agreements with suppliers, servicing debt, and communicating with stakeholders.
From the outside, a small business looks like a single, unified block. It hums along quietly and produces its product automatically. From the inside, however, it looks like a complex machine with all kinds of moving parts. It clanks, hisses, whistles and squeaks. Someone has hold all the pieces together, and a second-in-command knows how.
Think of a small business as a hospital. You have doctors on one hand, administrators on the other. The doctors are experts in delivering medical services, while the administrators are experts in making the sure the doors stay open, the lights stay on, and the staff gets paid. Both types of employee are essential, but their skill sets are very different.
Unfortunately, the administrative type of employee—i.e., the second-in-command—is often neglected in the small-business setting. Many entrepreneurs see a go-to person as an urgent priority and a second-in-command as a possibility to be explored down the road.
We’d like to see them change their minds. Not only because a company with a single point of failure is riskier and less valuable, as mentioned above, but also because developing an effective second-in-command takestime. It doesn’t happen overnight.
A small business, even one with a solid go-to person, should start preparing a second-in-command long before it urgently needs one. Seconds-in-command have rare, complex skill sets, and they require time to grow within their companies before they can truly protect those companies’ assets.
Inculcating Leadership Skills
In an article sponsored by the US Small Business Administration, Nancy Bowman-Upton observes that “an owner [usually] wants to assess a successor in the following areas: decision-making process, leadership abilities, risk orientation, interpersonal skills, [and] temperament under stress” (1991). There’s no law saying an owner’s successor has to be the same as his or her second-in-command, but even if they’re different people, they should rate similarly in Bowman-Upton’s general categories.
Note, however, that a promising next-rung leader, one who rates perfectly in Bowman-Upton’s general categories, is not yet a second-in-command. Someone with the right personality and background may turn intoan excellent second-in-command, but only after acquiring practical experience in running the company.
To really be qualified, a second-in-command needs to complete a role-specific personnel-development plan. A plan that inventories critical skills, spaces learning requirements along a definite timeline, and, essentially, provides the second-in-command with hands-on ownership training.
In our practice, when we set out to advise small businesses on the content of their personnel-development plans, we spend some time learning their standard operating procedures and acquiring a sense of their vendor/customer relationships. That’s not possible here, so instead of discussing content, we’ll discuss three important qualities of personnel-development plans, and match these qualities with some relevant questions.
Personnel-development plans should be:
1) Systematic. A systematic plan analyzes the company into distinct parts, analyzes administration into distinct skills, and sets up a timeline.
- What administrative functions does the owner perform? How crucial is each function to the company’s survival? What skills are associated with each function? How complex are they? How quickly can someone be expected to learn them?
- Which departments are affected by each of the owner’s administrative functions? How are those departments affected—for instance, what happens in them when an administrative mistake is made?
- Which administrative functions involve direct contact with vendors and/or customers?
2) Documented. A documented plan is, quite simply, committed to paper. It’s more than a series of verbal suggestions or tacit expectations.
- Is the plan readily accessible by senior staff, including the second-in-command it’s designed for?
- Is the plan clearly organized for the reader, so that its scope, timeline, and objectives are easy to understand and remember?
3) Dynamic. A dynamic plan is not left to become dusty or obsolete. It remains current with fluctuations in the company’s size, structure, and employees.
- Do senior staff revisit the plan on a formally scheduled basis?
- Do senior staff voice their concerns and suggest modifications to the plan based on reflection or new information?
Drafting and maintaining a personnel-development plan demands time and effort, but the payoff—a good second-in-command—will make the company look safer to customers, partners, and investors. Furthermore, it can play a key role in facilitating transitions of ownership.
Planning for Transitions
A great deal of business literature makes reference to “succession planning,” but we prefer the term “transition planning,” which suggests a broader process.
Ideally, transition of ownership represents the culmination of long-standing wealth-preservation, leadership-migration, and contract-negotiation strategies. It doesn’t happen unexpectedly or in a rush. All major stakeholders can see it coming from a mile away, and all major stakeholders exercise some influence on how it unfolds.
In the advent of a transition, the existence of a qualified second-in-command allows stakeholders to plan for continuous company operations. To put it another way, when a small business has a second-in-command, stakeholders know the owner’s departure won’t cause a cataclysm.
Continuity of this sort is crucial. Transition planning is hard enough without everyone scrambling to figure out who, besides the owner, actually knows how the business is run. Indeed, because of their complexity, well-managed transitions generally involve a team of experts who advise stakeholders at every step. Writing for livemint.com, Rejeev Peshawaria—currently CEO of the ICLIF Leadership and Governance Center—observes that transition planning “has become a cottage industry in itself, with human resource professionals, search consultants, psychologists, and executive coaches” all playing a part (2011). We’d add legal specialists in taxes, estates, and contracts to the list.
Although the purpose of a transition team is to offer guidance, it requires some guidance in return. Experts can’t help a business achieve its goals unless a person from within the business articulates those goals on a detailed level. The team’s overall direction needs to come from a senior administrator.
This administrator could, of course, be the owner, but the owner is leaving. If he or she takes charge of the transition team, it will be much harder for him or her to step aside when the moment comes. Not only because he or she may have some stirrings of reluctance, but because both stakeholders and transition team will need direction after the transition has officially taken place. They’ll continue coming to the owner—the former owner, we should say—with questions and concerns as they push the business forward. That creates ambiguity at the administrative level, especially if the owner retains some shares in the company while abdicating formal authority. It’s bad for everyone.
A second-in-command can gradually assume responsibility for guiding the transition team in the lead up to the owner’s departure. That way, the owner is able to extricate him- or herself from the company’s day-to-day functions. He or she isn’t called back to sort out administrative tangles, and stakeholders don’t feel abandoned.
Passing transition-management to the second-in-command can be particularly helpful when transferring ownership within a family. Everyone knows how fraught such transitions can be. The standard tensions between parents, siblings, and in-laws add a volatile element to already-challenging business transactions. A non-family second-in-command can moderate personal conflicts from a business perspective, keeping the transition process on an even keel.
For an entrepreneur, transition planning involves protecting two things: wealth and legacy. Both of these are much safer with a second-in-command in place.
In the beginning, entrepreneurs are always indispensable to their small businesses. But if they remain that way indefinitely, indispensability mutates into indentured servitude. Indispensable entrepreneurs have a tough time going on vacation and a tougher time extricating themselves from their firms when they transfer ownership. Cultivating seconds-in-command gives entrepreneurs more freedom; protects the value of their businesses in the eyes of customers, vendors, and lenders; and establishes a foundation for transition planning. When an entrepreneur commits to a plan for second-in-command development, he or she trades the image they cannot be replaced for continuity. “What would they do without me?” becomes “Here’s what it takes to do what I do.” Training someone else to run the business is part of turning it into a source of future wealth, rather than future headaches.
Bowman-Upton, Nancy. 1991. Transferring management in the family-owned business. Emerging Business Series—Small Business Administration, EB-1.
Peshewaria, Rajeev. 2011. Diamonds in the rough. livemint.com & The Wall Street Journal.http://www.livemint.com/2011/08/28202951/Diamonds-in-the-rough.html?h=B