What is succession planning? That's right, family business owners, you asked the question. I'm gonna give you the answer on this edition of the Inside BS Show. Hey now, it's Dave Lorenzo.

I'm the Godfather of Growth, and today I'm answering your questions. And the question that I'm answering today is what's succession planning? What is it? So I know you probably think you know what succession planning is, but you probably don't know the right way to do it. So you're a family business owner, that's why you're here.

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Okay, so succession planning is critical in a family business. It doesn't matter if you're gonna leave your business to the next generation, or if you plan on selling your business, succession planning is critical. Now most people think succession planning is simply planning for who's gonna take over the business next.

That's part of it. That's part of the succession planning process. But what succession planning really is, is it is planning for the person who fills in in every role in the organization.

Think of it for every single role, from the person who sweeps the floors all the way up to you, the business owner and the CEO. You've got a plan for who's going to fill that job, who's going to do those things, the responsibilities that exist in that role if that person's not here temporarily, and if that person's not here permanently. Now, it is likely that you will have to replace someone in every role in your business, at least temporarily.

So succession planning means having the person who's currently in the role write down everything they do every day. So you should have daily, weekly, monthly, and annual tasks if someone has an annual task they perform. You should have a list of all those tasks.

Then you should outline what they do, Monday, Tuesday, Wednesday, Thursday, all the way through the week. And then you should have all those standard operating procedures together in one place so that people know what is involved in each role in the organization. I would put standard operating procedures right in line with succession planning.

But what succession planning means is who fills in for that person when they're not here. So on a temporary basis, everyone should have a backup that's cross-trained in their job. They could do 50 to 60% of that job responsibility with ease.

That's what the backup is responsible for. Succession planning occurs when you have someone who could step in and do the job with 80% or more competency compared to the person who's proficient in the role. So if I am a machine operator of a specific machine, my backup should be able to do my job with 50% proficiency.

So they can get me by for today. They can get by for today if the person's out, they call in sick. Or maybe they can get by for a week if the person goes on vacation.

The succession plan has somebody ready to go at 80%. So if that person quits or is incapacitated or God forbid, passes away, somebody could step into that role, they're 80% ready to go, and then they just have to become proficient in the next 20%. They can get by for the time being and they can become proficient in the last 20%.

The plan is who goes into that spot. And the plan is how do I train someone to be ready to be in that spot. So every role should have a temporary replacement.

We call that a contingency plan. And then they should have a permanent replacement who's getting ready to fill that role. We call that the succession plan.

Now, things become complicated when you have positions that advance beyond the tactical. So things become more complicated when they advance beyond frontline positions. So management positions where people not only have to know what to do and how to do it, but they also need to know how to lead.

These require competencies in leadership. So succession planning is more complicated for managers because the managers have to be trained on leadership skills as well as the administrative aspects of management, as well as identifying key performance indicators for all the tactical roles that are under them, all the frontline people that are under them. So for leadership development in management positions, you have leadership qualities that someone has to be rated on.

You have the administrative management qualities that they need to be able to do, the capabilities they need. And then you have the tactical frontline day-to-day operations things that need to be learned. So in leadership roles, succession planning involves those three categories of competencies that people need to exhibit in order to be ready to succeed someone in a specific role.

They have to get to at least 80% capability in all three of those areas. My focus in succession planning, especially in family businesses, is to have everyone trained on moving into the next role that they're going into, the role that they're ascending into while they're in their current position. So everyone has a current position and they have a future position that they aspire to.

Now, I'm realistic. I know some people will never get to that next level, but they should still be a backup for someone and they should still be able to fill in for other people in other roles. So when they get their performance review at the end of the year or every 12 months, their performance review rates them on their performance in their current position as well as their performance in the next role, how they're doing moving into their future role, how they're doing in their preparation for moving into their future role, or how they're doing in being someone's backup in an additional role.

Then there's a third area of competence that people should be rated in, and that's how well they're training one or more backups for their position. So everyone in the organization is rated on what they're doing in their current job, their current performance. They're also rated in where they're going in the future, how they're preparing.

You don't have to rate them on their execution of the role in the future. You rate them on the effort they're taking in preparing for the future. And then you also rate them both on the effort and the execution of preparing the next person to fill in for them.

This way, the organization always has someone moving into the next position. You're an organization that focuses on continuous improvement. This is so important, and nobody does this, and I don't see anyone out there other than us at Exit Success Lab teaching this.

Every performance review process needs to include current role, the future role for the person being reviewed, and how they're training the person who's going to take their place in the future and the person who's going to take their place on a contingency basis if they're out. That's what succession planning is in the world of Exit Success Lab and in the world of Dave Lorenzo. If you do succession planning this way, it will be a huge competitive advantage for you because nobody else is doing this.

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I'm Dave Lorenzo. We'll see you back here again tomorrow for another edition of our show.