Startup Succession Planning

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A survey of over 140 North American CEOs revealed that nearly half of their companies do not have a succession plan:

While 69% of respondents think that a CEO successor needs to be “ready now” to step into the shoes of the departing CEO, only 54% are grooming an executive for this position.

Part of the reason, as Felix Salmon points out, is that corporate boards like to hire the next big star to take over. That may work for big corporations (sometimes), but startups that lose an owner may founder and die without a clear successor to take over.

Startups are often personality-driven, but that does not mean they have to end when the driving personality leaves. A succession plan is simply an answer to the question “what do you want to happen if the owner leaves or dies or something?”

At a minimum, take care of these four things:

  1. Pick and train a successor;
  2. Make sure the owner’s will passes on the business;
  3. If necessary, use a buy-sell agreement to pass on the owner’s interest; and
  4. Fund the transition costs with a life insurance policy on the owner.

A succession plan is like a business’s will. And just like a will, you’ll gain peace of mind once you have one in place.

Sam Glover is a Minneapolis business lawyer for geeks. He also edits the law firm marketing and practice blog Lawyerist, Lawyerist, and Caveat Emptor, a consumer law blog, and speaks frequently on law practice and lawyering.

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