25 Aug Succession Planning for Creative Businesses (Article)
Leaders of creative businesses think about succession differently.
In many privately owned companies, succession planning is stated as a top strategic priority, yet takes a back seat to more urgent – or more enjoyable – activities. Succession is often prompted by a triggering event such as Partners’ retirement, resignation, insolvency, or death. Succession is also considered when other firms or investors looking to merge with or acquire their practice make an inquiry. In these cases, succession becomes a value preservation exercise, rather than value-building.
The time required to develop a succession plan, therefore, is not taken, and this puts the company’s future at considerable risk. When succession is reactive, the likelihood of owners receiving fair value for their ownership is lesser than if the succession is planned. When it is planned, business activities can be directed towards achieving a predictable return to owners and making the business an attractive investment for others. This is why owners should plan for succession as early as possible.
Succession planning is a continuous, strategic process.
Succession can strengthen a firm’s talent and creative capabilities. It should integrate all aspects of a business to ensure its stability and profitability, and promote its goals for growth, whether creative or financial. Ownership transition looks at who are the current owners, their unique characteristics that have contributed to the success of their company, and their goals for them selves and their business.
Creative professionals may shy away from structured or rigid plans, with the fear it will stifle creative growth or change their studio’s culture. We find, however, clarity on succession reduces stress and contributes to developing higher performing teams.
Owners are wondering:
- What is the legacy I will leave behind?
- What are my shares actually worth, and how can I ensure I realize fair value for them?
- What is my role when new owners take over?
Alignment on goals for the company is critical. Also necessary is a common understanding of who are the best future owners of the business. Here, common questions include who is willing (and can afford) to buy the company at a fair value, who is motivated and qualified to lead the company into the future, and what they need in order to view the purchase as an attractive investment opportunity. This stage avoids promoting employees to Partner based on length of service or their likability, which is a common, ill-advised approach to keeping key employees (there are other ways to do this).
Preserve, strengthen, and build your business’s value.
Competitive advantage in creative industries includes talent and service delivery. Talent management is therefore a critical element of preserving a firm’s value. Attracting, developing, and retaining top performers that contribute to your vision and creative objectives is key to ensuring your business’s success. If opportunities for advancement or growth are not seen, top, entrepreneurial talent is likely to leave. Succession can create opportunities for growth and advancement of top-performers in your company, helping you retain and build your competitive advantage. (Read our article published in CanadianArchitect for an example of succession planning in a creative business)
Too, we often find internal purchasers to be most interested in being the future owners. They have the intimate knowledge of, and skills for, the practice’s creative or technical expectations, client relationships, and its processes. When succession is not planned, however, these best future owners often can not afford to purchase the company, limiting the market for shares.
To preserve, build and strengthen their value, companies need to solidify and discover value-driving activities, reduce risk, and ensure there are willing buyers for their shares. Though these integrated activities will take time and investment, they can prove quite valuable to the company and its owners.
Several creative companies’ growth has been driven by the vision and talents of their founders and key leaders.
When the topic of succession arises, the roles many key leaders continue to play are seen as irreplaceable. The competitive position of the company is seen as dependent on the individuals. For owners to realize fair value for their shares, however, the business cannot depend on them and functional succession must be addressed. This includes sharing of leadership, knowledge, and client relationships.
When a business’s success depends on key leaders, there is uncertainty in its future value. Though building value-driving activities to be independent from a handful of people will require investment, it can also ensure a fair, appropriate return to owners and a more attractive investment opportunity for internal or external parties.
By considering the strategic, financial and functional elements of a company, succession planning can promote growth and help ensure the future of your business. Plans can be developed to preserve the unique, creative identity of your business.
Succession plans cannot be successful unless they are executed. Our team helps owners of creative and private businesses navigate the questions of value, investment, and goals that are introduced in succession planning. We develop a comprehensive, actionable plan and support owners in its implementation and promote fair, equitable arrangements for sellers and buyers.
Innovia approaches succession as a process that can build the creative and commercial value of your business, including:
- Creative, design, or technical excellence
- Business development and client relationships
- Brand, marketing, and reputation in the industry
- Leadership and talent management
- Finance and operations
At any stage of your thought process on succession planning, consider Innovia a valuable resource in helping ensure your creative ambition, expectations of value, and goals for your business are met.