Tech Leadership Succession Requires New Thinking in a Tight Labor Market

A version of this article was previously published in the North Bay Business Journal in January 2016.

For technology companies, today’s tight talent market brings plenty of challenges. Prolonged candidate searches, high salary expectations, and increasingly specialized skill sets are only the beginning to a saga that continues until you’ve found the right person and brought them on board.

Shifting workforce demographics also play a role in the leadership deficit tech companies are feeling: Baby boomers are retiring faster than Generation X can replace them, and millennials generally aren’t ready to take on high-level leadership positions. Add declining employee engagement into the mix, and you begin rethinking how companies approach even the most fundamental strategies in compensation and retention.

When it comes to succession, the odds may not be stacked in tech companies’ favor—but to stay competitive, achieve long-term goals, and increase value, it’s not a process you can afford to let fall by the wayside. With turnover as high as it is among tech workers, how can you build a leadership pipeline to sustain your company long term? Let’s look at a few strategies and how tech companies can use them to their advantage.

Replacing the Founder

Technology start-ups commonly replace their founder as they hit an inflection point, something that tech companies—the board members of start-ups in particular—need to consider even while their founder remains the CEO. A 2008 article in Harvard Business Review (“The Founder’s Dilemma”) examined more than 200 American start-ups that formed around the turn of the millennium. The results revealed that most founders handed management control over to their successors fairly early in the company’s life cycle, with fewer than 25 percent continuing to lead the company upon its initial public offering. In fact, half had ceded control by the time their ventures were three years old. Four years in, only 40 percent retained control.

Regardless of time frame, the bottom line is that you’ll have to replace your founder eventually, and that requires a willingness to break the mold. Founders typically do it all: They’re classic leaders who wear multiple hats. They simultaneously lead strategy development, run the business, acquire customers, and develop new technology. Rather than try to sustain the current leadership model, which can hold tech companies back once they’ve found their footing, think of replacing founders as a unique opportunity to think differently. Tech companies such as Zynga, Twitter, and Google are great examples of companies that chose to move toward a more distributed leadership model, whereby each member of the leadership team is able to operate at his and her highest and best use.

Understanding Business Cycle Needs

To jump off our previous point, each phase of the business life cycle—start-up, growth, maturity, and transition—requires different leadership skills. What got a business where it is today may not be what’s needed to get it to where it should be tomorrow.

Start-ups need leaders who can see market gaps and introduce disruptive technologies; growing companies require leaders who can drive revenue and customer acquisition while attracting talent; mature businesses should have leaders who can achieve operational scalability and sustainability; and businesses in transition warrant leaders who can attract buyers and navigate mergers and acquisitions. When you approach succession planning, make a concerted effort to focus on what skill sets your tech company is likely to need in its leaders in the years ahead rather than years past.

A Holistic View

Though leadership is often thought of as pertaining only to the person at the top, many technology companies, especially those seeking to go public or be acquired, have learned that stability of key management in each functional unit of the organization is a critical factor in success. As such, an organization-wide approach to succession planning is key. Focus on identifying and cultivating leadership competencies both vertically and horizontally throughout the business.

Building a Bench

It’s risky to have only one succession option available for any key position, especially when you consider the tech industry’s hypercompetitive talent market and frequent turnover. Instead, strive to develop multiple successor candidates for each role. Middle-market tech companies can learn a lot from their larger and more established peers, whose high-potential employee programs are aimed at identifying potential future leaders early on.

From there, these companies apply rotational training arrangements to enhance these potential leaders’ expertise and experience in each component of the business, including finance, information technology, customer service, operations, sales and marketing, and product development. Naturally, smaller tech start-ups don’t always have the luxury of instituting a comprehensive rotational program, but they should be able to create cross-training programs that provide a number of the same benefits.

Pay Attention to Generation

Employee engagement has always required superior communication skills from leadership, and as we’re learning, each generation (baby boomer, Generation X, and millennial) requires tailored engagement strategies. Given the disproportionate percentage of the tech workforce made up of millennials, tech companies need to understand this generation’s expectations, which generally places heavy emphasis on engagement, transparency, and communication.

Thankfully, these three elements will likely help across all the generational groups in your workplace, since they all share the need for clear and transparent communication regarding how they can contribute to the success of the business. Leaders should communicate mission, vision, and goals and make it clear how each employee—generational differences aside—can make a difference.

The Bottom Line

Though it’s easy to be swept up in the idea that tech companies can subsist on innovation alone, it’s people, ultimately, who keep them running and moving forward. Your company’s stability and viability rest on sound management decisions and solid leadership, which is why it’s so critical to proactively address succession planning for both anticipated and unanticipated transitions of essential leadership responsibilities.

If you’ve developed a leadership succession plan that reflects an understanding of the type of leadership you need, creates multiple succession options for core positions, and places employee engagement at the fore, then you’re well on your way to successful leadership succession—and you’re well ahead of most other tech companies.