Higher bar, talent crunch complicate Singapore SMEs’ succession plans

[SINGAPORE] Demographic shifts, talent shortages and – most recently – the crisis in the Middle East have made succession more complicated for small and medium-sized enterprises (SMEs) in Singapore.

In recent years, Singapore’s ageing population, shifting workforce aspirations and the sheer challenge of running a company have brought this perennial concern further into the foreground.

As towkays near retirement age and look to hand over the reins, finding the right person may be harder than before, observers told The Business Times.

“While in the past, we saw many companies having key employees who have been in the company for more than a decade who seem to be happy taking on the successor role, in recent years it seems like a lot of them would prefer to go on their own path,” said Felicia Miljenovic, the founder of Business Multiplier, an SME-focused business consulting and coaching company.

The main problem is talent – or rather, the lack thereof, noted Dennis Chua, founder and chief executive officer of Timah Partners, which acquires SMEs and grooms successors.

Younger generation not keen to take over

Younger generations are increasingly educated and exposed to diverse career options through social media, such that fewer are willing to take over the family business, said Chua.

“With each successive generation, children or grandchildren of successful SME owners get more and more educated, and also more exposed to ‘sexy’ career paths like tech, finance, law, medicine and other professional services,” he explained.

Succession planning “felt easier” in the past, when children were more willing to carry on their parents’ legacies, observed Gavin Woo, managing director of workspace furniture manufacturer Office Planner.

Now, however, younger generations value purpose, flexibility and identity. Many would rather chart their own paths, whether by joining startups or building their own brands, Woo noted.

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Beyond finding a willing successor, SMEs also struggle to attract capable talent – a process hampered by the perception that working at an SME is not particularly glamorous. For high-calibre individuals, working at a well-known multinational could be more appealing, said Chua.

Even if a potential candidate is capable, there is still the question of suitability, said the Association of Small and Medium Enterprises (Asme).

“Grooming a successor goes beyond technical competence; it involves mentoring, building credibility and earning the trust of employees, customers and suppliers. This human dimension makes the preparation of a successor difficult,” Asme said.

This is especially as SMEs do not just seek competent candidates, but successors who are aligned with the companies’ values and vision, Miljenovic added.

Higher bar for successors, but more help available

Woo, who completed a handover at his company in 2021, believes that succession today is significantly different from before.

Successors today need to do more than learning the ropes of running a business, he said. They must have a broad set of skills to meet the growing scope of demands.

“Running an SME today is not what it was 20 to 30 years ago. Now, you’re dealing with digital transformation, branding and social media presence, systems and AI automation,” he noted.

With the adoption of artificial intelligence now increasingly vital, the task of technological transformation often falls to a successor.

This can be a complex, uphill task– especially if incumbent leaders or staff resist change, said Woo. “The older generation may feel like nothing is broken, so why the need to change and evolve?”

Successors often need to wear multiple hats as advocates and drivers of change, subject-matter experts and networkers, he added.

Still, there are now more succession-related resources and support services for SMEs, said Gracelyn Lin, CEO of Sing See Soon Floral & Landscape. These include merger and acquisition (M&A) companies and consultancies.

Iran war impact

The ongoing Iran war could also delay SMEs’ succession plans, said observers.

As the conflict unfolds, most businesses are prioritising near-term concerns such as cost management and cash conservation, a survey by the Singapore Business Federation found.

SMEs reported being harder hit by the conflict, with 56 per cent recording a fall in revenue from Singapore customers, compared with 33 per cent for larger companies.

“Many SME owners are focusing more on immediate operational resilience, cash flow and liquidity rather than longer-term succession planning,” noted Eldred Wee, managing director of Edenity, an M&A advisory that buys, sells and grows SME accounting firms.

Donald Wee, founder and director of data security establishment Data Terminator, said that the Iran war has delayed his company’s succession plans as his main concern has been keeping his business stable and sustainable.

He added that he may need to delay his retirement to ensure that business returns to normal before he steps down.

As disruption makes it harder to run a company, times of crisis require good management to steer businesses through the storm, said National University of Singapore Business School’s Associate Professor Yupana Wiwattanakantang.

How companies respond to the Iran war depends on their financial health and how prepared the successors-to-be are, she said.

“Firms that are not in good shape may delay succession plans – you don’t allow an inexperienced person to run the firm during a difficult time.”

New breed of businesses offer succession solutions

Though it is commonly assumed that the children of founders should take over SMEs, Prof Yupana noted that it can sometimes be better to shut down a business or exit by having it acquired.

For SME owners who cannot find successors, yet want their legacies preserved, SME acquirers such as Timah Partners and Oneteam offer an avenue for continuity.

Startup Oneteam acquires SMEs and trains employees to run them. It focuses on companies valued between S$5 million and S$20 million, with earnings before interest, taxes, depreciation and amortisation (Ebitda) of between S$1 million and S$5 million.

Timah Partners is a permanent holding company that acquires SMEs valued between S$10 million and S$50 million, with an Ebitda in the range of S$2 million and S$10 million. It grooms successors through its CEO Succession Programme (CSP).

The CSP targets specific pain points in SMEs’ succession journeys. It recruits potential leaders, then trains them to run a target SME.

First, the candidate learns about capital allocation and business operations. Then they undergo a roughly 180-day business transition process with the target SME, to learn the ins and outs of the business from the owner.

Timah Partners has recruited two CSP candidates and plans to bring a third on board soon.

The company is working towards completing its first acquisition, with two other deals in “serious consideration”, said Chua. It has also been contacted by more than 50 companies that are interested in selling.