Higher bar, talent crunch complicate SME succession

[SINGAPORE] Demographic shifts, talent shortages and – most recently – the crisis in the Middle East have raised the bar for small and medium-sized enterprises (SMEs) in Singapore that are navigating the complexities of succession.

Leadership succession has been a perennial concern but in recent years, an ageing population, shifting workforce aspirations and the sheer challenge of running a company have brought the matter into the foreground. 

As towkays near retirement age and look to hand over the reins, finding the right person for the job may prove more elusive than before, said observers whom The Business Times spoke to. 

“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, a business consulting and coaching company focused on helping SMEs. 

The main problem plaguing SMEs is talent – or rather, the lack thereof, noted Dennis Chua, founder and chief executive officer of Timah Partners, an acquirer that focuses on buying SMEs and grooming their next successor.

Younger generation not keen to take over

Younger generations are becoming 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 SMEs 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 Planners.

Now, however, younger generations value purpose, flexibility and identity. Many would rather chart their own paths than follow someone else’s, be it by joining startups or building their own brands, Woo noted.

SEE ALSO

When SME owners delay succession planning, their business and family pay the price

Beyond finding a willing successor, SMEs are also struggling 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.

Moreover, 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 comes as SMEs do not just seek competent candidates but also successors who are aligned with the companies’ values and vision, Miljenovic said.

Higher bar for successors, but more help available

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

Successors today need to do more than just learning the ropes of running a business, said Woo. To head a company, one must possess 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.

As it becomes increasingly vital for companies to adopt artificial intelligence to compete with their peers, the task of driving technological transformation often falls to a new successor.

This can be a complex, uphill task– especially if incumbent leaders or staff resist change, said Woo, adding: “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.

While SMEs navigating succession face new obstacles, Gracelyn Lin, CEO of Sing See Soon Floral & Landscape, noted there are now more resources and support services that SMEs can tap.

Merger and acquisition (M&A) companies and consultancies are some places that SMEs can turn to for help, Lin said.

Iran war impact

Observers told BT that the Iran war could delay SMEs’ succession plans.

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.

Notably, the survey also found that SMEs have been more acutely affected by the conflict than larger businesses, with 56 per cent of SMEs 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, cashflow 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.

Wee noted that he may need to delay his retirement plans to ensure that the business returns to normal before he can let go.

As disruption and supply shocks make it more difficult to run a company, times of crisis call for good management to steer businesses through the storm, said National University of Singapore (NUS) Business School’s Associate Professor Yupana Wiwattanakantang.

Hence, 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,” she added.

New breed of businesses offer succession solutions

Though there is a common perception that children of founders should take over SMEs, Prof Yupana noted that in some circumstances, it is better to shut down a business or to exit it and have it acquired by someone else.

For SMEs owners who are unable to find successors yet still 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 with a valuation of between S$5 million and S$20 million and an earnings before interest, taxes, depreciation, and amortisation (Ebitda) of between S$1 million and S$5 million.

Timah Partners functions as 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 to take over businesses through its CEO Succession Programme (CSP).

The CSP is designed to target specific pain points that plague SMEs’ succession journeys. It first recruits eligible talent to be future SME leaders, and then puts them through a holistic training programme designed to equip them to run a target SME.

The training period consists of three phases. In the first two, the candidate learns about capital allocation and business operations.

Subsequently, they embark on the final phase of the plan where they execute a roughly 180-day business transition process with the target SME. This is for them 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, Chua noted.

The company is working towards completing its first acquisition, with two more SMEs in “serious consideration” of a sale. A pipeline of more than 50 companies have approached Timah Partners and expressed interest in selling, Chua added.