As a small business owner, you likely spend a lot of time thinking about your company’s future. From product or service development, all the way to identifying growth pathways – that big picture thinking is what being in business is all about! But how much time do you spend planning for negative scenarios, like losing a critical staff member? Even worse, what happens when YOU are that key person and your loss would mean disaster for your company? This is key person risk and it can make or break a small business.
Employees who have skills that are uniquely valuable to your company’s success can be worth their weight in gold. But what happens if they leave? Whether they are absent for several months or leave your company permanently, it could have seriously negative impacts on your ability to operate. Key Person Risk is a real problem for small businesses especially, which are often confined by small organisational structures. It doesn’t leave for much wriggle room, should one piece of your very small pie decide that they’re moving on.
What could losing a key person mean for your company? Can someone fill their shoes easily? Can the job description be easily recruited for? Is this person potentially taking away a whole bank of knowledge you’ve been relying on to operate? As a small business operator, you already know your staff are your biggest asset. But could they be your biggest downfall as well?
Read on to know the various ways you can manage key person risk within your business.
Make the time to regularly take stock of your organisational structure as a way of identifying your key person risk issues. For instance, as your staff stay with your business longer, they might start bringing more and more to the table. Their performance might evolve into something that, whilst beneficial, may start to be crucial to your success. You don’t want to diminish the importance of their roles, especially if they are performing well for you. But you do need to highlight them and then plan your contingencies accordingly. This way, if they do leave, their loss will be felt more like a bump in the road than a full blown car crash!
HINT – These key people may not always be among the highest-ranking positions in your company (managers or designated experts etc). Look at the go-to people whom other employees rely on whenever they are stuck. I have a couple of friends who work in a distribution centre in, what you might call “lower positions on the corporate ladder” but, without a doubt, if either of them were to leave, their company would fall apart. They are the only ones who know how things actually work!
Pretty much all businesses start out with one or two people who know what they are doing. At least enough to provide the service they are selling. So, key person risk is prevalent in every fledgling business from the moment the doors get opened for the first time. Chances are, you can’t call in sick and have someone replace you. There’s no-one to fill your shoes! This is to be expected in the early stages of your business’ development but once you’ve been operating for a while, you need to address this or the slightest little hiccup could send your business spiralling out of control.
If you started your business as “the talent” (ie. the person who knows how to do the job that allows for you to fill your clients’ needs), you need to be aware of the risks involved of not having someone who can replicate what you do if something were to happen. If you haven’t employed someone who can do that, not only is your key person risk factor in the red but you are also trapped in the position of doing the job rather than being able to work on your business.
Your company is only as good as the team that makes it. If you spread as many skills amongst your employees as possible, you create a formidable team instead of one critical person. Concentrating on one individual is an inefficient move that creates over-dependence and can prove damaging for the business’ future and development. Additionally, most small companies mostly have less documentation and fewer written processes; sharing knowledge ensures future progress.
If the key persons are still within your organisation, let them mentor their co-workers. This way, other employees can duplicate the critical person’s tasks when your important players are unavailable. However, note that the people in these positions may hesitate to share their knowledge for fear of getting replaced. If it takes time, you can schedule regular training sessions to keep the other workers up to date with the significant developments.
You can also manage key person loss through an insurance policy to defer the substantial financial risk. However, it may be difficult to get a suitable package due to a person’s serious medical condition or age. In this case, you can insure them as per the amount that aligns with their value to the company.
With an efficient succession plan, you can recruit and quickly develop other staff to fill a vital role. However, it may not turn out to be a straightforward process. It’s better to recruit now for future needs as the company evolves because it’s challenging to replicate existing talent in the future.
While you may be putting too much focus on the danger of losing a vital person, you can also opt for a different approach. Due to the increased rate of job-hopping and labour market dynamism, losing an employee is unavoidable.
You, therefore, need to think of ways to deploy this talent across the organisation by evaluating strategic positions. This way, you minimise the impacts of losing a key person. Posts will remain in the organisation, but an individual will come and go. Therefore, you can concentrate on developing, moving, and enlarging the positions within the company.
As a small business owner, losing a key person can limit your future growth or even keep you off the market. Do any of the above points ring true to you? At Oracle Tree, we also coach small business owners in growth mindset and scaling. Get in touch with us today to book a free strategy session, and let’s see if we can find at least five organisational changes that you can make right away to lessen your stress.
What could you do if your business simply… worked?