Bringing the Next Generation into the Family Business
Most business owners dream of the day their children will manage the family business. Given that roughly only 30% of family businesses survive from the founder (G1) to the next generation (G2) and a mere estimated 13% from G2 to G3 suggests that this is easier said than done. It is important to remember that at points of transition there is heightened risk.
The Family Enterprise Advisor program instructs us that succession is a process and not an event. There are many moving parts and there is much to resolve. Thoughtful planning, and taking the critical steps required, need to begin years in advance of the transition to increase the odds of success.
Some helpful questions you might want to ask yourself as you are preparing for the process include:
Is anyone really interested? While many business owners hope, or even expect, their children will want to run the family business one day, this is not always the reality. It is important to have this conversation with your children, preferably years in advance, to gauge their level of interest. The more the next generation sees this as an option, rather than an obligation, the greater the chance for acceptance and more importantly commitment.
Are they ready? It is not uncommon for business owners to bring G2 family members into the family business in roles and positions that exceed both their experience and credentials. This can demoralize existing employees and lead them to question advancement opportunities within the organization. Furthermore, ‘everyone knows’ why the family member was hired -- which will not make their job easy and it will also reduce their chance of success.
Is there a backup plan? No matter how carefully a project is planned, it rarely works out quite as expected. What if G2 is not interested in the family business? This is not an uncommon occurrence. Many in G2 have complex and sometimes contradictory feelings about joining the family business. Are there other candidates either internally or externally who are qualified for the position? Having alternate succession plans available is not only prudent for the success of the business but also for keeping peace in the family.
Are you prepared to give up control? Many business owners have dedicated their entire adult lives to building the family business. Even if the founder is committed to moving on to the next stage in their life there are many complex emotions and considerations i.e. pride, security, loss of identity, fear of change, that make giving up control more difficult than most would imagine. This is a life-changing event for G1.
Are outside experts required? The skills required to build, operate, and grow the family business are not necessarily helpful in transitioning the business to G2. Vincent Valeri, Family Enterprise Advisor, Telos Group advises “Given the complexity of the various overlapping and interdependent systems – family, ownership and business – outside experts with varied technical and soft skills are needed to make the transition a success.”
How long are you willing to stick around? The amount of time G1 will want to ‘stick around’ is contingent on many factors. How ready is G2 to run the family business on their own? How critical was G1 in managing the supplier and customer relationships? Do you expect that any senior executives will use this transition to look for greener pastures? How long will be considered too long by G2? It is important that G1 make themselves available to G2 for questions and discussions even after the transition period – G1 have much accumulated knowledge and wisdom that can be beneficial to the success of the family business.
This is not meant to be an exhaustive list, but rather an introduction to the type of questions that will help you formulate a thoughtful plan, with enough time to execute a seamless transition, ensuring family harmony, and the ongoing success of the family business.