by: Mark Kincannon
A step by step guide to passing on the family business.
Leadership lessons learned from great family businesses was discussed by panelists in a webinar presented by Harvard Business Review. A great point that stood out for me was the dramatic decline in the success of family businesses when leadership passed down from the founders to the 2nd, 3rd, and 4th family generations.
Many business owners have a hard time imagining the business they built being owned and/or managed by someone other than their own family. After all, who else should own “your pride and joy” (business) other than “your pride and joy” (children)? While that may seem like the perfect solution, statistics tell us that passing your family business down to your children or children’s children is, more often than not, a bad idea.
In 2014 Egon Zehnder and the Family Business Network conducted a survey of 89 executives from top family owned businesses in their respective industry and geographic market. The objective was to discover what made these top family businesses successful while so many others seemed to fail.
An amazing 70% of businesses fail when they are passed down just one generation, and 88% fail into the 3rd generation. Most noteworthy, an overwhelming 97% fail when passed on to the 4th generation.
Armed with this knowledge, it’s important to be diligent when you are thinking through succession plans. This takes careful calculation and strategic planning. You don’t want your children or grandchildren experiencing the financial and relational struggles, strains, and stresses that business brings.
Often times the most responsible decision you can make for your family’s long term financial health is to prepare your business for sale. It is one of the most difficult decisions you will make. For your own comfort, it is important to seek outside help. Find a business brokerage firm that understands your local business climate and takes the time to understand you and your business.
5 Keys to successful succession
1. Successful family succession plans address the organization’s unique family gravity. They understand the underlying family members with the force that is behind their success. Ask yourself…Who really makes this business a success? Be honest. False humility sets up failure.
2. Successful family succession plans establish a strong and structured leadership succession process. In other words, they don’t just simply pass the baton to the next generation. Ask yourself…What specific training is in place for the next generation of leadership?
3. Successful family successions have a clearly defined corporate governance process. Decisions can’t be made on a whim. Ask yourself…What checks and balances are in place that help us govern our business? “Go ask your mom,” is not a good process.
4. Successful family successions have a clear understanding of what is needed in the family business leader. If those traits are not obvious in the next generation, a new plan must be developed to increase the odds of your business’s success. Ask yourself…What specific strengths do you possess as your company’s leader? What specific strengths do your children have that are necessary to propel your business to future success?
5. Successful family successions must carefully manage the integration process. There must be a specific transition plan, with clearly defined evaluations that allow the new leader’s performance to be measured in a step-by-step approach. In other words, you don’t just throw them in the fire and hope they can figure out how to survive. Ask yourself…Can I create a transition plan that will help the new leader have continued success?
Mark Kincannon is the owner/managing partner of the CBI+Team Fort Smith-River Valley office. Since 1994, The CBI+Team has facilitated confidential business sales and helped hundreds of business owners navigate the selling process and transferring business ownership. Email him at firstname.lastname@example.org www.cbiteamfsrv.com