Family businesses - how to bring through the next generation!
Recently we focused on family run businesses, the dynamics involved and why they so often fail. This article received a great deal of attention and it’s not difficult to see why, with 4.6 million family businesses in the UK accounting for two thirds of the UK’s business sector.
Undoubtedly, the dynamics of family business have their drawbacks and many of us may well have first hand experience. The recent article focused on those drawbacks in detail but there are also many advantages to consider if you are looking for a succession plan. The loosening of the reigns, relinquishing control to a family member to take over the helm and steer the ship can be a risky strategy but also, if administered correctly, a highly rewarding one too.
What are the advantages of a succession plan and how to make it effective?
When the first generation take on that unique and rewarding position of starting a business and becoming business owners, whether it is brothers, husband and wife or indeed another family combination, the chances of success compared to any other business are equally as good, if not better. Family loyalty and being loyal and responsible to each other can provide a business with a keen edge, a greater degree of openness and honesty with high levels of commitment.
The majority of the risks for family businesses tend to come later when you look to introduce the second generation of family members. Statistics will demonstrate that this all too often dooms a company to failure. However, it comes down to attitude and honesty to make this new and risky dynamic work.
Sense of entitlement
Who hasn’t heard a story of generational take over, know it all attitude and rose-tinted glasses nurtured through a naïve sense of entitlement? If you’ve been in and around businesses for long enough, my guess is you have certainly heard, or indeed experienced, the negative effects of this dynamic. Maturity aside, some people simply aren’t ready to be put in positions of power and any business owners should rightfully make absolutely sure that a son or daughter is treated exactly the same as any other employee. In fact, some will never be ready to become business owners, they simply don’t have the personality and drive to make a success of it. So, the first rule is to be honest with yourself… can that family member become a business leader and take the business on to new heights?
Direction and ambition
Research carried out the around this particular subject discovered two very distinct attributes that led to successful generational takeovers within businesses that had a history of growth nurtured by generation after generation. One very obvious outcome was down to the fact each family succession plan involved that next generation going out into the job market to experience being an employee first and foremost, without any family connection. They had to get a job in the real world first. The second key denominator is to understand the ambitions of the individual and set a plan in place for their eventual takeover of the business - what skills they need and how their career path should evolve to nurture those skills. Immediately, this creates an understanding that, in order to become a business owner, it takes a lot of hard work and training. Understandably, you wouldn’t bring in any young and raw person and fast track them to the boardroom unless they could demonstrate extraordinary levels of skills and leadership, so why do that with your kids?
So, they are out in the real world working for someone else for a few years (research suggests 6-7 years) but this doesn’t stop them from starting informal training. In fact, it is the perfect time to nurture those skills needed to become that next generation of family owners. It helps them to make up their minds as to whether taking over your business is right for them and for you to see if they have what it takes to become part of your succession planning.
Once your son or daughter has gained some essential skills, and is still keen to takeover the business in future, why not put them in a non-executive position? Give them some responsibilities to prove themselves. You would naturally do this with anyone else.
One of the big failings is that sense of entitlement. When your son or daughter eventually comes to work in the business, provide them with a mentor, someone you trust and admire within your own business that will help to ground and mould them into the person you need them to become. They will need to prove themselves to their mentor, establishing relationships with other members of staff and, importantly, gain the respect of those around them. Succession planning with family members is about instilling leadership, governance and ownership.
As their skills and position in the company progress they must become acquainted with clients and regular customers. The business leader provides a sense of stability and that helps clients feel confident they are buying from the right company. Making sure clients feel confident in your son and daughters’ abilities is key to your succession plan.
Evaluation of your successor
Simple questions to continually ask as you nurture the next generation are… Can they demonstrate excellent leadership skills? Do they have a defined vision of the company’s future? Do they have the drive to deliver it? Unless you can honestly answer these questions positively, the business simply isn’t ready for the next generation to lead it. A very true statement is… “What’s best for the business is also what’s best for the family. Consider the business above all else.”
If you are thinking about your succession plan, here are some useful points to consider…
- Identify your successors. Most have more than one child who may want to become the next owner of the business
- Set an employment policy with rules on employment eligibility. Out in the real world first!
- Detail the qualifications for potential ownership. Are they up to the challenge?
- Come up with a contingency plan in case anything changes with the intended successor/s.
- Make sure you compare your succession plan with your estate plan. When are you are you looking to step aside?
- Decide after you step down what your involvement with the company will be
- Include plans for inevitable involvement of spouses. That can be a difficult situation
- Write up an agreed upon vision of the company’s core values
Unfortunately, when writing your succession plan you have to think of the worst-case scenarios. Be honest, because you certainly don’t want your successors to fail.
If you are going through a succession plan, or looking to put one in place, I have a great deal of experience of this and currently coach business owners who are considering their futures in very much the same way.