When a multigenerational family business continues to grow, the owners need to think about how they will manage the transition to the next generation of leadership.
A husband and wife team started a business more than 30 years ago. At one point, they decided to move the business to another city, essentially starting all over again. That was more than 25 years ago, and since that time, their children have grown and also joined them in their endeavors. Currently they are experiencing the third generation, their grandchildren, becoming involved in the family business. These previous entrepreneurs, have become very successful business owners. They provide not only for their own family but also for the families of many employees. They have done so many things extraordinarily well. The fact that the family still enjoys each other’s company, likes to be together, and is encouraging the third generation to become involved is a statement to the nature of the business owners. The challenge for future sustainability is in truly turning over the reins of the business to the second generation. Times have changed, the needs of the family continue to change and what worked 20 years ago doesn’t work in the same way today. They recognize the challenges ahead and I believe are scared about how the transition will take place.
One of the best ways for a family business to move to the next generation of leadership is to prepare for and organize the transition. The parents pick an heir apparent, lay out the organizational structure and spend the next five to 10 years grooming the new team and stepping out of the business a bit more each year. They let the kids start making decisions, knowing and understanding that mistakes will happen. After all, the parents made mistakes, too. They need to allow the kids to learn while providing a safety net of advice.
Here are three challenges to family business transitions:
Giving up Control. I hear you now, “I would be thrilled to give up control of the business.” Yes, you may actually believe it; until one of the new leaders makes a decision you don’t like. I see it all the time (and this happens in all businesses). Leaders give up control until they don’t like the decisions being made, then they step back in and take back control, and the resentment begins. Family members and employees that feel their actions are being second guessed feel the lack of trust in their abilities and often result in an unwillingness to try again.
Fear of the Unknown. Children are often called a perfect blend of their parents, warts and all! The things one doesn’t really care for in the spouse manifest themselves in the kids. One is wild, the other is too conservative. One is visionary, the other wants things to be the same as they have always been. The end result is parents who are afraid everything they have worked toward for the last 30 plus years now has the potential of being destroyed; maybe even going out of business but for sure changing. This fear can hold the business back and stunt its potential. Fear can also be well-founded, however, if the parents feel the children do not have the skills to run a business then a plan must be put in place to enable them to learn to run the business or provide someone else to lead and move the business forward.
Selecting someone other than a family member can often be a relief to the next generation who isn’t skilled or perhaps doesn’t want the responsibility of running the family business. And that is okay. Not everyone is gifted at risk taking and the responsibilities that come with business ownership. Their specific skills may be much greater in other areas where they can be high achievers.
Failing to move forward: Business is good, life is busy and the succession plans are ignore, there's plenty of time to get back to it. The wills may be completed and the estate planning has been taken care of, but not much else in the business has been addressed, then disaster strikes. Why is it that death seems to be the one thing that everyone runs from? I won’t answer that here as many books have been written on this topic. The more we plan for the eventual results of life, the more we can relax and enjoy ourselves. Stop playing God and being afraid of death. Know that death will come and your job—yes, your JOB—is to make sure the next generation is adequately prepared. That means helping them learn how to make decisions. Let them disagree with you and then you provide them wise counsel, but let them make the final decision and live with the result. Let them learn how to fall, pick themselves up and fall all over again. Don't be a reactionary, let things run their course. Read John Maxwell’s Failing Forward; it will change your perspective on failure. If they can’t run the business while you are around, what is there to make you believe they will do a better job when you are dead?
Give your family the best leadership of all and learn to let go.