Succession Planning for Family Business

• Is your son or daughter not taking the reins of the family business with enough energy or fortitude?
• Are you afraid to step on your brother’s toes by continuing to push through your idea?
• Mom or Dad showing signs of forgetfulness?

We’ve led many small business owners through the successful transition of leadership. Succession planning for family business is never easy. The complex dynamics and multi-layered relationships that exist in family businesses make company leadership exceptionally challenging.

And this is never truer than when it comes to talking about the transition of a family business from one leader to the next.

Succession planning for family business statistics

74% of family business owners plan to turn the business over to the next generation.

But 12% of family businesses make it to the 3rd generation.

There’s often “… a complete disconnect between what the incumbent leader is privately planning and what the next generation is expecting.” {PWC US Family Business Survey 2015)  We’ve certainly found this to be the case in our experience. The current leader has expectations that s/he hasn’t shared, and the potential new leader(s) also has expectations and the chances of everyone’s expectations being different are pretty good.

The Business Owner’s Perspective—and the ‘Sticky Baton Syndrome’

Most family business owners want to hand off the company to the next generation. If you have kids, who better to carry on your legacy?!  If you don’t have kids in the business, maybe you’ve got your eye on someone to take your place. It’s interesting that, from the owner’s point of view, over 50% of them believe they’ll need to stay more involved than they’d like, to ensure a smooth transition. Hence the “sticky baton” syndrome—the older generation hands over management of the business in theory, but in practice retains control over what really matters. Most say it’s hard to let go. One owner said, “I’m not sure the next generation has the dedication to put in the hours it takes.”

The Next Generation’s Perspective

However, the next generation often actually does have the dedication… it just looks different. 86% of the next generation want to do something significant and special with the business. 80% have big ideas for change and growth. 88% believe they have to work harder than co-workers. Gaining respect among co-workers was one of the biggest challenges.

Clearly, there’s a big gap between how the owner of the family business sees things and how the next generation sees things.

Those complex dynamics in family businesses can really make themselves known over and over when it’s time to transition a family business from one leader to the next.

Here are 5 steps for succession planning for family business… and a smooth hand-off of the baton:

1. Draw up a formal transition plan. Succession plans are step-by-step outlines of everything that needs to happen for an effective transition. Include:
   • A target date for the official hand-off.
   • The role each person will hold.
   • A plan for systematic rotation of the main functions and operations. This helps the successor establish credibility
   • An agreement that if the successor doesn’t meet success milestones that the two of you spell out, s/he doesn’t automatically take over the reins.
2. Co-develop the leader’s exit strategy. This includes the preservation of the leader’s
   1. Benefits
   2. Legacy
   3. Reduction or change in work schedule
3. Have a clear vision for your business and a set of values. A vision is vital to the long-term success of any company, no matter its size and especially when leadership is going to change hands. A vision gives the new leader the star toward which to steer the ship and it lets everyone else in the company know where we’re headed.  A set of 5 – 7 clearly spelled-out values gives the new leader a filter through which to make decisions.
4. If you’re thinking about it, it’s probably time to do it NOW. Only 16% of family businesses have a discussed and documented succession plan. The point is to have it ready to go when needed… years in advance vs a last-minute, emergency succession plan after an unexpected illness or death.
5. Communicate it and involve others. Don’t view it as a secret plan. The more management and employees who know, the more that clarity and confidence will prevail.

A well-thought-out succession plan for family business will allow your business to keep supporting your family for generations to come. And it’s possible to maintain, and even grow, deeper relationships among family members.