From Queen Sugar’s earnest sugarcane farmers to Succession’s twisted media moguls, TV audiences are obsessed with the drama of creating and managing multigenerational family businesses. That’s because these enterprises beat considerable odds – even if they don’t experience the calamities and intrigue of their TV counterparts.
The Small Business Administration shows that pre-COVID, most new companies don’t even survive one year, much less generations. SBA year-to-year data prior to 2019 show that about 20% of businesses started to fail within 12 months, and almost half of those that continue are shuttered before their fifth anniversary. So any enterprise that spans generations is pretty rare. And when we add in the volatility that comes from family dynamics, companies that pass from one family generation to another are unicorns.
Making the transition work comes down to planning. Sure, some family operations survive through sheer luck or will. But the most successful ones (Hello, Walmart) effectively manage the universal business fundamentals and address the specific subtleties of family enterprises. They plan for success and succession.
Yet PwC’s 2021 Family Business Survey found that just over one-third (34%) of family businesses have “robust, documented and communicated” plans. Is yours one of them?
“I really wish that family business owners would start thinking concretely about succession roughly 15 years before they think there’s any possibility of their stepping down,” laments Liz Kislik, a management consultant and executive coach who’s been working with family-owned and operated businesses for more than 30 years.
|Pro Tip: Improve the process.
“If you’re running a family business and it was very difficult to get your forebears to turn the business over to you, don’t put the next generation through what you went through,” Kislik advocates. “Commit to improving the process for everyone’s benefit!”
6 keys to a family business succession
Here are a half-dozen ways to ensure an effective transition:
- Formulate. Before launching a formal succession plan, it’s important to quantify how you, the owner, envision the future of the business. “It’s crucial to imagine a business that you aren’t leading personally,” explains Kislik, who’s also a frequent contributor to Harvard Business Review and Forbes. “Different people are motivated by different things—having a highly regarded legacy, showing that they’ve prepared others to continue the business successfully, or ensuring that they and their family members will be financially secure.” With the vision clear, you can start charting a course to help you and your relations realize it.
- Communication. Clear and transparent discussions are key. “I wish family businesspeople spoke more freely around role transition and their expectations,” says Richa Singh, a consultant with The Family Business Consulting Group, a leading management consulting firm serving the unique needs of multi-generational family businesses worldwide. Visibility into decision-making and clear articulation of processes and actions are critical to securing buy-in and reducing friction. Also helpful? “Sharing stories of success and struggle, and your vision for the business, values, and philosophy,” she adds. “This creates context and curiosity in the next generation’s minds and sensitizes them to the challenges and joys of doing business.”
- Evaluate. Successful succession requires a thoughtful and thorough assessment of potential candidates’ skills and career trajectories. Knowing each prospect’s current talents, expertise, thought process, and aspirations makes it possible to choose a successor who’s fit for the position and actually wants it.
- Educate. Even if your successor has been working in the business, additional preparation ensures a smooth and successful handover. Leadership development is vital, of course. Formal education in disciplines outside their usual scope can also be useful, such as business classes, industry certifications, etc. Many multigenerational enterprises encourage family members to work outside the business to gain exposure to how others do it and build a strong network.
- Mediate. “Succession battles are rampant; it is normal to feel pressurized, alone and overwhelmed,” Singh cautions. You may be able to deal with family clashes internally, but “It’s always good to seek help and expertise.” Consider bringing in an unaffiliated mediation professional to manage emotions and resolve conflicts.
- Collaborate. Trusted advisors, including bankers, CPAs, attorneys, and business consultants, can help you and your family initiate and navigate the process and get unstuck. You might also bring in coaches to groom the next generation, guide them to developmental opportunities and be a confidante.
|Pro Tip: Ruminate.
As important as planning for the business after hand-off is planning for you post-transition. “I want family business owners to think about their own career arcs—what their own growth plans could be, and what support they need from others to do their very best and to feel enriched and enlivened,” Kislik counsels. “Owners who can foresee some kind of vital, meaningful activities after they leave the role are usually more willing to leave it in good shape, rather than being forced out or hurting the business because of their own need to hold on too long. Preparing yourself to leave at the top of your game is a gift to everyone who comes after you.”
The bottom line
Ensuring your family business is built to last requires the same strategic, reality-based approach you take to any other business decision.
“Too many family business leaders have a dream or fantasy about how succession will work rather than conducting the sort of clear-eyed, practical business assessment they would if they were considering an acquisition or taking on some other new, complex project,” Kislik notes. “Succession is a new, complex project.”