The time to start long-term planning for your family business is as soon as you believe that your family business will be around for the long term. Maybe you haven’t even let yourself think about it: “I’m too young to think about succession!” or “I’ll never retire!” Or maybe you’re putting it off: “My kids aren’t even in high school yet! Let’s get them through school before talking about careers,” or, “I’m running my business day to day and putting out fires; I don’t even have time to think about planning dinner!”
But it’s not about feeling “ready.” Embarking on succession planning should be based on when the business is at a point where that decision not only contributes to the business’ current success but also increase the likelihood for sustainability. It shouldn’t be based on the chronological age of key stakeholders; age can not be the only gauge for readiness of family members to engage in conversations about the future of the business.
Choose to Transition
Incorporating long-term planning throughout the growth process of any business increases the chances for a successful transition between generations. Typically, people make their best decisions when they’re free to explore their options, not when they feel forced. Imagine the potential difference in outcome if long-term planning didn’t feel like pressure from anyone; imagine if it were seen as an opportunity to make the business stronger for the future.
There are many reasons to believe in keeping a business in the family. Your business, in many ways, is like a child: It has your heart and has been a focus of your energy for many years. When they are working, family businesses do amazing things for their employees, families and communities. Reflecting on the “why” can make working through the planning stages more manageable. Because a transition is a change, the better the individual and collective understanding of why the change is taking place the more likely the change will be successful.
Legacy Versus Impact
One dynamic prominent in family businesses, especially during transition, is one between legacy and impact, a concept that draws from familial and human dynamics. Humans are pack animals and will work to minimize any situation that could separate them from it. This, combined with children’s desire to honor their parents, leads the incoming generation to try to carry on the dreams of the previous generation. But it’s impossible to successfully live out someone else’s dream. What is possible, though, is to learn from the older generation’s journey and merge those lessons with the next generation’s dream.
Most businesses are born from a mental picture so vivid and powerful that the entrepreneur was willing to learn and do anything to make that image a reality. The pursuit of that dream brought forth the necessary structure and logistical components every business needs, but the ground fertilized with dreams, that picture of success, was the true foundation. As businesses grow, entrepreneurs commonly focus upward until around retirement age, when they look downward to focus a bit more energy on protecting the asset — only to realize that the dream-rich soil is a long way down. Talking about succession from all the way up there can seem like a huge leap with huge consequence and risk!
Members of the legacy group must challenge their successors — share what they feel is appropriate and necessary — then step back and let their successors live up to their potential.
On the flip side, members of the impact group must try to understand the founding dream and vision then make it their own. To make the family business a reflection of them, they need to figure out whether they can realistically live out their dreams in this situation and then be willing to challenge and inspire people to support it. Tension is created when the older generation worries that the incoming leaders won’t be able to overcome the same adversities they did, while the new leaders have their own unique struggles to work through and learn from. Younger leaders also tend to be bolder about risk, as their mindset is more about growth than protecting what’s already been built.
Talking Through Change
The familial dynamic within a business can be difficult to navigate. It can be even harder if one party thinks a conversation is between business partners and the other sees it as between a parent and child. Families must separate their business and personal relationships. Imagine how tough it would be for a parent to hand over the company to their “baby,” who announced one night in fourth grade that he had a science project due tomorrow and needed to make a volcano? And, conversely, it would be near impossible for a “child” to tell a lifelong provider, protector and decision maker that it’s time to be allowed to spread your wings and even stub your toe.
Family dynamics can easily leak into the business dealings, including stereotyping, jealousy, harmful competition, silence/ignoring and assumptions. While these dynamics can occur in any business, they are intensified in these situations because emotions can run so high and historical undertones so deep. Understanding and communicating which “hat” you’re wearing may become necessary to talk about succession.
Families can leverage experiences they have had during their evolution. Parents can reflect on raising children and apply some lessons learned the hard way to the current situation within their business. There are consequences of letting go for everyone involved, but planning can make the process much smoother and more successful.
Keep Asking Questions
Planning for the future does not start or stop at any single event, such as retirement or stock transfer. Always ask, “What comes next?” Both generations must know what success looks like to them. The incoming generation needs to plan for their leadership role, and the outgoing generation must know what they want in retirement. (Yes, there is a next chapter of life!)
Many assume that the first step in planning for the future involves lawyers and accountants. Obviously, those resources are critical to these transitions, but if the family hasn’t worked out some of the key relational and emotional aspects, the logistics can encounter some serious snags. One way to see whether you’re ready to begin the logistical process is asking all key stakeholders, present and future, to answer the question, “What is your vision for success?” Are the responses similar?
Creating a shared vision for success is essential for stabilizing a business. Each generation has numerous factors that uniquely shape how they measure success. Different ideas of success during a transition can cause either friction or synergy; both outcomes are powerful, but only one is beneficial.
This shared vision among family members means a higher likelihood that the basic values will remain consistent, which provides stability for both the business and the family. Don’t operate on assumptions; take the time to have tough conversations about real issues, past and present struggles, and performance expectations. This may seem easier said than done, but working through tension and conflict is an opportunity to learn, grow and model behavior you expect to carry on in your business.
Statistics show that a simple desire to sustain a business through generational transition isn’t enough. Desire is the easy part. Families must realize that these transitions are challenging and wrought with emotion. You’ll have to make some tough decisions and commit to reaching a potential that was previously unknown.
There is limitless power in a family business that, during a transition, acknowledges the difficulty but recognizes the opportunity in the situation before them.
By attaching true commitment to understanding around the potential pitfalls and opportunities in family business transition, we hope the statistics will change.