Sad but true: More than 65 percent of family businesses don’t survive to the next generation. There are many reasons why, of course. But much can be done to increase the odds of your family business crossing the chasm of succession.
Much of the focus in succession is “who is going to lead this thing in the future?” This is a bigger question than meets the eye. Not only does the current generation wish to see their life’s work continue, but frankly, the current generation typically will be funding their retirement from the company’s ongoing operations.
Complicating matters is the pool of candidates. Clearly one would look first to those heirs who are currently in the business. Who is qualified to lead? Who has the respect of the employees? Who has not only the desire, but the mental and emotional intelligence?
However, with more than one child working in the business, another key part of solving the puzzle comes in the relationship among the siblings. Can they work together? Can they accept working for one of their siblings?
Rhonda Stokes, who runs the Charlotte campus of the Wake Forest Family Business Center frequently sees this issue. “The purpose of our center is to give families the opportunity to get educated on topics such as succession, as well as discuss with other family businesses how they have managed through it.”
Potential successors do not stop there. High level key employees also must be considered. Not just because they may be better suited and qualified, but you may also lose them. And you may also lose other key employees if they sense that the leadership roles are reserved for family, regardless of how qualified a non-family member may be.
And then there is the “out of sight, out of mind” successor: the family member who does not work at the family business. We have seen this many times.
There was an instance where a son and daughter were working in the business quite successfully, but there were concerns about how to move forward. It turned out that the third sibling had risen to vice president in another company and was considering opening her own business. Overcoming some poor communication and bad assumptions, she slid nicely into the leadership role.
Now, let’s look at the other side, the exiting of the current generation. I recently presented to a group of family business leaders in Charlotte and toward the end raised the topic of the exiting generation. At this juncture an audience member declared that this topic should be discussed first in any discussion involving succession, as it is the hardest.
Indeed, there are situations where the exit process of the current generation can be quite difficult. This is especially true I believe for business founders. With the amount of time and sacrifice they have spent growing their business, it comes to be viewed as a child. As such, while intellectually the current generation understands that the best way to guarantee the future is to ensure good leadership, sometimes they undermine or drag out the process.
What is to be done?
Here are a few tips:
• Realize that succession is hard, and therefore will require putting forth some effort.
• Begin early. There is a high correlation to success when starting early.
• Install a system of good and regular communication. All successful family businesses will tell you this is essential.
• Get educated. There are books, magazines, advisers and programs all covering various aspects of running a family business.
Succession is hard, but numerous family businesses do span multiple generations because they put forth some effort. Send me an email about your family business situation and perhaps I can feature it in a future column.
Henry Hutcheson is a speaker and author, and president of the consulting firm Family Business Carolina. Email your questions about family business to Henry@familybusinesscarolina.com.