Interesting factoid: Did you know only 30 percent of family businesses make it to the second generation; 12 percent to a third; 3 percent to a fourth and, some say, in the decimal places for a fifth.
It is no small wonder why so many family businesses do not make it to the next generation. The reason is they lack a well-thought-out and well-orchestrated succession plan.
Procrastination is perhaps the most common ailment for business owners with these difficult decisions in front of them. The stakes, in their opinion, are often high. The consequences of a wrong decision are often devastating. And, if that weren’t frightening enough, the entire process requires owners to envision a world without them
What wisdom can I convey to others on successful transitions? My son Kyle, a graduate of the University of Colorado and who worked out of college for one of my competitors, joined Fernley & Fernley two years ago. In the “lessons learned” category, here are my top 10 tips to success (with some coming easily and some more painfully), to include:
1. To decide whether the family, in fact, wants to continue ownership. This conversation is often difficult and typically avoided. The owner’s deep attachment to the firm makes it difficult for him or her to think about alternatives and giving up control. Tip: Have that conversation with the family early and often.
2. Get your management team on board with your plans. It would be suicidal to bring in a next generation without complete buy-in from your top leadership team. Consult team leaders on the front end, get their ideas and allow these discussions to be both open and candid. Tip: Give your management team permission to challenge your process and timing.
3. each out to your trusted advisers to get their perspective. Identify a series of individuals outside of the company with whom you have great respect and admiration. Being true outsiders, their insights could be profound. Tip: Choose these advisers wisely, set expectations on the front end and limit the group to three or four to avoid information overload.
4. Have a candid one-on-one with the successor. Set expectations early on with the potential successor, as well. Use the discussion as an opportunity to instill your philosophy and yet balance it with an acknowledgement that your style of management is not perfect and he or she will need to bring his or her own style to the table. Tip: Again, do it early and often.
5. Prepare the company for the successor’s employment. Clearly articulate your plans and timeline for the successor’s employment. Tip: Start one year out with periodic updates to your management team.
