Families are complicated. Business can be challenging. And when you put the two together, you may get more than you bargained for.
When young entrepreneurs start a business, they often dream of passing that business down to their children. The idea of generations working side by side, enriching the family coffers and deepening their relationship at the same time, speaks to the American Dream.
But families aren’t perfect, and neither are family businesses. Author Dan Steiner highlights some of the many challenges facing family business.
Sometimes a father is far more invested in the business’ future than his daughter is. Other times, a son wants to radically transform the organization in a way his mom just isn’t ready for. In still other organizations, there are allegations of nepotism.
Then there’s the matter of inheritance: Siblings may feel that a distribution of assets is unfairly tipped toward one party. And of course, the biggest question of all may be: Who takes over the family business when the previous generation is ready to pass the torch?
Is the Organization Ready for Succession?
Many family businesses have a loose plan for transition, assuming than an eldest child will someday take over the business. That loose plan is not enough.
- Is that adult child completely on board?
- Are other family members and senior leadership on board?
- Does the individual understand all facets of the business?
- How will the organization measure a new CEO’s success?
Transferring the Keys to the Kingdom
Hopefully you’re thinking about succession long before it actually happens. Here are some key elements to consider:
- Don’t assume that everyone knows and understands your vision for the future; communication throughout the organization is critical. Similarly, make sure that family members can communicate with one another respectfully and candidly about the transitions ahead.
- Find a way to honor the previous generation’s expertise with the next generation’s vision for the future. If you get too stymied in tradition, the organization will lose sight of the innovation that’s critical to making it a multi-generational business.
- As we mentioned above, don’t be too informal when creating your succession plan. Taking the time to clearly outline plans and policies can save the family time and money by avoiding the same uncomfortable conversations over and over again.
- With family, there’s always a high level of emotion; not all of it is bad, but it can cloud sound business decisions. Develop an objective way for family members to vent their emotions.
- Just because your future leader was born into the family business doesn’t mean he understands its day-to-day operations. Create a systematic onboarding process to benefit the new CEO and facilitate buy-in throughout the organization.
- Define a transparent way of compensating family members affiliated with the organization. That transparency eases accusations of unfairness and keeps everyone on the same page.
- Formalize your succession plan with all invested (emotional and financial) parties. The handoff of power isn’t a time for surprises — or disruptive conflicts.
Keep It All in the Family
According to Forbes, only 30% of family businesses survive the transition from first- to second-generation ownership. But the more time and thought you invest into your family business succession plan, the less uncertainty your family will have in the future. Getting the right people in the right roles at the right time can bring harmony to a family business, in the Board Room and the Family Room.