Running a family business has many perks; the love, trust, and commitment cultivated on the homefront can naturally carry into the workplace, allowing everyone to move towards a unified vision for the company’s future with ease. Although emotional closeness can be a family businesses’ greatest asset, it can also be their greatest weakness, as complicated family relationships may skew perspective and stand in the way of rational thinking. Unfortunately, the drawbacks of emotional entanglements can be especially prevalent when it comes to succession planning.
In fact, 80% of family businesses don’t have succession plans in place. As a result, around 70% of family owned businesses fail or are sold before the second generation is able to take over, with only 10% of these remaining businesses making it to a third generation.
If you stop to consider how complex some family dynamics are, you can likely imagine how navigating those complexities may add an extra layer of difficulty when it comes to making business plans. Even if productive efforts are made, heightened sensitivities or feelings of entitlement that exist within close family relationships can oftentimes derail the process.
Thankfully, these pitfalls can managed through objective succession planning, which can lead to long-term success for generations to come.
Creating Objectives for Success
Instead of assuming that your family will lead your business with as much enthusiasm and skill as you did, it’s best to take practical measures to ensure that the next generation of leaders is ready to fill the shoes left before them. As we like to say, leaders are not born, they are grown, nurtured, cultivated and trained.
The recruitment process should start at least 18 months prior to a transition in management. During this time, open communication regarding the organization's goals while taking into consideration current and past performance is vital. Additionally, assessing the company competition, determining what specifically sets your organization apart, understanding your mission statement and scrutinizing which areas need to be improved is necessary.
When a company is a closely-held family run business, objectively analyzing these attributes can be a challenge. For that reason, the first step in succession planning is to solicit fresh eyes to evaluate your business as well as offer outside perspective to comparative organizations. Many successful family businesses establish an Advisory Board comprised of professionals who provide new perspectives that serve your organization's existing mission and complement corporate strategy and objectives.
Establishing an Advisory Board contributes to developing accountability for the company leaders and helps to drive the organizational goals while implementing practices that enhance and shape your company’s future leadership. In order to pinpoint the preferred core competencies to advance your company’s culture, one of the main areas of evaluation will be to survey the existing leadership team’s skills and performance.
Talent and Recruitment
Although most think about a company’s value in terms of revenue or return on investment, in reality, it’s the strongest leadership teams that will drive an organization towards profitable milestones and provide a sustainable business valuation. Evaluating your existing leaders strengths and weaknesses and where your organization fits within the competitive marketplace is key to creating the footprint for future succession. Additionally, reviewing your leaders responsibilities, expertise and performance will prepare you to clearly define the leadership talents and core competencies that your company needs to acquire in order to thrive.
Planning for succession may create a tense atmosphere in a family-owned business, as many emotions surround the process. Because your team provides so much value, it’s paramount to maintain the group’s harmony during this time by practicing soft skills. Employing emotional intelligence while understanding vulnerabilities is an excellent way to make sure every team member’s voice is heard during the process. If managed with proper tact, the selection and onboarding transition period can run quite smoothly.
The Formula for Success
Change is never easy and rarely welcome, but proactive collaborative planning for the future leadership succession will better equip your family’s business to prosper for generations to come.