We recently looked at succession planning within a family business from the founder’s perspective. But what about the next generation – the successors?
Up and coming leaders of family businesses know all too well that they’ve got some size 13 shoes to fill. It’s only with clear communication, proper planning, adequate preparation and continued support that a new leader can rise to the occasion and ensure that the business continues to provide financial stability and personal satisfaction for all involved.
Many people start a family business with the hope and expectation that their children will one day take the lead. You may even have been raised, educated and trained with this outcome in mind. Even so, when crunch time comes, it’s important that if you accept this role, you do so wholeheartedly and with your eyes wide open. In other words, it must be something you actively choose.
Deciding whether (or not) to take over the family business
When making an important decision such as this, our family business coaching specialists recommends using the oldest tool in the box – the Pros and Cons list.
There will be some things that are unique to your situation, but these are some of the common advantages and disadvantages that we see our clients grappling with:
- An increased likelihood of career success – you have an opportunity to lead a business that has survived all those terrifying ‘failure’ statistics. Suppliers, customers, a team of experienced and loyal employees – all that groundwork has been laid for you.
- Scaffolding and support – rather than scrambling to learn the ropes, an established business should ‘run itself’ for a short period while you get your bearings. You may also be able to draw support from long-time employees, the wider family and even business advisers.
- The mentorship of the founding leader – except for cases where a leadership change has occurred due to severe ill health or the passing of the founding leader, you will often have access to the expertise of the person who started it all. This should prevent you from making some of the disastrous errors that so many new business owners make.
- Your ‘why’ is already sorted – you have the chance to jump at a career that is almost certain to bring you a sense of meaning, pride and legacy. You’ve been charged with writing the next chapter in your family’s history and – should you pass the business onto the next generation – you’ll become an important ‘link in the chain’.
- You’ve seen how hard it is – if you’ve grown up around the business, then you won’t be surprised by the challenges this lifestyle presents. You’ve also had the benefit of witnessing your family overcome these difficulties and helped celebrate the wins.
- You’ve seen how hard it is – (yes, this gets listed on both sides of the ledger) Watching your family make sacrifices for the sake of their business can understandably put you off choosing that lifestyle. Remember that you will ultimately get to determine how you run the business. You might, for example, find that implementing time management strategies or making better use of technology may help to reduce the burden of long hours etc.
- The weight of expectation – while being in charge is a dream job for some people, others find the idea of being responsible for the family legacy (or potentially other peoples’ livelihoods) extremely daunting. A founder has the benefit of ‘growing up’ with their business while a successor must step into a fully matured operation. You’ll need time to really ‘grow into’ the role and make it your own.
- Family drama – when you add family into a commercial venture, it will always be more complicated than when things are strictly business. You’ll need to develop strong skills in mediation and conflict resolution if those things don’t come naturally to you.
- Career limitations – entering the family business comes with a significant opportunity cost; namely, any other careers or industries you may have chosen to pursue, or even building your own business. Taking over the family business is a big commitment and if the prospect of it makes you feel like you’re signing your life away, do some deep thinking. Make sure that you’re not simply following your family’s expectations.
The one thing you can’t account for
Once you’ve looked at all the reasons you’ve listed ‘for’ and ‘against’ taking over the reins of your family’s business, the most important factor is what you most want to do. While many can’t imagine any other life for themselves, it may turn out that running your family’s business just isn’t what you had in mind for your life and career. There’s no ‘Pro’ that’s going to offset the feeling that you’ve been pressured into it – and a reluctant leader is never the best thing for a business.
Get clarity around what is being offered; understand the legal and financial structure of the handover
Leadership mustn’t be confused with ownership – they are very separate powers and functions. You’ll need clear, detailed and formalised plans around the transfer of each of these elements to ensure that both transitions go smoothly for all involved.
You and the founders will need to discuss:
- How issues of ownership will be handled. It may be that the founders intend that there will be multiple owners and that they will retain some ownership while they want you to have the main leadership role.
- If there are multiple owners, will they all have equal ownership? What about decision-making powers?
- If other family members are involved in the business (younger siblings, in-laws, other relatives like uncles or cousins), what are their roles and responsibilities?
- Does the founder want to have some ongoing influence and/or act as an adviser once ownership has been transferred?
- If the business is intended to be gifted to you, when will this occur? Will ownership be officially transferred to you upon the founder’s retirement or willed to you after their passing?
- Are you expected to purchase the business?
- Do the founders expect to still draw cash from the business to fund their retirement?
These are extremely difficult (and potentially confronting) conversations, but they are integral to your decision about whether this is the right opportunity for you. Both you and the founders should each consult professional legal and financial advisers to avoid getting stung due to lack of expertise or poor planning.
6 Tips for making your succession a success
- Frame it not as a gift, but as an opportunity: Recognise and respect the significance of the opportunity you’re being offered. Don’t, however, judge yourself for your good fortune. Yes, you might be lucky to be born into this family and this opportunity but your success will be measured by what you do with this great hand you’ve been dealt.
- Be ready to learn… and don’t try to take over right away: You’ll need to be patient with the founding leader and owner. Stepping aside from the business they built from the ground up is a big emotional step. Showing them that you value – and want to learn from – their expertise will reassure them that you are not just biding your time until you can come in and ‘overhaul’ the business.
- Download everything you can from the founder’s brain (and get it documented): If you haven’t done so already, document every process, system and policy you can. Even the existing way isn’t your preferred way to do things, it helps to have a clear view of the lay of the land.
- Get on top of the financials: You will need a deep understanding of the cash flow (in and out) as well as any debts or long-standing agreements, special trading arrangements, informal agreements with suppliers and clients etc. Cash flow problems are often the cause of small business failure, so if you can stay on top of this issue, you should be sailing in smoother waters.
- Ask for help: Don’t be backwards about asking for support and advice. A strong leader can recognise and acknowledge what they don’t know. Make good use of your continued contact with the business’ founder, as well as any other mentors or advisers that have expert knowledge of your business. We’ve certainly had the pleasure of coaching founders and then going on to mentor their successor. That continuity of support is something they have really valued.
- Become the leader your business needs: As a next generation leader, you have been charged with guardianship of the family business’ culture and values. In most other respects, however, it’s important to establish your own identity, rather than ‘become’ the previous leader. Innovation and a fresh perspective can breathe new life into an established business. Bring those gifts to the table and make your own mark.
Aim to leave the business better than you found it
Carrying the baton in the next leg of your family business’ relay race is a big responsibility. If your goal is to pass this legacy down to the next generation, you’ll need to ensure that it lasts the distance. If you choose this responsibility, respect the opportunity, learn everything you can from the founder and rely on the established supports around you, you are sure to continue growing a business that your family will enjoy for generations to come.
Our business coaching team are experienced in all stages of the business lifecycle. We know what it takes for family businesses to protect the legacy and plan for the future. Speak with a Tenfold business coaching expert today: 03 9813 8777