In the lifecycle of a family business, there comes a time to pass the baton. This is when a key leadership function gets passed to someone else. There is a great deal of readiness required for the process to go well, thus succession planning is something that the intentional family business will pay attention to.
Let’s start with some interesting statistics:
90% of US Businesses are family owned.
83.5% of family businesses feel that it puts a significant strain on their relationships.
85% of family businesses are passed on to relatives.
56% of family businesses are unhappy or have no succession plan..
12% of family businesses survive into the third generation
These are some pretty fascinating numbers. It is evident that many family business owners seek to not only grow and sustain their businesses, but to leave a legacy. This is one of the things that makes, a family business truly wonderful. It is the opportunity to spend a significant part of our life doing something meaningful together, as Jim Collins says in Built to Last. With the goal of building successful transitions in a family business, let’s take a quick look at what can trip up a family business, the best strategies for not getting tripped, and finally how to pass the baton well.
Family Business Pitfalls
Hubris – When a family business has experienced success and is then passed to the next generation, it arrives at one of the many points where hubris can set in. This can come in the form of entitlement, overconfidence, and a lack of complete understanding of how the business arrived at this point. This is why family businesses that are passed on often fail, particularly at the third generation and beyond. Hubris can compound. Any time you skip the step of blood, sweat and grit, there is a cost. Hubris comes into play when the uphill part gets skipped because of a belief that birthright replaces grit, experience, and know-how. It is not only the upcoming generation that can fall victim to hubris, but the exiting. Some parents believe their kids are so awesome and so well-raised that they won’t have to go uphill or put in sustained effort for a good hand-off. Dangerous!
Lack of objectivity – A family business can have a difficult time separating emotions from good business practice. This is one of the things that can make a family business wonderful too! Giving feedback on performance can be difficult in any business, but particularly difficult in a family business because of the additional history and emotions in play. Objectivity helps us to get around what reality is, what is truth, and where we really are.
Lack of structure – Family businesses can often be run informally. This happens in order to “keep peace” and make everyone feel important. Formal job descriptions, reviews, titles, and meeting agendas can get skipped. The larger a family business gets, the more difficult this becomes. Failure to implement the right structure will stunt the growth of a family business.
Blindspots ignored – None of us sees our blindspots (See Blindspots: Do You See Yours?) In a family business we can often ignore each others’ blindspots out of kindness. We can also bond and share a blindspot as a family, causing all of the non-family members in our organization to roll their eyes. Exposing blindspots can be uncomfortable, but it is essential to become aware of, understand, and address them. This means getting feedback from family members and non-family members, as well as third party points of view.
Cast a Vision – Get extremely clear as to where you are headed. What is your purpose and what do you think is possible? This is a valuable tool because you can point to your vision when emotions run high. It is not personal, its about the vision that we are all committed to. Your vision should be communicated ad nauseum.
Draft an intentional plan – Great results don’t happen by accident. This is why your family business needs to have a clear, formal, written plan that becomes ingrained in your day to day operation. It needs to result in getting your entire organization to have the behaviors you want them to have.
Seek wise counsel – We need to look outside of ourselves. We need to find someone who we can trust who will give us feedback with candor and kindness. We need feedback that is relevant and actionable.
Preparing to pass the baton
We often hear about how important it is to get a good hand-off in a relay race. You can have world-class sprinters lose a race badly with a poor hand-off. A good hand-off takes only a fraction of a second. Hand-offs are equally important in a family business, but take a much longer period of time (sometimes decades). The following are some strategies that should be worked into your succession plan:
Start Early! – It is a great idea to start the transition process early. This is a “work on the business initiative” vs. “work in the business”. Timelines and expectations should be set and met. Remember: time flies!
Have a Plan – A personal, living, and dynamic plan to develop the key people should be in place. They need to take an active role in their plan. If they don’t want to put time into the plan, then you need to question whether they are the right person to take over the reins. Yes, the plan is that important!
Target Readiness – The plan should be rolled out in a way that will build the knowledge, experience, and people skills of the heir apparent. They need to earn the right to step into the position. (See “Earn the Right!”). When the heir apparent is a family member, earning the right is even more important. This is why they must sweat and get opportunities to show some grit. They should have demonstrated an ability to empty a garbage can and get a toilet squeaky clean, as well as demonstrate competence and expertise in the areas your company focuses on. Readiness happens by design.
Get Coached – It is very important to get some outside perspective as to what needs to be done, worked on, and developed. When done over a sustained period of time, the impact can be tremendous. Good coaching for succession planning involves all parties. The heir apparent(s) must be ready, but the exiting family member has to learn to let go. This must happen gradually. It can’t be like tug-of-war when one team decides to be tricky and simply let go of the rope, sending the tuggers on the other end tumbling on their behinds. It needs to be a structured process, which is also relevant, meaningful, and inspiring. A good coach should find out what you want and then help you get there. They should also be willing to make suggestions that you might not like hearing, but will help you avoid some of the pitfalls mentioned earlier.
Family businesses are wonderful blessings. They give us an opportunity to do something meaningful with the people who are most important to us. When we are intentional, it paves the way for us to leave a legacy. That never happens by accident.
The Impact Foundry brings proven experience to businesses who desire meaningful growth. Our solutions are tailored to fit your business needs—always relevant, always fresh, always forged to suit your business’ strengths and challenges. The motto “Serviam” on our logo is Latin for “I will serve”. That’s how we do business. We serve our clients with integrity and a desire to shape, mold, and build strong leaders who impact their organizations. To discuss how we might be able to support your team, contact us at firstname.lastname@example.org or 630-923-8604