Family businesses make up the foundation of our country. While the idea of a business being passed down from generation to generation is sentimental, many stressors and tension come along with it. The founders of family businesses might see their company through rose-tinted glasses and assume that since they created it, the transition from generation to generation will be easy because “it’s family.” However, leadership transition is a make-or-break aspect of any business, and especially in a family business, it is essential to think from an entrepreneurial and professional perspective rather than an emotional one.
Understand the First Generation’s Foundation
It is essential to look at the foundation that was built to have a successful leadership transition. When businesses start, there is either the mindset to do whatever it takes to keep the lights on or the mindset to achieve personal goals. Both of these will build a business where the founder is the go-to person for every question and dilemma that pops up.
The first generation builds the foundation of the business, creating the processes, financial requirements, and general needs for the business to stay afloat. Some rules might be a bit out there, but they get the job done, and the generations after that can look back and see where improvements can be made. This is your chance to look to the past and better plan for a strong future.
Explore the Second and Third Generation’s Legacy Building
It’s after the first generation that the professionalization of the business can be started. While the family name is still on the front door, it is up to the second and third generations to build the company into more than just the “Sullivan’s” and into an enterprise. This is where scaling and growing become priority, and the idea of business and family should be separated for the health of both.
Generations must understand the difference between family and business, which is more likely to happen between the second and third generations. In order for both to flourish, they cannot be so intertwined that personal biases are mixed with business decisions.
Don’t Start Too Late
When the idea of a leadership transition comes to fruition, it is likely because the original founder is getting older and cannot handle the day-to-day workload as they once did. This creates a very short and demanding timeline to transition. Not only does this make the leadership transition more challenging, but it also creates extra stress on the business that could be avoided.
Family businesses should be proactive regarding leadership transitions; don’t wait until it is immediately necessary. Long-term succession planning can ensure that new leaders are being trained well in advance and gives everyone the opportunity to prepare and develop their skills beforehand.
Take Into Account Your Family’s Strengths
One issue many family businesses face is assuming that the next of kin is immediately skilled in everything necessary to run a business. If your business is to survive a leadership transition, the last thing you want to do is assume (we all know the saying). If the founder has children and assumes the child will lead an entire company, this might leave the business scrambling later when he or she says no, or has strengths in different areas.
If you want to keep the business in the family and transition effectively, play to the strength of your family. If next of kin have taken a liking to bookkeeping, managerial work, or customer service, don’t force them into the box of a company owner; allow them to use the skills they already have to garner success in those specific areas of your business. It keeps it in the family and keeps them motivated.
Engage the Next Generation
Connected to the last point, you must engage in your generation to survive a leadership transition; it is essential to a successful succession. You want to broadcast that entrepreneurial spirit to those potentially involved. If they are not excited or motivated, transitioning will become a whole lot more challenging. Allowing them to come in with their own ideas and views as they come from a new generation of minds might bring new light to the business. A successful leadership transition needs transparency, communication, and open-mindedness; whether that is about financials, business ideas, or qualms, a leader can only properly lead with all the information.
Taking a look into the past and being proactive in the future will ensure that your family business survives a leadership transition. If you have further questions or need help with your succession, contact the team at ReVera Capital.