Handing down a family business is a dream of many entrepreneurs who want to see the business they started thrive in the hands of the next generation. But, statistics show that succession can be riddled with challenges.
Only about 30 percent of businesses make it to the next generation. Wendy Sage-Hayward, a Vancouver-based family-business consultant, says although many families may want to pass down their business, the succession process is often not carefully thought through enough to make the succession successful.
Avoid holding the reins too tightly.
Founders have a tendency to hang on to control, not allowing kids to have enough say or enough investment in the business. “The entrepreneur typically does have a fairly strong control-oriented personality,” says Sage-Hayward. Entrepreneurial characteristics tend to be very independent, autocratic and wanting things to be done in a particular way. It can be difficult for entrepreneurs to let go of those tendencies, but Sage-Hayward says that’s exactly what needs to happen in order to have a successful succession.
Just because your last name is “Jones”, doesn’t mean you should automatically get a seat at the Jones’ company’s boardroom table, says Sage-Hayward. She recommends entrepreneurs set expectations around how kids will get to participate in the family business. Often, kids will be encouraged to go outside the company for work experience and education so they can bring those experiences back into the family business.
Build skill sets of the next generation.
One of the biggest mistakes Sage-Hayward says she’s seen in family businesses is that the founders have been so busy working in and building the business that they haven’t spent the time to work on building the skill set or engagement of the successive generation. “Working on the business means you’re developing the next generation, engaging them, helping them get the kind of skills and capabilities that they need to take it over,” says Sage-Hayward. Building stewardship in family members means holding regular family meetings to involve other family members in the key conversations so they understand the ins and outs of the business and are prepared to take it over when the time comes.
Consider whether the next generation wants to be part of the business.
Sometimes founders have a dream that their children will take over the family business, but the children simply aren’t interested. Sage-Hayward says this often happens when the founder shuts out the family from the day-to-day interactions of the business or is so busy building the business and not spending time with their families that the kids begin to resent the business and want nothing to do with it when they get older. Involving kids in the business at an early age in a positive way is the best way to ensure kids will be enticed to join the business later on. Having discussions about what childrens’ aspirations are and how the family business can help them to achieve their goals is also important. “Succession planning isn’t an event; it’s a process,” says Sage-Hayward. “And that process starts from a very early age, building work ethic, building the understanding of the business and building the mindset.”
Be prepared to let go.
Ruling from the grave is one of the worst mistakes entrepreneurs can make when handing a business down to the next generation. Trying to set up structures that will control what the next generation can do rather than allowing them to run the company will only cause leadership ambiguity and create a stressful work environment for those family members who are left to run the company. Founders should be emotionally and mentally prepared to walk away from the business completely when the time comes around.