Love, power, money.
As Dean Fowler, a leading family business adviser and president of Dean Fowler Associates in Wisconsin notes, these three forces shape the essence of the family business journey.
The fact is only 30 percent of family businesses survive to the second generation, 12 percent to the third generation and a mere 3 percent to the fourth generation and beyond. Only with eyes wide open will a family business legacy pass to the next generation.
If there is a single factor that leads to a successful family business succession, it would be the ability to discuss the undiscussables – love, power and money.
It really shouldn’t be so hard, should it? After all, we’re family, we will work it out.
But if a family doesn’t get serious about how challenging this transition can be, likely it will mirror the statistics mentioned above.
Probably the single biggest challenge for the next gen transition is to move from a child-parent relationship to an adult-adult relationship.
The relationships are much different. And both parties have a responsibility in the relationship transition.
Kids need to step up with an entrepreneurial spirit to learn and grow, and parents need to let them out of the basement.
BINDS AND BLINDS
Love is a wonderful force that binds many family businesses. But it can also be a force that blinds a family.
Successful families develop a way to have both a love of family and an accountability to your role in the business.
Outlining and communicating clear responsibilities, compensation policies and advancement opportunities from the beginning helps this dynamic.
Power is a tricky thing. When you have it, you can get things done. You feel good.
However, sometimes it can go to your head and you think that only your ideas are worthy. This is almost certain to shut down the thinking and enthusiasm of others, including the next gen, in the business.
And power has another hidden claw – it’s really hard to give up power once you have it.
Senior generations who think about “what’s next” after the transition have a much better chance of letting go because they see their transition as going to something, not ending something. Letting go is critical to the next gen taking the reins.
FACE IT HEAD ON
And then there’s money. Even the most enlightened get tripped up by money.
The bottom line is no business owner is going anywhere until he or she can confidently live without a check from the business.
For whatever reason, money is a taboo subject in our society. However, when faced head on, every person can map out a financial future with a high probability.
And once you understand the landscape, you can plan accordingly.
A typical family business transitions from the entrepreneur (first generation) to the siblings (second generation) to the cousins (third generation).
Family dynamics get more complicated as you move through these transitions, and, coupled with business dynamics, it becomes very clear why so few family businesses survive transition.
But there is a way to improve the odds. It requires planning and preparation – not just hope and a dream. It requires a focus on growth, uncomfortable conversations and the ability to confront reality.
A few guiding principles include:
< Develop a family charter. Outlines ownership, voting/control and employment.
< Develop a board of advisers. Include people outside the family and the business that can provide expertise.
< Develop a family council. Consists of family members who meet to discuss business-family communication and bonds.
< Build and retain a strong management team that can run the business without you.
< Develop a strategic plan (growth plan) with your management team and a rhythm to review and adjust to keep everyone on the same page.
< Identify your successor(s), family or nonfamily, and spend five years developing them, and five years allowing them to run the business before you hand it over.
< Every winner has a coach; hire one. Get a coach on your team with expertise to help navigate this critical time in your business.
Love, power and money are powerful forces that can derail a successful transition, or they can be used to empower the next generation and their success.
Choose your destiny.
Tom Garrity is managing partner of Compass Point Consulting LLC in Hanover Township, Northampton County. He is a certified coach with Gazelles International and a certified exit planning adviser with the Exit Planning Institute. Compass Point provides growth and business transition consulting to small- and medium-sized businesses. He can be reached at 610-336-0514 or email@example.com.