Family business succession: How to let go of the baton

“The final test of greatness in a CEO is how well he chooses a successor and whether they can step aside and let their successor run the company.” – Peter Drucker, management theory pioneer.

“The final test of greatness in a CEO is how well he chooses a successor and whether they can step aside and let their successor run the company.” – Peter Drucker, management theory pioneer.

The value locked up in a family business lies within the next generation of leadership, for two reasons.

First, you can’t get out if you don’t have leadership in place to continue the company (whether you are selling the business to them or to a third party – there is no business without them).

Secondly, their ability to run and grow the business successfully is how you will convert your illiquid net worth into cash.

Statistics suggest this is a daunting task. Only 33 percent of family businesses make it to the second generation, and only 15 percent or less make it to the third generation.

“Shirtsleeves to shirtsleeves in three generations.” You will exit your business … either on your terms or those of someone else.

Back to Drucker’s quote. It’s not just choosing your successor, it is stepping aside.

And if you plant yourself too long in the CEO seat, it becomes increasingly more difficult for the next person to step in, let alone for you to step out. This truly is the final test of greatness.

There are 5.5 million family owned businesses in the United States. These companies comprise more than half of the nation’s gross domestic product and create three-quarters of all new jobs.

Many experts believe that one common cause of failure in family businesses is a lack of transition planning and preparation. Leaders of family owned businesses often stay at the helm for 20 years or more, and, as a result, their exits have a major impact on the company.

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