There is an old story in our profession about an 86 year-old founder, who one day call his (64 year old) son into his office, and announces “I am finally ready to hand over the company to you.” His son smiles, and then responds “Dad, that is great. But I will be retiring next year, and my kids are grown and doing other things, so they aren’t interested.” This is somewhat humorous, and seems almost unbelievable, but I actually came face-to-face with the almost exact same situation last year (though the founder was actually even older!).
Deciding who leads the company next (whether in the first chair or a supporting role) is a key responsibility of the current company leadership and ownership. However, it is a decision and process that is often left late, or not done nearly as well as it could be. That is understandable – especially in a small to mid-sized company (where there is a smaller group of insiders for consideration) and family-owned businesses, where several extra factors come into play.
Most successors I meet are more than ready to go. Generally, they are even somewhat frustrated by the hesitation of the Founder to get out of the way and find it hard to understand why more trust has not been transferred to them in leadership. Even this past month, I met with a successor who was mystified by why the previous generational leadership was not moving more quickly to adopt his ideas and moving ahead to put him in key areas of responsibility. In fact, this young leader was wondering if he had made the right choice in coming to the family business, and was considering going elsewhere.
Recently we held a first Family Council for a business transitioning between generations 2 and 3 (with the Founder still in the picture). When we planned the meeting, the leaders of the business let us know they only wanted those family members active in the business to attend the Family Council. This is a common approach for people unfamiliar with such meetings, and not surprising since the topics which are often top of mind for these leaders are typically transition issues in the business which primarily affect those working inside company walls.
Entrepreneurs looking to transition their business – whether to the next generation, non-family management, or via sale to an outside party – need to consider what is needed to successfully lead going forward. Chances are, the old adage about “what got you here won’t get you there” applies, and it is unlikely the recipe for success in the next 10 years will look the same as the past 10 years.
Entrepreneurs generally don’t like to think about mortality – especially their own. I recently had a situation that brought this home in a personal way. Running in the desert mountains is my happy place, and I had left before dawn and headed out for a one hour run on a rocky trail. Thirty minutes in, I tripped and fell. The good news was avoiding the cactus. The less good news were the rocks that shredded my hands, shoulders, hips and elbows.
As the owners of family businesses age, a common question often arises about whether to sell the business to the highest bidder, or pass it on to future generations of the family. And since we are talking about families, this is an decision which – for many, but not all – can have a lot of emotion attached. I find there is no “one size fits all” answer to the question, but there are some clues which can help guide navigation of the issue.
Many family business leaders I speak with are confused about how all the various advisors fit into the transition and succession picture, and how the process and components connect (Unanimous Shareholder Agreements, Wills, Trusts, Estate Planning, Wealth Management, Insurance, and so on). The business owner has usually not gone through transition before, and so how it all works, and how various supporting experts add value, can be a bit of a mystery.
Family businesses have many strengths which generally flow from their values of loyalty, harmony and long-term views of ownership. I believe these values account for a large part of the success in family firms, and also are part of the reason that family-owned enterprises typically out-perform non-family businesses globally.
When we meet with business owners, we tend to ask questions relating to what they want to have happen when they transition out of their role and/or ownership of their company. The responses tend to break down into 2 categories. There are those who feel they “have it all figured out” and those that know they don’t or are at least concerned about it.