If You Want to Grow Your Business, You Need to Professionalise Your Family
22nd January 2020
A recent report by KPMG and European Family Businesses reveals that succession is on the mind of many family businesses across the continent. Over a third of family business owners is planning to pass on ownership of the business to the next generation, and 33% plan to pass on management too.
However, we also know that a high number of family businesses doesn’t have a succession plan in place. According to research, about 43% of family businesses don’t have a succession plan, and only 12% make it to the third generation.
Whether it is because they are too busy running day-to-day operations, or because they are hesitant to hand over the reins to the next generation; whether they think it’s way too early for them or simply they don’t want to let go, owners often postpone thinking about succession.
This can have catastrophic consequences, especially when there is a chunk of the family not working in the business. But even if this isn’t the case, the absence of a succession plan can lead to conflict in the family and problems for the business when the time actually comes for succession to happen.
I’ve read and heard of many examples where the younger generation find themselves suddenly at the helm, whether they want it or not, and whilst being almost completely unprepared for the leadership role; or, because of unexpected events, the family find themselves without a clear direction of where they are headed in the long term. If not addressed properly, this can mean failure for a family business.
So here’s five tips for you to consider if you want to set your family business on the right path when it comes to succession:
Engage the Next Generation early
In truth, it is never too early to engage the next generation. Even when they are still young, finding ways to include younger family members and make them aware of the business, and the passion and culture that’s driving you, is important to develop them as responsible owners.
I have heard quite a few owner-managers telling me: ‘My kids are too young’, but we know from experience that successful, multi-generational businesses often create engaging, and fun, opportunities for the youngest to get together and learn about the business. This doesn’t mean forcing their hand to join the firm later.
Once I was told by a current owner, who also manages a side of his family business, that his earliest memory of the family firm is his dad taking him and his brother to see what he had had been working on and building for the past months, whilst tucked away in his office. That was the first juke box he ever built. And he was so proud of it that his passion and commitment to the business stuck with the kids and inspired them ever since (stay tuned on our website to find out more about the story of this family business soon).
Whether they then decide to join the family business or pursue a different ambition, by engaging the next generation early you’ll still have helped create an engaged, responsible owner.
Think about the family not working in the business
Family members who don’t work in the business can feel left out. But to create alignment and a strong vision for the future of the family business, it is good practice to have a conversation with the whole family, explore whether there are ways for them to get involved if they want to, and ensure they are aware of what’s going on and agree with what the plans are.
Bring your purpose and culture to the front
Never forget that your purpose is what helped create the business you own today, and culture and values are what drives its success. By always bringing them to the front and keeping them alive, you harness your competitive advantage today and keep your family business strong going forward.
It is also useful to share these concepts across the family, the business and the wider world, so you can drive up engagement across the board, from the youngest owners, to distant relatives, to your customers. In one of my favourite family business videos, the son of the founder of Dualit shares how they make one of their most successful products, what drives them and how he gets his best ideas. I challenge anyone not to be inspired by this story.
From experience we know that, often, family businesses prefer to be private, but sharing your experiences, values, and purpose is often what helps you thrive. This is why at the IFB we keep bringing family businesses together.
Think of ownership and management separately
If you are passing the business on to the next generation, it doesn’t mean you will cease to be an owner, or that you have to stop being involved altogether.
Often, for the senior generation it can be hard to let go of the business they have worked in their entire life, but finding a balance for who’s leaving, as well as who’s coming in, is very important. You achieve this by having open conversations, where everybody can feel safe sharing their questions and desires for the future. There are ways owners can be involved in the business, even if they are not working in it day-to-day.
Write up your plans
When you are looking at the future of your family business, it can be helpful to write things down. Family agreements are just as important as your business plans. So, when it comes to plan for succession, think about what documents might fit the needs of your family firm. These can be, for example, in the form of a Family Constitution. But, regardless of the form, having a written set of rules and guidelines can help the family navigate disagreements, as well as harness the benefits family ownership can bring.