There aren’t too many entrepreneurs out there who would identify themselves as “family business owners.”
For one thing, entrepreneurs are leaders, and leaders tend to walk a lonely road. The road to startup glory is paved with long hours spent dreaming and scheming in isolation. When your entire world is focused on churning out a viable product or service, it’s hard to imagine anything beyond its launch and the subsequent day to day survival.
But, imagine you must.
In the UK, two-thirds of businesses are family-owned—that’s 4.8 million businesses in total. In the U.S., that number rises to 90%. Those numbers point to the probability that, should the business survive, it is highly likely that it would be a member of the entrepreneur’s family who would be in control. Entrepreneurs are therefore the first generation and foundation of a family business.
So what? What Does This Have to Do with Entrepreneurs Today?
As a team who specialises in helping family businesses successfully transition from one generation into the next, we’ve seen what happens when owners fail to envision and start planning for the future. Entrepreneurs, eager to maximise their young business’ slim odds of survival, are much more likely to not have the luxury of a long term, generational view for their business as they focus on the operational pressures of today.
The pains of running a business along with the complexities of family dynamics make it easy for companies to put off key conversations about succession. If an owner dies unexpectedly or retires, however, these businesses quickly find themselves in the midst of a leadership crisis.
This is fundamentally a cultural problem. It starts in the earliest years of the company when the future is bright, business is busy, and the motivation to think about succession is all but nil.
Silence becomes the status quo, and no one bothers to ask the question: who will carry the torch after our founder is gone? Weeks become months. Months become years. Years become decades. And, all of a sudden, someone needs to step up and take over the company. There’s no time for a long, careful crafted succession plan or process. The company’s under the gun; we need a new leader—today.
The three pillars: A cultural foundation for successful transition
If the trouble with the under-the-gun approach to succession isn’t immediately apparent, consider this: 70% of family businesses will fail to transition into the second generation.
To put it bluntly, the deck is already stacked against family businesses at transition time. If owners plan on building a business that survives into the next generation, they must begin by laying a solid cultural foundation upon which regular conversations about future succession can be based.
If they do not, then as the years pass, family members move into the business, and relational dynamics will solidify around a few key players and relationships. The sheer power of inertia will prevent family members from taking the necessary steps towards effecting a thorough transition plan.
As we often tell clients, the foundation for a successful succession transition centers around three pillars:
- Communication – The hardest part of preparing for transition—whether in the short- or the long-term—is making time and space for conversation. By openly and frequently discussing continuity, however, entrepreneurs can create a culture in which these conversations happen as a matter of course.
- Preparation – Communication is vital, but talk is cheap unless and until it is put into a concrete plan of action for the future. At a minimum, this includes a written set of guidelines outlining the operational details of your business’ operations as a part of a business continuity plan. It also includes successor identification and the creation of intentional pathways for leadership development.
- Execution – To ensure success, business owners need to plan for how they will execute their transition plan. When the time comes for an owner to step back from the company, it is critical for clear expectations to be set, benchmarks defined, and structures put in place that will hold the new leader accountable to incumbents’ and stakeholders expectations.
Entrepreneurs are world-builders. They see a need in the market, and they forge ahead to see that need satisfied. In the process, they make the world a better place for themselves and their customers.
But, in the midst of all that world-building and place-making, entrepreneurs fail to plan for that day when the business no longer needs to be built but preserved and passed on. The business’ place in the economy will no longer need to be made, but kept.
When that day comes, what will the ensure the survival of the organisation?
Who will be prepared to take up the torch and carry it into the next generation?
If you are an entrepreneur and you are serious about building a business that lasts, then you cannot lose sight of the fact that your successor will more than likely come from within your own family. It is never too early to start talking about and planning for that future reality.