Your Succession Plan Blueprint

Family businesses are the most common form of organization in the world and a critical component of the cultural and economic fabric of the United States. It’s estimated that they make up approximately two-thirds of the nearly 25 million businesses and generate nearly half of our gross domestic product. Dollar for dollar, a well-run family business is consistently more resilient and more likely to succeed.

At the same time, though, more than 70 percent of family-owned businesses fail to survive the transition from founder to second generation—largely due to the failure to thoughtfully plan a succession process.

It is the CEO’s role, as head of the family and the business, to lead the succession process. For any number of reasons, top dogs may procrastinate on succession planning: lack of knowledge about how to do it, ambivalence about letting go of a business that’s been central to their life, questions about the next generation.

Nonetheless, there are a number of important strategies and practices that heads of family business need to put into place if they want a family business legacy.

Timeline: Start early

Ten years in advance is not too early, and succession can even be part of the initial business plan. Having a long-term goal enables you to make important decisions along the way that will support the succession process.

At a minimum of five years before you plan to retire, start creating a vision for yourself, your family, and your employees of a future in which you, as founder, are no longer in charge of the company.

If you haven’t already done so, begin a discussion process with your family, potential successors, and non-family senior management team about what’s needed in a successor to lead the firm.

Develop an estate plan to transfer assets in an orderly fashion to ensure the next generation has the resources to run and grow the business.

In the final years before succession, address all concerns from other family members, employees, and important customers about the succession before it takes place. Succession transition is like changing boats in the middle of a sea. You want as much smooth water as possible. Unfortunately, not all businesses have the opportunity to plan far ahead or did not understand the planning needed for a smooth succession process.

Communication is key.

Discussions with family members about their personal goals, as well as strategic planning with family, management, and customers about where the business should be going are important. Seeking the support of family business experts can be important in this process.

Prepare the next generation

A competitive advantage of the family business comes from the opportunity for family members to learn the business from an early age. A number of successful family businesses include young family members, from the age of 16 and even younger, in dinner-table business discussions. This introduces all with an interest in the business to the vision, mission, and strategic planning processes of the organization, and helps them clarify their interest in working in the business.

Brian Roberts, CEO of Comcast, installed cable during the summer, and sold subscriptions door-to-door for the business started by his father; and Max Siegel worked weekends and summers at When Pigs Fly, the bakery started by his father. Max, still in college, knows every part of the bakery’s operation and has memorized over 300 bread recipes.

Establish family business governances apart from the CEO and family leadership.

To survive generations, there needs to be a stage where the family business becomes professionalized with the adoption of policies and procedures to effectively manage and support the relationship between the family members, the shareholders, and the management of the business. Some key governance strategies include:

Family meetings: For a successful succession, there needs to be a place for family members to talk about the family in the context of the business, apart from the management of the business. These meetings are more than dinner conversation, and may need to be planned with an agenda. This practice can help establish policies, procedures, and expectations for family members working in the business.

Work outside: Many experts suggest a requirement for next-generation family members to work somewhere else before returning to the family business to develop and demonstrate their capabilities, as well as be a resource for bringing new ideas to the business. This also avoids criticism of nepotism among non-family workers.

Shareholder and buy-sell agreements: These can be important tools to address concerns of family members not working in the business, and support the transition of leadership  in the family firm.

Outside help: An independent board with experience in family business can add valuable perspective and expertise to your business in areas of strategic growth, successor selection and development, and accountability of the family management team.

Other outside-the-family professionals— attorneys, accountants, estate planners, financial advisors, business coaches, professional development specialists, and family psychologists with experience in family businesses—can save you a lot of time and money by helping the family put together a solid succession plan.