When you’re next in line to lead the family business, your challenge is twofold:
to ensure you’ll be ready to take over when the time comes, and to reassure others of that fact, as well. Chances are, the current head of the business is worried about the readiness of younger family members.
In a recent study, 500 Connecticut-based family firms were asked to name their top succession concerns. Prominent in their answers were doubts about the next generation’s ability for and commitment to running the business. Therein lies the successors’ opportunity to address the challenges of succession head on.
The key is to acknowledge and deal with the current boss’s issues, and to establish yourself as the leader the business will need in the future. Here are some concerns business owners voiced in the survey, and some ways to address them.
“I haven’t found anyone qualified to take over.”
To be a successful leader, it’s important to gain the support of colleagues and managers already working in the business. To do this, work the odd jobs and spend time with employees, rotating between departments and learning their roles. Know their jobs—but more importantly, know the value they bring to the organization.
If your firm has, or is willing to adopt, a Family Employment Policy (FEP), you will have an important tool for establishing credibility for yourself and other family members. A family employment policy governs how family members enter and exit the employ of a family business. The goal is to decrease the occurrence of nepotism, and increase credibility and skills.
Generally, FEPs establish that family members may enter a family business if (a) they have the needed skills (such as a college degree or a technical degree) and there is an opening requiring that skill set, (b) they are supervised by a non-family manager,
(c) they have worked elsewhere for at least a three-year period and (d) have been promoted or positively recognized for their contributions at another place of employment. (For a sample Family Employment Policy, go to nyreport.com and enter RL #76762.)
“I don’t know what the business will need in the future.”
It’s not uncommon for family business owners to feel that it’s pointlessto look too far ahead when times are tough. But businesses need plans to guide their choices.
As a successor, you can help build a strategic plan for the business and evaluate the skills the business will need to make it happen. Know your bench strength—who might need to be cut, and who you might need to bring in.
Ask yourself, “What are the best-case, worst-case, and most-likely scenarios that can happen with the business in the next 18 to 36 months?” From there, you can begin to build a plan to take advantage of or offset conditions your business may face in the future. There are number of reference materials available (such as onepagebusinessplan. com or managementhelp.org) to help you build a strategic plan for the business.
“I don’t believe the next generation is committed to the family business”
Although building a strategic plan can be a daunting task, it’s a necessary exercise, and one that can establish your commitment and credibility.
Similarly, consider developing an advisory board comprised of outside professionals. It’s a way of not only getting intellectual capital that you wouldn’t otherwise be privy to, but of demonstrating your commitment to getting the business in top shape.
A good advisory board is comprised of professionals with expertise in areas your firm lacks; who have strong networks from which they can draw; have an eye to “giving back” (meaning they come to the advisory table for the challenge— not the cash); are not paid professionals (such as your accountant, attorney, etc.); and are generally reflective of where your business would want to be in about 5 to 10 years.
Even if the senior generation doesn’t buy into the idea of outside advisors (many like to play their cards close to the chest or are afraid of airing “dirty laundry” to outsiders), there is no reason why you can’t informally surround yourself with people who can challenge you and help you develop personally and professionally.
“I’m not too optimistic that the business will even survive to the next generation”
There’s probably not a business owner out there who hasn’t winced over the past two years when preparing budgets or evaluating quarterly results. In fact, a strong reason why many family business owners—50 percent, according to a recent survey— are reluctant to retire is because of money concerns.
Perhaps not surprisingly,
14 percent of CEOs now don’t know when they’ll retire and another 10 percent say that they will never retire. So, what does this mean for the next generation?
The answer goes back to a strategic plan. Build a sense of urgency around the business’s survival. Find ways to innovate; ask your employees and customers for suggestions. Sometimes the best ideas come from the bottom up or outside in.
A key advantage that family firms often neglect is to emphasize the family brand. A 2009 study conducted through Oregon State University showed that family firms that identified themselves in the community as family-owned had higher profitability than family firms that did not. Most sources of competitive advantage are intangible—like values, service, and commitment. That is where family businesses have the edge.
So be visible in the community, talk about your firm’s family values, treat your suppliers as you treat your employees and family, and incorporate socially responsible business practices into your business’s operations.
Be a champion for your business and your family. And, just as important, make sure you instill these same values in the next generation—and hold them to the same high standards to which you hold yourself.
Priscilla Cale is Director of the Family Business Program and Adjunct Lecturer, Management at the University of Connecticut School of Business.