Many businesses are founded by inspirational leaders with a long-term vision for their company’s future. Sometimes, this vision includes the desire for the business to be passed down through multiple generations of the founder’s family. I’ve worked with family companies now managed by the seventh generation, and such examples can be found all over the world.
It’s becoming a timely issue across the country as Baby Boomers are increasingly reaching retirement age–called the “Silver Tsunami”–and looking to the next generation to take over running the family business.
It’s a beautiful notion to imagine a business persisting from generation to generation. But it’s not always easy. Making it work requires some planning and, in some cases, some good, hard objective looking in the mirror.
So, let’s talk about how you can successfully transfer a family business from one generation to the next.
One of the fundamental hurdles in any succession process, particularly in a family-owned business, is the current leader’s readiness to step back. This could mean transitioning to an advisory role or taking a seat on the board. However, for the next generation to assume control, the current leader must be willing to relinquish management control–a task that can be more challenging than it sounds.
The crucial point is that once you announce that the current leader will step away, you’ve set in motion a process that cannot be reversed. This decision must be thoughtful, strategic, and real.
Next Gen Up
One key barrier many current leaders face when considering stepping away is whether a member of the next generation is ready to take over running the business.
This can be difficult to assess. That’s why many family-owned businesses embrace the best practice of having members of the next generation work outside the family business for three to five years–maybe even working several jobs–before they are deemed ready to take over running the family enterprise.
The worst thing you can do is have family members work only inside the business, because their ideas will be limited and constrained by their experiences. They will only know how to do what’s already been done–which can stunt growth.
A key point here is that when the next generation of leadership takes over, they also need to be permitted to kill any sacred cows that may have been owned by the former leader. This can be tricky–especially if the former leader remains in an advisory role inside the business. However, if the goal is to honestly give the next-generation leader the chance to grow the company in their image, they need to be given free rein to kill old programs that might not work regardless of who started them.
Short-Term Mentoring
Another scenario your family business might confront is where the current leader is ready to step aside, but the next generation is deemed unready to take over. While this can be dicey to navigate on a familial level, it’s crucial to have open and honest conversations about the readiness level of the heir apparent.
If the collective wisdom shows that the next generation isn’t quite ready, the business could consider hiring a temporary CEO to mentor for a few years. These situations can work well, because the CEO knows what they are getting into when hired–a temporary assignment–while also buying time for the next generation to develop their chops.
From Managers to Owners
I remember reading a book about the Medici family in Florence, Italy. They were the pope’s bankers for generations. But not all the chapters were the same length. Some generations were prolific in leading the family business and expanding their art collection in creative and ambitious new directions. And yet, in other eras, it was clear that family members weren’t up to the job. They had very thin chapters in that book.
And that’s OK. Sometimes it doesn’t work out. But that means it might be time to look outside the family for a leader to step in more permanently. This can be a struggle for some families to give up on a family member leading the business. But if you can find someone who can run the business better than anyone in the family, that allows the family to transition from managing the business to owning it.
There are many examples of wealthy families operating this way, and it simplifies things for everyone.
Making the Best Decision
If your family business is reaching an inflection point where succession planning is becoming an issue, objectively look at the next generation of family members and ask whether they are ready to take over. You might even seek some outside counsel to check your view. If they aren’t, consider bringing in a temporary CEO to manage through the transition. Or, if nobody on the horizon is qualified or even interested in taking over, maybe it’s time to bring in someone permanent from outside the family.