Every year 70% of family businesses fail to successfully transition from the first generation to the second. It’s not surprising considering that PwC recently found that just 18% of family businesses have a robust, formalised and communicated succession plan in place.
In my experience this is often due to a perceived lack of urgency where business leaders would rather push on with running and growing the business than face up to the fact that they can’t run it forever. There are other reasons too why business leaders would rather not begin succession planning. While each family is unique, these are some of the more common ones I see:
- Time pressure – business leaders are invariably busy and other matters are often prioritised.
- Interpersonal conflict – family unity can be stretched when it comes to handing down the family business. Complex family dynamics can make the subject of succession a difficult topic and can create factions among family groups or staff loyal to one member or another. Instead of taking steps to try and stop this happening many avoid the subject altogether.
- Communication difficulties – if communication within the business and family is already difficult this presents a problem for communicating succession plans.
As with many things, getting started can be the hardest part so while I always recommend drawing up a formal succession plan and making sure to communicate with everyone affected, there are a few ways you can begin that are better than doing nothing at all.
First, create a plan detailing the key operational elements of the business in the event that you aren’t able to run the business, either temporarily or permanently. In the event of succession being triggered ahead of plan, this acts like an emergency backstop that should prevent early succession from being a crisis event for the business.
Second, communicate with your ideal successor and other family stakeholders. Writing a succession plan without involving other family members (as well as key non-family members of the business) is likely to invite upset and discord therefore communication is paramount and should ideally happen long before a planned departure. Communicating such plans gives likely successors and other stakeholders a chance to voice their opinions and become excited about the business before they bear its weight. It’s also possible that likely or willing successors don’t yet have the skills or knowledge to take over and so early communication gives them time to seek the right experience, nurture the necessary skills and build their knowledge.
Third, nuture potential successors to ensure they are ready to take over. Spending a year or two working closely with your successor before you step down should help make for a smooth and successful transition.
These three steps are just the beginning but I think they are the absolute minimum any family business leader should undertake to ensure the continued success of their business and family. If you would like to discuss succession plans in more detail with me please do get in touch.
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