Many scholarly researchers have concluded that a staggering 90% of family businesses fail by the third generation. This is pretty much the same old story: Family businesses are woefully unprepared for management succession, they’re somewhat underprepared for ownership succession, very few have adopted formal business and family governance practices, and the senior generation has no plan to retire which creates a fair bit of uncertainty for subsequent generations in the business.
We’re sure there are a host of reasons. But, according to Coach Cahyadi Kurniawan, our expert in Family Business Succession Planning, there are actually top 5 things, that needs to be done in the succession planning of a family business.
1. Founder & Successor must agree that business has a positive future and will need to agree on future vision. If one or the other starts the succession planning process with a pessimistic outlook, then the passion to make it work will not be strong enough.
Where do you want this company to grow in the future? What would it look like? When the Founder feels aligned with the Successor on the future outlook of the company, he/she will usually feel more at ease to trust the Successor to run the show.
2. Structure the business properly. As a business grows, it needs to rely on systems instead of people. Traditionally family businesses do not have clear delegation of roles. Founder and managers may be wearing 2-3 titles just to cover the daily jobs. As it becomes more professional, roles and responsibilities need to be clearer to ensure faster decision making, avoid duplication, and increase overall effectiveness & efficiency.
3. The management team must switch from “relationship-based” evaluations to “competency-based.” Even if they are friends of the Founder, the management team must begin to be judged by their contribution, not only for their connection and seniority.
4. Establish mutual respect between Founder and Successor. Put aside all past experience from the home. When in the office, Founders & Successors must be professional. They may call each other with commonly used salutations such as “Ms” or “Mr”… instead of “Dad” or “Mom” or “Kiddo.” Founders must learn to listen as much to their Successors as they do their managers, instead of thinking that they are just little kids. Successors may need to put away assumptions or negative beliefs about their parents in order for them to speak professionally and objectively.
5. The Successor must prove his/her ability and passion in running the business. Just because you’re the child of the owner does not grant you automatic respect. Reversely, people usually see you as just lucky to be born in the family. So if you’re passionate to continue the business, you must prove your worth. Not only must they see you perform, but they must see you as a wise future leader for them.
Succession does not happen over night and throwing the authority too quickly to a Successor can be scary and de-motivating as well. So the best is to plan out the strategy, decide on a time frame, and establish the milestones that need to be achieved along the way.
At this point, it would be normal to think you’re okay and your family succession plan will work just fine. That may be the case. But as you age your influence will wane. Sons-in-law and daughters-in-law may not hold the same values and morals dear that have served your family well.
As your influence declines, their influence will grow. That is, unless you have a process in place designed to preserve your values, pass on your wealth and help your family have lives of significance working in a thriving family business. It could mean the difference between a thriving business that continues to bless you and your family or a sad statistical footnote.
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