My previous article described from a ìtheoreticalî view the miscellaneous aspects of the ìFamily Governanceî without really taking into account that families are entities built with Ö.humans!
Some statistics show that only 30% of family owned businesses in the USA survive the transition from founder to second generation
Only 10% of the businesses make it to the third generation and merely 4% are surviving into the fourth generation.
With their ìneutral or outside-of-the-familyî, advisors can provide the entrepreneur with a more impartial perspective and the clarity of an outside observer
Why so many families fail : The Human Element
Sometimes itís purely business related: slowdown of market demand, fierce competition from overseas.
The perpetrator in many cases is within the company itself and linked to succession issues.
Itís quite common for parents to, under or over ñ estimate the next generation ës interest in joining the family firm, to properly evaluate the potential contribution to the firm, or inclination to work constructively with one another.
In the same context, business owners are frequently not fully aware of their own role in a succession transition.
There are many instances when the entrepreneurs faced with their succession are taking decisions without any in depth understanding of the ìFamily Governanceî (if there is oneÖ) and become indecisive.
They often, involuntary, undermine the next generation.
While most of the business and legal aspects of a succession can be handled by professional (lawyers, accountants, auditors, Ö) the human capital, which is the only one able to take the rein of the company is either underestimated or not even considered.
The oldest child will have the knowledge and capacity to ensure a bright futureÖ.
A part from his/her diplomas did the entrepreneur really validate his/her willingness to take the rein, does he/she has the willingness to do itÖ?
Qualify and decide what you (entrepreneur) want:
As a family business owner, itís part of your own responsibilities to have a clear vision and understanding of what you hope to achieve from a business decision:
Do you want to surrender day-to-day responsibilities in the business, but still stay involved with key customers or contribute to the global company strategy?
Are you either willing to maintain a minority or a majority ownership in your company, or do you seek to divest yourself from business totally?
Will it make sense to your personal insights and believes that if one or more of your children carry the family business name?
From a pure financial perspective and accordingly to your assets goals, does an opportunity to sell the company at a large premium outmaneuver passing the business to you children?
A realistic accession of your children:
Sometimes ìgood sensesî takes over theory and (costly) consulting costsÖ
If one of your children enjoys your business and has demonstrated capabilities to add value to itÖ No more questions ìHE/SHE is the MAN/WOMENî!
This is a simplistic example; things are different when two, three or more children are present.
The ability to work together in a view to generate value is another vision to consider.
Manage your childrenís expectations:
1. The ìpieî
Letís consider an entrepreneur who was able to build a successful company and provided him and his wife a comfortable lifestyle.
The economics of the company will have to be different when the entrepreneurís childrenís would express interest in taking the leadership when the father will retire.
The revenue to be distributed will have to be slightly more important: feeding 2 or 3 families requires a much larger ìpieî than just feeding a single familyÖ
Itís crucial to have a realistic revenue growth and assess that it will be realistic to hand over the business to the childrenís.
The most disturbing situation is when you have to discuss the ability of your children to take the seat when you retire
2. The ìabilityî
Itís quite common to see in large group to see children having an operative activities alongside their parents in the company and some external factors (customerís satisfaction, other employeeís of the company,Ö) may encourage the entrepreneur to pass the rein when time will be there.
Be careful, having a ìsecond roleî is not like have all the light on you! (a parallel can be find in the movies industries, some actors are perfect in ìsecond roleî and are doing poorly when they are acting as the ìmain starî).
As an entrepreneur itís the most disturbing situation when you have to discuss the ability of your children to take the seat when you retire.
During this phase it might be wise to have en external professional (e.g.: industry psychologist) discussing ways to solve the problem.
Different solution can be drawn upon the personality of the childrenís such he will continue to have a position at the company as long as the family keeps control.
This can be also the opportunity to re-assess the role of the children in the company.
3. Prepare a Generation of Leaders
Leadership is not a genetic inherence, but entrepreneurs have to assess the capacity of their childrenís to properly react into difficult situation.
Expose them to all facet of the of your company, put them in position were difficult decisions will have to be make.
Authorize failure with the ability to learn from their own mistakes; too often in the course of the events entrepreneurs continue their activities and forget to enter into this failureís analysis.
As any employee in the company challenge them to surpass their own achievement andÖyour achievement.
4. Be aware of your employees and partners
Any major management/ownership changes creates a publicity around the company.
Entrepreneurs who head a family company have to consider the impact on key managers when a new generation of family business enter into the boardroom.
Every effort should be made to integrate the family members into the fabrics of the company in a manner that enables them to earn trust and respect from other valuable employees.
Manage the new liquidity:
Usually a succession plan is expected to ìunlockî significant liquidity should always include strategies to manage significant money inflows.
Itsí quite common for entrepreneur to become too focused on the various decisions and details, and paid too little attention to post-succession issues.
Here some hints that an entrepreneur should consider when new important liquidity wealth arrives:
How this will affect your familyís values ?
How this will change your familyís spending habits?
Which impact on the investment plan (real estate, philanthropic Ö.)
When itís time to begin succession planning, itís often the best for the head of a family business to solicit advice of a ìwealth advisorî or any other trusted counselor.
This is especially true when decisions are impacted by the human element.
Interacting and assessing family members has always emotional overtones, and advisors, with their ìneutral or outside-of-the-familyî can provide the entrepreneur with a more impartial perspective and the clarity of an outside observer.
They are some many pitfalls when passing a family business to children or to othersÖ.