You’re probably familiar with the saying “nothing is constant but change.” It’s an inevitable fact of life and in business.
Transitioning out of your CEO role in your family’s business is both scary and exciting. Leaving your business may be a defining moment; especially since long-standing personal relationships and core family values have helped define your business’s success. A badly handled transition can not only alienate your customers and employees, it can decrease your company’s overall performance and its value in the process.
To become what we call a successful family business empty nester, first consider how your transition affects you personally. Consider about how it affects your business.
We believe, since no two family business transitions are the same, there’s no standard methodology to follow; following a framework adapted to the needs of each family and the businesses they control is best. In working with a number of family controlled enterprise businesses, we’ve created the E.L.I. Transition Process, connecting succession to a well thought-out—and designed—strategic plan.
Based on our experience, here are four steps to secure your business before handing off the reins to the next generation or a professional manager who is not a family member.
- Objectively assess your business. An objective assessment of your business—preferably by an outside advisor—helps create a clear picture of your business. Then, a strategic discussion, separate from any conversations about CEO transition plans, helps identify potential business challenges and opportunities as well as opportunities for continued growth and profitability.
- Meet with key leadership. Meet with both family and non-family team members in your company and ask for their assessments of the business as well as major goals moving forward. Take time to meet separately and one-on-one with family members not involved in the daily operations of the business to get their opinions. These inclusive conversations often help identify the critical core competencies of your next CEO, beyond simply running the business, and are based on the strategic direction of your company versus choosing a successor based on family seniority, influence, or ownership.
- Develop a strategic plan. Based on assessments of your business, as well as honest conversations with family members about their goals for the company, develop a plan pinpointing future opportunities available to the organization. What is the growth plan? How does that relate to the needs of the family and as it relates to any liquidity desires vs. long term wealth creation? Should the business be sold or acquire a competitor, or raise capital to grow? How does that decision sync with family stakeholders and core values of the company? Link the strategic plan with your transition approach and ultimately with the core competencies you believe are needed in a new CEO.
- Embark on a CEO search. After you’ve completed the first three steps, conduct a CEO search, both inside (including family and non-family members) and outside the business. Your strategic plan ensures you’ve identified the best candidate to lead the family business into the future as well as giving those interested family members an opportunity to participate in the process.
We understand that any personal or business transition can often be unsettling. It’s important to have impartial outside advise during this crucial time to make sure you protect not only your most important asset: your family business but harmony in the family as well. Contact us to learn how we can help you become a successful family business empty nester.
How do I know my children are ready for the responsibility of running the company?
It can be challenging to assess ones own children especially when it comes to specific business talent. It’s often helpful to first map out specific required competencies and attributes needed to succeed in the role. This exercise should be driven by the future business strategy vs. historically where the company has been. The “Go Forward” strategy is critical for the business and for truly identifying the role. The next generation should also play a part in this process – invite them to articulate where their passions lie and self assess their own skills. You may use various assessment tools and 360 reviews to round out the full evaluation process. Once you’ve identified the strategy and completed the full assessment (just like you would for any candidate), most decision makers are better able to get a sense if the match is indeed the right one.
What do you recommend as an appropriate lead time to start the leadership transition planning process?
Transitions often fail when goals of the business aren’t planned out well in advance. Advanced planning is key and the longer the planning period the better. Exceptional Leaders International recommends to start planning the transition process at least a year and as many as 3 to 5 years ahead of any major changes made. This timeframe should provide an appropriate trajectory to the next generation or leave sufficient time to bring in leadership from outside the family.
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Bob, 70-year-old CEO of his family’s successful manufacturing business, is excited about retiring. Dreaming of traveling with his wife and enjoying his new sports car, he’s ready to hand over day-to-day management of the business to another member of the family. But here’s the problem—several family members are jockeying for the position to succeed him. Some are adamant that the business stays out of the hands of Bob’s children. How can he keep everyone happy? Can he keep everyone happy? Are his children ready for the responsibility of running the company?
If you’re approaching retirement from your family’s business, you may be asking yourself these same questions. There are few situations confronted by a family-owned business that are more complex than the transition of leadership held by a family member. Planning a transition out of your management role also means confronting change, one of our biggest challenges as human beings. Your family members are facing significant change as well. Since change can be risky for a business, you need to protect the core asset—your family’s business—which so often represents a significant portion of a family’s wealth.
Leadership transitions often fail when goals of the business and family aren’t discussed and planned for well in advance. In fact, 43% of family firms don’t have a succession plan and only 12% last until the third generation, according to a 2016 Family Business Survey by the National Bureau of Economic Research Family Business Alliance. Lack of empathy about how this transition affects multiple stakeholders both inside the family and the business, as well as outside constituents, is a major contributor to failure. You need a transition strategy based on your company’s future, not one based on what’s been done in the past. Think about a “transition to” plan, versus a “transition from” plan. Here are some of the personal changes you must address to become a successful family business empty nester:
- Discuss life after work. Whether you’re looking forward to retirement or feeling apprehensive, it’s important to have a conversation—perhaps one guided by a trusted, independent advisor—not only to make sure you’re personally and professionally ready to retire, but that you’ve thought through and planned for the impact of your exit from the business on its operations and continued growth. If you remain CEO through the transition phase, your role should be clearly defined. Thoughtfully considering and talking through this important step is key. Once that discussion has happened, create a plan that addresses what the next steps are for you, your company, and your family.
- Understand how a new CEO affects remaining family members and—if the new CEO is a family member—how family relationships are affected. For family members still working in your business, a new CEO—whether from in or outside the family—is challenging. As with any change in leadership, team members worry about adjusting to the new CEO and how changes in the organization affects them. Family members may jockey for your position. If the new CEO is a family member, his relationship with other family members influences the transition as well. It’s important to build a go-forward plan based on strategic planning versus assumptions or entitlement. Without appropriate strategic planning for your business’s future, and the competencies required to run the business along with a clear governance structure, this can be a difficult period for your family and the business.
- Communicate with family members. Honest conversations with family both inside and outside the business is vital to retain family harmony and to frame a strategy for your business moving forward. An independent advisor can meet with all family members, solicit their views on the business, and help structure a plan that meets everyone’s goals and is best for the business.
- Create a plan that all family members support. After meeting with family members, it’s important to take time to objectively assess your business across all operational channels and develop a strategic plan that’s consistent with family values, supports family members’ goals, and positions your business competitively for the long haul. That plan should always include a transition plan between the incumbent CEO and the new CEO.
Whether or not you’re ready to drive your Tesla Model S into this next phase of life, like Bob, it’s important to have a plan for a successful exit to help you align your business and family goals for continued success and ensure you have a smooth and rewarding trip along the way.