From spaceships to car dealers to famous burger joints and everything else in between has redefined family-owned businesses in Southern California for years. Yet, the statistics are daunting: 40 percent or fewer businesses survive the second generation and only 15 percent or fewer survive the third generation. If you run a family business, you are not entirely surprised by these statistics. Maybe that is why you have avoided the subject. Maybe initial succession conversations with family members have not gone the way you expected. Or, the initial conversations have not been exciting for your successors because they view the business more of a job than an exciting future. Whatever your situation, it is never too early to get family members excited about the family business and to set the tone for succession. Quite often, future generations tend to shy away from the family business because the subject has never been discussed formally and when things start moving in that direction they feel overwhelmed. Rather than take on something they think they are not capable of managing, they decide to move in a different direction and not join the family business at all. Having a well-defined succession plan and the right dialogue will avoid surprises for you and for future leaders of the family business. Thoughtful planning will ensure the family business continues to thrive and prosper under younger leadership. The gift of business ownership is a challenging one but a very rewarding experience you will leave your family for generations to come.

1. The Entrepreneurial Mindset and Business (Un) Usual

Think back to the time when you or your family started the family business. Your grandfather, grandmother, mother or father told you this was your next job, handed you a vanilla colored clock-in card and you accepted the job without question. Day in, day out, it was the same predictable labor. Fast forward to 2015, your business is growing, technology is getting more complex, you are scaling and it’s time for the new generation to join the family business but you have not “formally” discussed this option because you assumed it would happen naturally – just the way it did for you. You soon find out the new generation wants to create their own destiny and they don’t think the family business is their thing. Yet, the family business could be exactly the business they envision but it is not apparent to them on the outside. Entrepreneurship comes in many shapes, forms, sizes, viewpoints and ideas. Today’s generation tends not to view the family business as an entrepreneurial business model. Here is your opportunity to open their eyes and minds by taking them on a tour of your own entrepreneurial journey and the rich history of the family business. Start by explaining the business from the bottom up and give them the ability to digest the various areas of the operation. Challenge family members to question why, to see opportunities where others don’t, and encourage them to further explore areas of the business that interests them. Get them involved early, start grooming them for succession and to a certain extent, let them play on their own terms. Newer generations are a critical force in business by turning ideas into value for companies. Long gone are the days of one way in, one way out. Capitalize on your family’s young generation to add value to the family business.

2. It’s a Dirty Job but Somebody’s Gotta Do It

You’ve accomplished some level of interest from family members who want to be involved in the family business. At this point, it becomes important to create a solid foundation in the art of running a business. This does not necessarily mean sweeping floors or stocking shelves as you did, but it does mean teaching the basics in all aspects of the business: accounting, sales, operations and soft skills including people skills. Business continues to change at a very rapid pace and exposure to all areas of a business is crucial. Your formal family meetings should include discussions on all areas of the business including the good, the bad and the ugly. This will help the newer generation appreciate the need for transparency and responsibility in an organization where teamwork is crucial to the business and will determine its success or demise.

3. Family Dynamics – Communication is King

Honest communication and clearly defined roles in the organization is a must. While some conversations can be done around the kitchen table, you need to hold formal meetings, set clear expectations, guidelines and accountability on a regular basis. Effective communication turns reports and expectations into valuable tools that people can use to make informed decisions. If you cannot give up control, be straightforward about this but start trusting others with important decisions during the transition period and let them know it is critical you remain involved. You also need to have realistic expectations on the transition. If it took you 20-30 years to build your business, it cannot be successfully transitioned in 12 months. I work with various types of family businesses and the standard time frame I have seen is 5-10 years of succession planning. This is reasonable and needed.

4. Failure is an Option – Just Make Sure to Get Up Fast

When I look at my family-owned business clients and other succession stories, I see the willingness to accept that failure is an option. Whether it was at the beginning in several false starts or a hiccup along the way as the business evolved. They have continued to build a culture in their organization of pushing the envelope and assessing risks. Sometimes what holds the new generation back is their feeling of not being capable of running a business that has been built over the last 20-30 years. Encourage them to take calculated risks and ask for counsel from the leaders who built the business. Encourage them to view fear as the opportunity and not a roadblock. Often times it all boils down to letting someone know that it is okay to fail, but if they do, all you require is that they get up fast and learn from that lesson.

5.  Be Willing to Take It Outside – The Value of Guidance and Expertise

Always enlist the help of your trusted accountant, attorney or financial advisor to help you plan carefully. The success of going from a second to fifth generation family business lies in the right advice and planning. Start by meeting one on one with the next generation and spend the required time to go over all the details with your trusted advisor.

Some of the most critical topics include:

  • How is the business transferred both in ownership and control?
  • How does the current generation learn to change roles from the #1 star quarterback and being the general on the field to the role of coaching, mentoring, etc.?
  • How does the next generation assume the leadership role? What is necessary to earn respect and credibility from family, employees, vendors, customers?
  • How is accountability defined and monitored for the protection of everyone?
  • How are changes to the vision, business strategies and methods communicated, accepted and implemented by the family team?
  • What added value can family members count on from the business and distribution from cash flow?

Follow some of these simple traits and your chances for continuing a family business for generations increases immensely. Remember, reaching the place you are in now took years of hard work. The hand off will take careful planning and the execution will not happen overnight. Be patient, savor the moment and feel proud of your accomplishments.

May your legacy live on!

David Krajanowski

David Krajanowski

Partner
Orange County

Email: DKrajanowski@SingerLewak.com