The great majority of middle market businesses in North America are still owned and operated by descendants of the founder. The business acumen that these first, second, third, and sometimes fourth generation managers possess, largely determines how much longer the business will remain under family control. To perpetuate a business, the current owners and managers must first identify and then prepare a successor to take the reins.
There are exceptions, of course, but most owners have difficulty developing their own offspring into qualified managers. They’re usually too emotionally involved. And, don’t forget Mom. She has more influence over how the kids are dealt with than most owners would ever be willing to admit.
Some of the most effective owner-managers I’ve known are not nearly as adept at teaching management principles as they are at implementing them. Let’s face it, some of us are simply better doers than we are teachers. But, when this is the case, the successor and the business often suffer.
If you are the current leader of a family business and you have yet to name a successor, here are my recommendations based upon the most successful management transitions I have observed.
1. Don’t allow offspring to join the family business as full-time employees until they have achieved measurable success in another business.
Take it from me, a son-of-the-boss myself, no matter how hard your kids try, and no matter how effective they are, to the other employees they will always be the owner’s kids. It’s an old saying, but extremely applicable here, that “It’s difficult to be a prophet in your own land.” The same concept holds true for taking over the family business.
The employees who were coworkers last week (the same ones who taught you everything you know) are suddenly subordinates. In one fell swoop, the “kid” makes the leap from part-time summer worker to full-time executive. Ask anyone who has ever done it and they’ll tell you that it’s not an easy transition.
Before joining the family business, insist that each potential successor get a job (resist the temptation to use your professional relationships to get the job for them) in a highly profitable, well-managed business in your industry, but in another city. Four to five years in this “training ground” is approximately the right length of time. If the potential successor can earn a few promotions in a non-family environment, the odds increase that he or she has developed the confidence and the “right stuff” to successfully take over the management of the family business.
If they fail to progress outside the family business, odds are extremely high that neither will they become an asset to the family business.
2. Before promoting a successor to CEO, insist that he or she first achieve measurable success in purchasing, sales, operations and financial planning.
Until an owner actually observes potential successors performing key job functions, it’s difficult to determine where their talents lay. Depending on the size of the business, even the president may be required to personally perform one or more key jobs in the company. General managers of larger companies often have the luxury of concentrating on top management tasks exclusively.
3. Recognize that while ownership is inherited, management skill may not be.
When you select a successor, make sure your business goals are clear … to perpetuate the family business. Just because your children are your flesh and blood, doesn’t mean that they possess the natural talent or inclination for management. It’s no disgrace for potential successors to come to the realization that they would be happier teaching school, coaching football or playing music for a living.
Everyone loses should the owner uses parental influence, and/or guilt, to entice family members to make a career choice that they will forever regret.
Be realistic. No matter how much you love your offspring, it is almost cruel to encourage a child to strive to succeed in a business environment when the individual’s temperament simply does not lend itself to becoming an executive. After around 30 years of age, leopards rarely change their spots, so look for the following characteristics in your kids before encouraging them to toss their hat into the business arena:
• Fire in the belly, competitive.
• Hungry for success, ambitious.
• Willingness to deal with confrontation.
• Strong sense of urgency, handle stress well.
• Outstanding work ethic.
4. Don’t allow your ego to kill the golden goose.
If a family member is currently unavailable to assume the top job, be realistic enough to hire a professional manager to run the business in the interim. This choice will allow the business to perpetuate while a family member develops.
5. Set a retirement date.
If the owner doesn’t possess the personal discipline to set a retirement date, succession rarely occurs in an orderly manner.
