Prep your family biz for the next gen

(Photo: iStock.com/Jirapong Manustrong)

It’s estimated that family-owned businesses comprise up to 90 percent of all businesses in North America. Many are not adequately preparing to transition leadership to the next generation. According to a recent survey conducted by professional services firm PwC, 43 percent of family businesses had no succession plans in place. This may explain why only one-third of all family businesses survive into the second generation. Succession planning is the first building block.

Why wouldn’t a family business prepare for a smooth transition to the next generation? Not surprisingly, most family businesses are so absorbed in the everyday details that longer-term planning is neglected, according to the PwC study. Strategic planning is the second building block.

Next-gen leaders should be involved in long-term planning. After all, the future that’s being discussed is theirs. However, the PwC study discovered that only 41 percent of next-generation leaders believed their business has a strategy fit for the digital world. Many family businesses with aging leaders have not kept up with technology, leaving future leaders frustrated and concerned. Giving them a seat at the table and a voice is important.

The survey also found that 88 percent of next-gen family business leaders want to leave their stamp and do something special with the business. However, there are some big gaps to overcome for this dream to become a reality. Next-gen leaders often have a gap between their experience and expectations and those of their parents. They also have a credibility gap to overcome as they move from being seen as entitled children to capable leaders. Clarifying expectations for leadership development is the third building block.

Proven strategies

Developing the next generation of leaders is essential to prepare and equip them for success in a future leadership role. There are several proven strategies for doing so.

The PwC survey found that 70 percent of next gens worked outside of the family business to gain useful experience and earn credibility before joining the family business. This strategy has been used successfully for decades and still makes sense today.

According to a Harvard Business Review study, family business leaders should focus on the next generation, not the next quarter. More than 40 percent of the companies in the study included members of the next generation on their boards and committees in order to nurture their business and management skills. This will be different in every business. Where might you be able to include the next gen in high-level strategy discussions and critical decisions?

Another developmental strategy is to provide professional coaching for future leaders. The benefits of coaching have been well documented. A well-matched coach accelerates personal development, growth and preparedness for what lies ahead. In a family business, a coach also offers a fresh perspective from outside of the business and outside of the family.

The fourth building block is to establish sound business practices. In many family businesses, there are a handful of areas that have been neglected and that aren’t up to par. For whatever reason, these areas have been allowed to be underdeveloped. However, in preparing for transition, it would be wise to take a fresh look at all areas of the business. Identify areas that need to be improved, roll up your sleeves and get going.

Almost every business I work with has at least one area of blatant deficiency that’s begging for attention. Sometimes these areas are taboo topics. I see this often in family businesses. Nobody wants to tell pops the truth. The problem is the taboo topic might be exactly what’s holding back the business. As part of a transition plan, perhaps now is the right time to have open and honest conversations.

You may have noticed that the title of this article did not include the words “easy” or “simple.” These four building blocks require commitment and investment. Are you ready and willing to do what it takes to prepare your family business for the next generation?