How to build a family business success(ion) plan

About 90 percent of all businesses in the United States are owned or controlled by families, but only 30 percent make it successfully to the second generation. Only 10 to 15 percent make it to a third generation, and only 4 percent to a fourth. That’s not only a potential calamity for many families, but unfortunate for the entire economy – family businesses are credited with up to 85 percent of the job creation in the private sector.

I’ve learned some of the key issues from growing up in a family business and also as a consultant to many family-owned businesses. It starts with, “Who gets what? What shares? What monies? What roles? What power?”

Rights of gender (how politically incorrect!), age and lineage are usually the deciders. The eldest (traditionally male) offspring from the older partner usually wins the succession game.

The succession decision-making process should look at financials, legal implications, the impact on customers and how well the decisions can be delivered.

Good information, powerful debate of the alternatives, and anticipation of consequences need to be followed by respecting and trusting the roles of the team. Unfortunately, that is usually deeply colored by child-like, familial, non-business perceptions.  

Teaching the next generation how to make decisions and letting them learn by taking action is the true beginning of shared power. Doing so comes with all kinds of emotional background and implications. 

Some helpful rules:

1. Separate business and family. Talk little or no business at family events. Talk little or no family at business events.

2. Train all your staff and hold them equally accountable.

3. Establish standards for a meritocracy in your business. Who does the best job?

4. Recognize the bias you will likely have about family members. It is hard to see them as others do. Do you want them seen as your kid? Or do you want them seen as really good at what they do?

5. Look for external, unbiased feedback on your entire management and leadership team – both for your ongoing leadership development and succession planning.

6. Distinguish between a transfer of wealth, and a transfer of power. Wealth may well be a right of birth and inheritance. Power is much more sustainable when it is earned. ?

Steve Garber is director of Third Level Ltd. Contact him at 561.752.5505 or email him at sgarber@thirdlevel.com.

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