8 lessons from practice

A successful business succession within a family business by the next generation is never guaranteed. Fortunately, owners can properly prepare for the acquisition of their business and increase the chances of success. During our work advising family businesses over the years, we have learned the following eight valuable lessons in this area.

Who will take the baton from me? For many family owners, this is a question that keeps them up at night. And not without reason. After all, selling a business or transferring it to the next generation is serious business. The incumbent owner has put his heart and soul into his business, and usually so have the generations that preceded him. Does the transfer not go well? Then the continuation of the family business is at risk and, moreover, the family relationships come under pressure. In short, there is a lot at stake. A lot.

 

Lesson 1: Think strategically

Simply leaving the family business to the children for succession, and assuming that the business will therefore continue to exist, is not a realistic thought. It is important to think beforehand about the strategic position of the business. After all, the strategy once deployed may have long since become obsolete. To secure the company’s future, a new strategy is often necessary. To do this, conduct a strength-weakness analysis, for example, which should show whether the company can continue to exist independently in the future. Then map out the facts, determine (again) the vision and mission, and make choices about who or what the organization wants to be. After all, the company’s future will be determined by more than just the next generation.

 

Lesson 2: You are not like your children

One pitfall that many family business owners fall into when it comes to family business succession is thinking that the next generation will and can run the business with as much passion and commitment as they did themselves. But this is far from always the case. Times have changed. Today’s generation doesn’t just want to be busy working and making money. They want their lives to be meaningful and that means they are also looking for a healthy work-life balance. Also because their partners are often busy with their careers as well. It is important to take this mentality into account when transferring the business. In fact, this means that the organization must be stronger than ever to achieve a successful transfer.

 

Lesson 3: Have faith in youth

One of the most important lessons I have learned over the years as an advisor to family businesses is that the departing owner must give the next generation the benefit of the doubt much more than he tends to do. The younger generation of successors may be in the game differently and not always willing to devote all their free hours to the business. And they may not always have the right prior education or competencies. But one thing does speak in their favor: a scion of the younger generation, by definition, brings new élan and new insights. He or she usually finds it easier to connect with the new era and the opportunities it brings than an older generation leader does. This is a bonus for the company that should not be underestimated in the case of family business succession.

 

Lesson 4: Don’t be afraid of innovation

This lesson ties in seamlessly with the previous one. Family businesses are often conservative and conservative in their views on the direction of the business and how the business should be run. A new generation can bring new impetus to this, but they cannot do it alone. This new élan must also be guaranteed by the external parties involved in the company. Think of the business consultant or accountant. As long as the “blood groups” of these externals do not innovate, a younger generation can do little with the ideas they have. In short, do not be afraid of innovation and for it to come through to all parties involved.

 

Lesson 5: Send children out

Over the years, I have seen that children of owners in business succession of a family business who – before taking over the baton have first worked outside the business – perform better than children who have never shined their light elsewhere. At an “other” they gain knowledge and skills to begin with that they would never have learned in their own family business. They also get honest and critical feedback that they often get less of in their own company. And taking some time away from the family business often only whets their “appetite” for a career at their own company.

 

Lesson 6: Take your time

Transfers take years of time. Time needed to playfully introduce the next generation to the business and slowly but surely give them more and more responsibilities. But time is also needed to be able to offer the successor-to-be a training program and, preferably, gain experience outside the own organization. Moreover, a family business has often only grown over the years, which means that a successor by definition needs more familiarisation time and experience than his or her predecessor. In short, take your time. You can’t start the transfer process early enough.

 

Lesson 7: Arrange professional governance

A successful transfer hinges on a good system of professional oversight. It must be clear, for example, who coordinates the decisions the organization makes with the supervisors? What is the expertise of the various supervisors? What the divisions of roles are, and so on. But it is also important that the supervision is an independent body. So preferably not appoint your own family members or people from your own circle as supervisors. A deliberately selected professional supervisor will quickly deliver more value to the company than a casual friend.

 

Lesson 8: Get out and let go!

Perhaps this is the most important lesson of all. A transfer can only become successful if the separating owner actually leaves and gives the next generation room to do it themselves. So let go. And do not want to play a role as commissioner or advisor. By looking over the shoulder, the next generation gets the feeling that they are not good enough. They will not feel free to do business the way they want to do business and this will extinguish part of the ‘fire’. They will then mainly be inclined to run the business the way their predecessor did, always looking for approval. And that hinders further growth and innovation anyway.

Would you like to know more about business succession in the family business? If so, please contact us for a no-obligation consultation.

Please contact Clifton Finance: Maarten Vijverberg +31 6 55853074 or Gonneke van der Lee +31 6 52466518.