Succession in a Family Business

8 lessons from practice

A successful business succession within a family business by the next generation, is never guaranteed. Fortunately, the owner can properly prepare for the acquisition of his business and increase the chances of success. While working as an advisor to 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. This is not without reason. Selling a business or transferring a business to the next generation is a serious matter. The incumbent owner has put his heart and soul into his business and the same often applies to the generations that preceded him. Is the transfer not going well? Then the progress of the family business is at risk and family relationships come under pressure. In short, there is a lot at stake.

Lesson 1: Think strategically

Simply leaving the family business to the children for succession and assuming that the business will continue to exist as a result, is not a realistic thought. It is important to think about the strategic position of the business in advance. Ultimately, the strategy that was once deployed may have become obsolete. To ensure the future of the company, a new strategy is often needed. To do this one can perform a strength-weakness analysis that can show whether the company is able to continue to exist independently in the future. Afterwards, 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 future of the company is determined by more than just the next generation.

Lesson 2: You are not like your children

A trap that many family business owners fall into when it comes to business succession of the family business is that they think the next generation will want to- and can run the business with as much passion and commitment as they did themselves. However, this is far from the case as has been shown. Times have changed and are changing. Today’s generation does not just want to work and make money. This generation also want their lives to be meaningful and that means they are looking for a healthy work-life balance. Another reason is that their partners are often busy with their  own careers as well. Therefore, 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 the youth

One of the most important lessons we have learned over the years as advisors to family businesses is that the departing owner must give the next generation the benefit of the doubt much more than he intends to do. The younger generation of successors may have a different mentality and  is not always willing to devote all their free time to the business. They also may not always have the right prior education or competencies. But one thing is for sure: a scion of the younger generation by definition brings a new zest 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 of leaders 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 conventional and conservative in their views on the direction of the company and how the company should be run. A new generation can bring a new impetus to this, but they cannot do this alone. That new impetus 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 external parties do not innovate, a younger generation can do little with the ideas they have. In short, don’t 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 the succession of a family business who – before taking over the baton – have first worked outside the company perform better than the children who have never looked elsewhere. At ‘someone else’, they acquire knowledge and skills they would never have learned in their own family business. They also get honest and critical feedback that they often get less at their own company. And taking a break from the family business often only whets the appetite for a career in their own company.

Lesson 6: Take your time

Transfers take years of time. Time that is necessary for the introduction of the next generation to the company in a playful manner. This time is also necessary to slowly but surely give them more responsibilities. But you also need time to offer the future successor an educational path and preferably to allow him to gain experience outside his own organization. Moreover, a family business has often only grown over the years, such that a successor by definition needs more time to get the grips of it and needs more experience than his or her predecessor. In short, take your time. You cannot start the process of transfer early enough.

Lesson 7: Organize professional governance

A successful transfer stands or falls with a good system of professional supervision. It must be clear, for example, who coordinates the decisions that the organization takes with the supervisors? What is the expertise of the various supervisors? What are the divisions of roles, and so on. But it is also important that the supervisory body be independent. So preferably no family members or people from your own circle should be appointed as supervisors. A deliberately selected professional supervisor will quickly provide more value for 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 be successful if the separating owner actually leaves and gives the next generation the space to do it themselves. So let go. The owner should also not want to play a role as commissioner or advisor. By continuing to look over their shoulder, the next generation will feel that they are not good enough. They will not feel free to do business the way they want to and this will extinguish part of the ‘fire’. They will then be inclined to run the business the way their predecessor did and always look for approval. This will in any case hinder further growth and innovation.

Would you like to know more about business succession in the family business? Please contact us for a free consultation.

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

Read here the article about succession within family businesses published in the magazine PE business succession (Dutch)

 

By |2021-12-02T15:32:50+01:00December 2nd, 2021|Blog|Comments Off on Succession in a Family Business

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