There can be many advantages to starting a family business, not only for the entrepreneurs that start the company, but potentially for future generations further down the line. Most people who start a family business do so with the idea that their children and grandchildren will take over the reins once they retire and continue to generate wealth for the family.
Careful succession planning is key for family businesses that wish to remain successful enterprises for multiple generations. A definition of succession planning can be found in the embedded short video.
Bringing new family members into the business early on is one of the keys to successful succession planning, as this provides ample time for them to learn the business and understand the ethos behind it before being asked to take over.
Dr Edgar Paltzer deals with succession planning for family establishments at his law practice in Switzerland. Long-term succession planning can help avoid some of the perils that many family businesses experience when the original owner is ready to retire.
Choosing a Family Successor
One of the main challenges facing family business owners is choosing the right successor from within the family. This can be a fraught decision, especially when not thought through properly. Emotions will naturally form a part of the decision-making process, but one of the reasons succession often results in the failure of the business is that owners mistakenly believe they should pass it on to someone who may not have the knowledge, experience or skills to be able to manage the company.
Increasingly, family business owners are also dealing with lack of enthusiasm from the younger generation, who have their own ideas about what they want to achieve which may not involve running the family company. There is also the possibility of upsetting valuable employees, particularly at senior level, if the choice of who inherits the company seems to involve nepotism.
However, one study which took place over 30 years found that non-family employees often state a preference for family members as a successor, because they believe they are the most likely to maintain the family values that the business has been founded upon.
It can be helpful to engage the services of a professional family business adviser to help determine who will be the chosen successor. You can learn more about this in the PDF attachment to this post.
Breeding Trust Through Familiarity
People tend to place more trust in people and events that they are familiar with. This is one of the main reasons why succession planning requires a lot of time to be successful. Once a successor has been chosen, it makes sense to imbed them within the company at as early a stage as possible, so other non-family employees can get to know them and understand that they truly embody the values of the company and are capable of fulfilling the role designated to them.
When employees have had several years to experience what it is like to work with the potential successor before they become the leader of the business, they are more likely to trust and cooperate with that successor. Family businesses that always intend to leave the leadership to other family members should also be up front about this desire before taking on any non-family employees to avoid generating distrust through misconstrued ambition.
In the infographic attachment, you can see the top three biggest family-owned businesses in the world today by market capital.