From Owning to Exiting:
Managing the Risks of Transition in a Family-Owned Business
Statistics on the failure of family-owned businesses are well known. While more than 93 percent of businesses are family owned, only 30 percent survive in the second generation while 12 percent make it to the third. For family-owned businesses, growth strategy, succession planning, and exit strategy are laden with unique complexities. Sound solutions to these issues, formulated by impartial trusted advisors, can have significant influence on whether the business continues successfully well beyond the founder.
Addressing the unique business and relational characteristics of a family-owned company requires a team of professionals with expertise in business strategy, operational techniques as well as family systems counseling.
One of the most important aspects of any business transition is dealing with the family as a precursor to determining the optimal long-term plans for the business. Equally as important is the early participation of an objective team during the initial analysis and planning of a transition plan or exit strategy. This insures that once the strategy is formalized, the business owner, entrepreneur and his/her successors are able to take the company further, faster and on the desired course.
Creating an Aligned Succession Plan
Successful growth relies heavily on management execution. This imperative is particularly challenging in many family-owned businesses.
Once the growth strategy is formulated, the skills, abilities and readiness of the successor(s) must be well understood to ensure that the plan can be executed successfully. The family succession plan should include strategies to put the business interests ahead of the family interests and should emphasize merit over family position. The plans for succession need to be in alignment with the immediate and long- term vision of the company. The days of succession based on birth order are fading as companies realize that their success is tied to the knowledge, skills, abilities, passion and commitment of the successor. Whether it is succession to a senior management team including a family member, partial sale to an investor, sale to a strategic buyer or some other type of exit, family business owners need to understand how to determine the best candidates to lead the company in the immediate future and beyond.
Is there a way to objectively assess with predictive accuracy which successor candidate best fits the role?
More and more family-owned businesses are turning to descriptive and predictive assessment tools to find these answers. These tools are not new. Simply put, assessments have been helping companies make better hires for several decades. Family-owned businesses face many challenges and considerations as owners consider transition and succession plans.
Proven descriptive and prescriptive assessment tools provide a rational basis for creating a succession candidate pool. If parents decide that their heir or heirs are the candidates to be considered, these tools can provide a useful benchmark for their development.