Family businesses are the lifeblood of the American economy. They employ 60% of the U.S. workforce, create nearly 80% of the new jobs, and generate 64% of the nation’s GDP.
Unfortunately, many of the family businesses in existence are in serious danger of not existing a generation from now. This is because just 30% of family businesses are able to successfully transition from the first to the second generation of ownership and just 12% make it from the second to the third generation.
In other words, most people don’t want to inherit a family business. The question is, why?
The Struggle of Passing Off a Family Business
When it comes to family businesses, success is typically already there. The structure is already developed and the startup grunt work is all in the rearview mirror. With so many of the pieces already in place, why don’t future generations want to build on the accomplishments of the past?
There are many different answers to that question. Evolving consumer interests can make a business feel stuck in the past and, thus, not alluring to a future generation. A company may also be focused on a particular passion of the original founder — a passion that may not be shared by their offspring.
Perhaps the largest issue that stands in the way of inheriting a family business comes from the simple yet profound difficulty of transitioning operational management to a new generation. This is one of the key struggles that can make the entire scenario of successful multigenerational business ownership so challenging.
What To Prepare For When Taking Over a Family Business
The transition from old veteran to young blood is difficult in any pursuit. In many larger companies that are not family-owned, this process is often approached by using succession planning. This involved planning for the smooth transfer of power from an existing leader to an employee or group of employees.
A great example of this can be seen in Rose Marcario stepping down as CEO of Patagonia. She wasn’t forced out and wasn’t even resigning off the cuff. In fact, her succession plan within the company had been planned since the previous year.
While a succession plan is a good idea, many family businesses don’t bother, since the current owner’s replacement already seems to be a settled fact. However, the absence of a solid plan can lead to a variety of different challenges, such as an unclear authority structure and emotional decision making.
If you’re amongst the ranks of the few and the brave who are preparing to step into the shoes of a family business, succession plan or not, it’s important that you take the time to prepare for the emotional ups and downs that can be involved. Here are a few things to consider as you get ready for the exciting-yet-exhausting road ahead.
1. Brace for the Inability to Let Go
One of the most important things to be ready for is the struggle for the older generation to “let go of the wheel.” When a business owner pours their blood, sweat, and tears into a company for years on end, they shouldn’t be expected to let go of their company as if it was a minimum wage job that they picked up out of high school.
Yes, there are some situations — such as a medical emergency — where an incapacity plan can lead to a successor instantly stepping in to replace an owner. When this happens, the transition is quick and straightforward. However, it’s wise to prepare for a slow, healthy, gentle “letting go” as the current owner internally accepts that you will eventually take their place.
2. Don’t Expect to Be Handed Everything on a Silver Platter
Much like when a friend becomes your boss, it’s important not to assume that you’ll receive preferential treatment due to your internal relationships within the company. The founder likely didn’t get that luxury, and they may not be eager to hand over their business, even to their own kin, without seeing them prove themselves worthy first.
3. Be Gentle About Change
As a member of a younger generation, you may have numerous ideas for how to update and modernize your parents’ or grandparents’ company, such as shifting to a print-on-demand model or creating an online business presence.
However, it’s crucial that you bring up these changes gently and with respect. Remember that your elders put great care and concern into building the business exactly the way it is. Always express the value of that work when suggesting ways to improve (not replace) what already exists.
4. Lean on Teamwork
It’s wise to try to work as a team as you transition. With two generations vying for power, it’s easy to start to feel like professional opponents. However, if you focus on trying to build a team that consists of all of you at the helm, it can make the transition much easier.
Often this will manifest in different ways. Initially, an older founder may be the primary leader since they are more aware of the inner workings of the company. Over time, a younger heir may begin to take a leading role as they begin to steer company policy and put their own unique stamp on the operation.
Either way, teamwork encourages mutual support. It can be a vital diplomatic tool in a succession situation, especially if a current owner struggles with letting go of their current authority or a younger generation is impatient to step into a position.
5. Don’t Ignore the Nitty Gritty
It’s easy to become fixated on the emotions involved in taking over a business. However, the small details of actually running the business don’t simply disappear throughout the transition process.
Because emotions can run high, make sure to take the time to address the small-yet-important details as you go along. Consider setting up a Family Limited Partnership — that is, a legal structure where family members equally share a company. If you do this early in the process in order to split ownership, it can make everything simpler on a legal level when it comes time to make the transition official.
6. Treat the Experience Like a New Industry
If you want to succeed once you inherit your family’s business, it’s important to prepare for the responsibilities of a fully operating business. Unless you are amongst the few cases where you equally share in the passion that led your elders to create the business in the first place, it’s wise to treat the family business as if you’re starting a career in a new field. Take time to hone your skills, develop your professional network, and seek out a mentor (either your parents or even someone else within the industry) to help you establish yourself as an authority figure.
All in the Family
A large portion of the future success of a family business depends on you, the inheritor. If you take the time to seriously prepare for the transition ahead and then handle that transition with grace and teamwork, you’ll be able to confidently take the reins when the time comes for you to lead.
Inheriting a family business isn’t an easy process. However, when it’s done right, it can lead to amazing results.
