The ideal transition plan is a moving target for most closely held businesses. Economics force business strategies to change; new opportunities for growth are presented; and goals shift as new leadership takes over. Multigenerational family businesses have added complexity in that they have the needs of multiple generations to consider.
While transition plans for family businesses may be more complex than for other closely held businesses, it doesn’t mean you’re at a disadvantage. As long as you understand what each generation wants and needs, you’ll be able to transition smoothly from one generation to the next.
Older generations don’t want to let go.
Older generations are often hesitant to cede control in the business, which makes it difficult to build and execute a seamless transition. A few reasons for this are:
- Lack of trust in the next generation’s ability to succeed.
According to a Deloitte survey of over 350 single family offices, 28% of family office leaders believe that the next generation (Next Gens) is unqualified to take over. Some of the reasons they cited were lack of maturity, lack of training, and waning interest levels in leadership. - Fear of losing their identity.
Older generations may also be hesitant to cede control because the business and their role within it is such a strong part of their identity. - Emotional attachment.
Running a family business is hard work, and it can be difficult to relinquish control of something the older generation worked so hard to build. - Fear of the unknown.
Older generations may not be able to imagine what their life after the business will look like. If the only goals they’ve set for themselves are related to the business, they may feel unmoored when that business is gone from their life.
Fortunately, many of these perceived hurdles can be overcome with adequate transition plans in place.
Solutions
Education and training are key. And fortunately, the next generation is ready for it. 31% of Next Gens’ core priorities is to receive mentorship and training to prepare them for taking over the business.[1] A great way to meet this goal is to adopt a set of best practices for learning. This might look like:
- Encouraging incoming generations to work outside of the business for some time.
- Requiring a certain level of education.
- Pushing Next Gens to attend business meetings.
- Organizing additional coursework or workshops for Next Gens to better understand the business.
External goals and interests are more important than you think. Older generations that establish new goals outside of the family business will have an easier time transitioning away from it. They’ll be able to transfer that focus and dive into something else new and exciting. This could be as simple as a hobby that they enjoy, or it could be another business venture entirely.
Governance policies can help. Establishing governance policies can facilitate better communication between generations by encouraging open and honest communication. This can help alleviate some of the anxiety inherent in a generational transition because governance policies ensure that family values and business goals are aligned, even if the tactics used to reach those goals shift as the next generation takes the reins.
Younger generations want to make an impact.
Many Next Gens want to make their mark at a younger age than the generations that preceded them. But this doesn’t necessarily mean that they want to take ownership right away. Millennials and Gen Y often care more that their work feels meaningful. The title and position in the company is secondary to the freedom to explore and the ability to make meaningful change in the company they will someday inherit.
Knowing this about the younger generation, there are plenty of ways to avoid a contentious transition.
Solutions
Give the Next Gen the freedom to make changes before they take over. And if you do it correctly, it will be a win for the business, as well. The younger generations are often the drivers of modernization, which can be critical for legacy businesses to remain competitive. Letting the younger generation adopt new technology, for instance, can make your business more efficient and more competitive.
Encourage the Next Gen to innovate. One fear that many in the older generation have is that innovation and tradition are mutually exclusive, but that’s simply not the case. When you dig deep into what makes your business valuable, it’s likely not your business’s operations or processes; it’s the care you bring to the table or the solutions you build and offer. If you let the younger generations explore different ways to reach that same end goal, you may find that their solutions equally respect tradition and protect the family’s legacy.
Give the younger generation opportunities to take over slowly. The transition doesn’t have to be overnight. When thinking about the transition from a leadership perspective, you can transition that role slowly over time by:
- Giving Next Gens opportunities to gain practical, on-the-job experience in a safe environment.
- Providing in-family mentorship opportunities, or setting Next Gens up with external mentors that can provide guidance and support.
- Encouraging them to get more involved in areas of the business that they find most interesting.
- Establishing a clear trajectory into leadership so that the Next Gens know what’s expected of them.
Ensure a smooth transition from one generation to the next.
Talking about your fears and concerns with a professional can take all the stress out of a transition, especially if that advisor is well acquainted with the unique needs of family businesses. Our Meaden & Moore advisors work closely with family businesses to help them through difficult transitions, and we provide a curated resource center to help with many other aspects of family business ownership. Reach out to us today if you want to learn about how our advisors can help with your family business.
