Ownership Transitions

Setting Up Conditions for Success

I am currently working with two family businesses – one where the founder (Bob) is well into his 70s and continues to rule with an iron fist, and the other where the founder (Jim) is in his 60s and has passed managerial control to a non-family member.

Both Bob and Jim are serial entrepreneurs.  Each of them started with nothing and over the course of decades has built impressive business and real estate holdings.  Neither of them needs to work for a living, but they both do and they both probably will for as long as they can.  Each has a life-long wonderfully supportive wife and children both within and outside the business.

This is where much of the similarities end between Bob and Jim.  If one were to ask Bob why he has not yet loosened the reins of managerial control, he would answer that none of his children has demonstrated the necessary ability and desire to take over.  Not surprisingly, the children see things differently.  An objective observer could well conclude that Bob is having a hard time letting go.     

What about Jim?  If one were to ask him why he gave up managerial control, he would answer that he did so to take his business to the next level by bringing in professional management.  As far as his children in the business are concerned, they report to the non-family executive and the opportunity to one day take over would be there as long as they show the ability and desire to do so.

These two stories illustrate the difference between being proactive versus being reactive when it comes to succession planning.  In Jim’s case, he did not wait for his children to prove themselves before acting.  He went ahead and took steps to improve his business while not putting undue pressure on his children to prove themselves to him.  In short,  he set his children and his business up for success. 

In Bob’s case, the failure to plan and to implement a plan has narrowed the options available to him and his children.  More importantly, a good father (which Bob certainly is) does not want his children to feel like they have disappointed him.  Better to look forward to try to lay the groundwork for success than to look backwards at disappointment.

In my 30 years of experience helping family businesses, I have found that the main reason why there are so many more Bobs than Jims out there is because they have a hard time confronting the issue.  They don’t want to hurt their children’s feelings so they bury their heads in the sand figuring that it will all somehow work itself out. 

The tragic irony for Bob is that there is no need for confrontation at all.  Had he addressed the issue of succession in a serious way 10 years earlier there could have been a discussion as to what each of his children wanted and then a road-map could have been laid out for how to get there.  That would have had the double benefit of Bob being able to plan for the future of his business while at the same time allowing the children to plan for the future of their lives with less guilt and pressure from Bob. 

The other tragic irony is that the more one tries to control the less one feels in control at the end of the day.  The lesson for the family business owner who wants to see the business remain in the family is to plan early, allow the dreams of the next generation to emerge and be prepared for those dreams to not necessarily be consistent with your own.