The Family Run
Business: The Good, the Bad and the Ugly of Succession Planning
Family run companies
are in many respects the backbone of American business. They are
typically the most stable of small businesses, with a much lower
failure rate than other small business models. Some of the largest
and most successful companies in America are family owned and
operated, yet 70 percent of family run businesses don’t make it to
the second generation; a full 90 percent never make it to the third
generation. These statistics are not new, but appalling just the
So why the high
failure rate? Most experts chalk it up to poor succession planning,
as if a plan would somehow make it all better. No plan will correct
fundamental weaknesses in a business unless its managers recognize
and address those weaknesses. These weaknesses prevent many family
owned businesses from realizing much of their real potential.
this does not mean all family run businesses are fundamentally
flawed. However, those that do have problems are often emotionally
unwilling to acknowledge them or, having acknowledged them, are
unwilling to make the hard decisions necessary to fix them. While
family run companies have a far better failure rate than the average
of small businesses as a whole, this is still a pretty dismal record
given the advantages such businesses typically have: loyalty, strong
family support systems, management continuity, long training periods
for the next wave of managers, love and affection, etc.
So here are some of
the problems that often occur. If you’re the founder of a family run
business trying to groom a son or daughter to succeed you, you don’t
need to accept this list as your own; simply consider the
possibility that some of these pitfalls may apply to your company.
Your son simply
may not be a very smart business person. He may have blindly
copied your approach over the years, without developing the
ability to devise and implement his own approach to problem
solving, which is not a good shortcoming for the boss to have.
All the love in the world won’t fix this one.
may have a very different management style than the one you used
to build the business, and she may be successful only if she can
adopt a style that works for her. Of course, if you don’t trust
any style but your own, that won’t seem like a very good idea.
may recognize that your way of doing things successfully 30
years ago just won’t work today with more demanding customers,
more aggressive competition, Internet options at every turn, and
the big box competitor just down the street. If he sees that
clearly and you don’t, trouble lies ahead.
daughter-in-law may not have some of the skills needed for your
type of business, yet be a very bright, alert, communicative
person who commands respect. For example, a Phi Beta Kappa
lawyer who steps into a company where she must be the sales
manager is in trouble if her brilliance is mostly manifested at
the PC keyboard or in a research library. Worse, you may refuse
to see those shortcomings, preventing them from being addressed
openly. Still worse, you may see them only too clearly, and use
them as an opportunity to prove time and time again that no one
can do it the way you did. This will invariably prove to be a
If anything sounds
familiar here – perhaps your spouse has mentioned it a few hundred
times – and you still can’t see it, it is possible your eyesight is
not what it once was; don’t worry, it happens to the best of us.
Here are some ideas to help improve your ability to pass the
business along intact:
Treat your children
like any other senior manager.
Evaluate their performance formally and objectively (as you do with
your other employees), and help them work out action plans to
correct deficiencies before they become excuses to fail. A child who
thinks this is unfair may need to be employed somewhere else for a
few years to get a flavor of life on the outside.
Make a detailed list
of the skills needed to succeed in your business.
This list should not only include the ones you used to start the
company, but the ones that will help the company grow in the
environment in which it now does business. You may need help from
impartial but knowledgeable outsiders to complete this one, but it’s
worth it. Then, build your would-be successor’s grooming program
around that list.
Get formal training
for your children in the areas they need strengthening.
Seminars or workshops on topics such as managing and motivating
people, business planning and managing money can build valuable
skills for your company as well as enhancing the personal growth of
assignments your children get in the company
– to give them a strong sense of the company from every direction –
not just the functional area they are best in or most interested in.
If one of them is to become the CEO one day, he or she must have a
total company view to be successful. Each assignment should be at
least a year, so they get past the possibility of just “riding it
out” and actually get into the meat of the job.
Ask the honest
opinion of others in assessing the performance and potential of your
They may very well see things you can’t see despite your sincere
attempts to be objective. Consider a 360-performance review process
as a tool that might help your company team grow in addition to
being a good way to get others’ views of your children’s
Your son or
daughter could be a great future CEO for your business. He or she
has tools available that you didn’t have when you started. He or she
has the benefit of living in the culture of the business that you
built. And he or she has time to prepare before taking on the
responsibilities and challenges of the job. Take full advantage of
all that potential and help maximize their potential. You’ll be
helping ensure the future success of your company and a stress-free
retirement for you. That’s worth a little advance preparation, don’t
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