By Dennis T. Jaffe, Ph.D.
Too often, a business owner comes to me with a problem of succession when it is too late. A potential heir has been working in the business, and the owner feels he does not have the will, or the skill, to take over. A key employee has quit, because he doesn’t feel there is a place for him in a family business. Two sons who work in the business aren’t getting along, and he isn’t sure that either one can take over the business without bloodshed. A son is concerned that his father won’t give up any control or give him any responsibility in the business. And so on. I move into crisis intervention mode, to try to straighten things out.
But I am always aware of a refrain going through my mind—why did they wait so long? Why didn’t they talk about these things before? Why did they let things go so far with such different sets of expectations in each of the major parties? It often seems as if everyone wants to keep the issues of succession under the table, until they bubble up in a crisis.
There are two things that I look at when I work with a business, that are key to a successful outcome. The first is how long things have simmered below the surface, with negative feelings being suppressed or ignored. The second, is how much of a crisis is there, how quickly must something be done. If there is a lot of anger and resentment, and too much of a crisis, then the prognosis is guarded at best.
I have identified four phases of the process of succession that take place in a small business. By taking care at the first stages, you have created an environment where the final stage is relatively easy to manage. If you don’t begin to think about the next generation on the first day that your son or daughter comes to work, then you make your own job harder.
Stage One: Apprenticeship When a potential successor first comes to work, it is rarely a conscious event. In high school or before, your children are asked to help out. They are proud to be helpful after school and during the summer. If you listen, there are opportunities for conversations about what it might be like if they wanted to work in the business, and even about your dream of passing it on to them. If you have several children, the question of how many of them can find places in the business will arise for them, and they may wonder if they can curry your favor only if they enter the business. The key is to talk about issues, making it clear that the future is open and that you have a long time to work on these issues.
The key conversation that you need to have with your children is the need for them to develop their skills. It is not enough to have the opportunity, they have to demonstrate capability in running the business. That comes from education, and varied job experience. A young adult who enters your business without having worked anywhere else is severely limited. First, they may never know what other options they have, or feel they have any options. Second, they have no idea how non-family members run a business, and how capable they are.
Stage Two: Career Entry At some point, a prospective successor shifts from working on a casual job, to working with the possibility that this will be a career. The person makes a commitment to the business, and expresses a desire to have an impact. Several things must be accomplished at the time of career entry. First, the different expectations have to be shared. Do they expect to be given the business after a period of time, or to have the option of buying it? Will the business be shared with other siblings who may not work in it? What do they need to do to be eligible to take over management, and maybe ownership? What can they expect to earn? How will they be paid? What do they have to produce?
All of these questions are difficult to answer, but if there is no talk about them, then the normal result is that each person has their own expectations that they never check out. The views are wildly different, and eventually lead to conflict when one or the other finds their expectations are not being met. These conversations are hard. They involve talking about quality of work, about the dream of the business owner, and the feelings of different siblings. They are especially difficult if there is more than one potential heir. More and more today, heirs entertain the possibility of a sibling partnership to run the business, while traditional entrepreneurs feel that they must name one person as the leader. What can in-laws, or women, expect? Is there a double standard? What if they take some years to work outside the business, while a brother or sister works there from day one? How are the different sets of experience considered? By talking up front, you can keep runaway expectations within bounds.
Stage Three: Two Generation Partnership The longest period of succession is one that rarely gets attention. For many years, as people live longer and are less likely to want to retire, there will be a stage of development where two generations work side by side as partners. Not equal partners by any means. But the partnership has to be dynamic, and have a direction of movement. If you are capable and energetic, how many years can you keep one job, or be an assistant manager? How long before you want to exercise more responsibility?
For decades, parents and their adult children will work side by side. This intergenerational partnership must evolve, with control and responsibility flowing from the parental generation to the next. Yet many families get stuck in their roles. Dad (usually) likes what he does, and doesn’t see any need to let go. Also, he has trouble remembering that his son or daughter is now grown, and has children. Each person has trouble changing; the older generation in allowing the younger to innovate and change the business, the younger is taking the reins and demonstrating what they will do. For this reason, many capable heirs either leave, or choose not to enter the business.
The successful succession process will have many steps of partnership. The potential successors will be put in charge of new business ventures, initiatives, marketing plans, or stores that offer them a chance for real responsibility. There will be candid evaluations of their successes, and their areas of development. They will have a chance to learn every phase of the business, to see the big picture and go over financials, and to be an increasing part of decision making. The mentoring and support they receive from their parents, and other key older employees, is one of the major satisfactions that next generation prospects have during this often prolonged stage of development.
Stage Four: Passing the Baton If you cook a roast for too long it becomes dry and tasteless. If you hold on too long, your business can lose value, or potential successors. The right time to initiate the generational shift is usually before the older generation is ready to leave. Yet, there is a time when the energy of the business will begin to flag if a new team does not take over. After ten to twenty years of leadership, a business owner should begin to think about moving on.
This can be done over several years, and can include staying around as an elder. Sometimes business owners move on to industry leadership, or to managing investments. But at some time an owner needs to define clearly who will inherit the business and how that will be done. This is delicate because it often involves not only family members but outside managers. At some time, a key manager may want to have a piece of the business. A next generation buy-out may include a team of family and non-family owners.
The new generation does not just inherit business as usual. There is no type of business today that is not vulnerable to larger business roll-ups, international competition, and the need to re-think how the business is operated. That is one reason why the wisdom of many years of ownership may not be suitable for a changing environment where new threats have emerged. The new team needs control over the business so they can renew it, and lead it in a new direction.
These are the four phases of succession. You can easily pinpoint where your business is. You should look at the tasks of the earlier stages and see if you have successfully accomplished them. If you haven’t, you may need to get together and have some serious inter-generational talks. You can also look ahead and predict when you will have to move toward the next stage, and what you need to do. To achieve a graceful succession, you need to pay attention and move your business through each of these key phases.
Too often, a business owner comes to me with a problem of succession when it is too late. A potential heir has been working in the business, and the owner feels he does not have the will, or the skill, to take over. A key employee has quit, because he doesn’t feel there is a place for him in a family business. Two sons who work in the business aren’t getting along, and he isn’t sure that either one can take over the business without bloodshed. A son is concerned that his father won’t give up any control or give him any responsibility in the business. And so on. I move into crisis intervention mode, to try to straighten things out.
But I am always aware of a refrain going through my mind—why did they wait so long? Why didn’t they talk about these things before? Why did they let things go so far with such different sets of expectations in each of the major parties? It often seems as if everyone wants to keep the issues of succession under the table, until they bubble up in a crisis.
There are two things that I look at when I work with a business, that are key to a successful outcome. The first is how long things have simmered below the surface, with negative feelings being suppressed or ignored. The second, is how much of a crisis is there, how quickly must something be done. If there is a lot of anger and resentment, and too much of a crisis, then the prognosis is guarded at best.
I have identified four phases of the process of succession that take place in a small business. By taking care at the first stages, you have created an environment where the final stage is relatively easy to manage. If you don’t begin to think about the next generation on the first day that your son or daughter comes to work, then you make your own job harder.
Stage One: Apprenticeship When a potential successor first comes to work, it is rarely a conscious event. In high school or before, your children are asked to help out. They are proud to be helpful after school and during the summer. If you listen, there are opportunities for conversations about what it might be like if they wanted to work in the business, and even about your dream of passing it on to them. If you have several children, the question of how many of them can find places in the business will arise for them, and they may wonder if they can curry your favor only if they enter the business. The key is to talk about issues, making it clear that the future is open and that you have a long time to work on these issues.
The key conversation that you need to have with your children is the need for them to develop their skills. It is not enough to have the opportunity, they have to demonstrate capability in running the business. That comes from education, and varied job experience. A young adult who enters your business without having worked anywhere else is severely limited. First, they may never know what other options they have, or feel they have any options. Second, they have no idea how non-family members run a business, and how capable they are.
Stage Two: Career Entry At some point, a prospective successor shifts from working on a casual job, to working with the possibility that this will be a career. The person makes a commitment to the business, and expresses a desire to have an impact. Several things must be accomplished at the time of career entry. First, the different expectations have to be shared. Do they expect to be given the business after a period of time, or to have the option of buying it? Will the business be shared with other siblings who may not work in it? What do they need to do to be eligible to take over management, and maybe ownership? What can they expect to earn? How will they be paid? What do they have to produce?
All of these questions are difficult to answer, but if there is no talk about them, then the normal result is that each person has their own expectations that they never check out. The views are wildly different, and eventually lead to conflict when one or the other finds their expectations are not being met. These conversations are hard. They involve talking about quality of work, about the dream of the business owner, and the feelings of different siblings. They are especially difficult if there is more than one potential heir. More and more today, heirs entertain the possibility of a sibling partnership to run the business, while traditional entrepreneurs feel that they must name one person as the leader. What can in-laws, or women, expect? Is there a double standard? What if they take some years to work outside the business, while a brother or sister works there from day one? How are the different sets of experience considered? By talking up front, you can keep runaway expectations within bounds.
Stage Three: Two Generation Partnership The longest period of succession is one that rarely gets attention. For many years, as people live longer and are less likely to want to retire, there will be a stage of development where two generations work side by side as partners. Not equal partners by any means. But the partnership has to be dynamic, and have a direction of movement. If you are capable and energetic, how many years can you keep one job, or be an assistant manager? How long before you want to exercise more responsibility?
For decades, parents and their adult children will work side by side. This intergenerational partnership must evolve, with control and responsibility flowing from the parental generation to the next. Yet many families get stuck in their roles. Dad (usually) likes what he does, and doesn’t see any need to let go. Also, he has trouble remembering that his son or daughter is now grown, and has children. Each person has trouble changing; the older generation in allowing the younger to innovate and change the business, the younger is taking the reins and demonstrating what they will do. For this reason, many capable heirs either leave, or choose not to enter the business.
The successful succession process will have many steps of partnership. The potential successors will be put in charge of new business ventures, initiatives, marketing plans, or stores that offer them a chance for real responsibility. There will be candid evaluations of their successes, and their areas of development. They will have a chance to learn every phase of the business, to see the big picture and go over financials, and to be an increasing part of decision making. The mentoring and support they receive from their parents, and other key older employees, is one of the major satisfactions that next generation prospects have during this often prolonged stage of development.
Stage Four: Passing the Baton If you cook a roast for too long it becomes dry and tasteless. If you hold on too long, your business can lose value, or potential successors. The right time to initiate the generational shift is usually before the older generation is ready to leave. Yet, there is a time when the energy of the business will begin to flag if a new team does not take over. After ten to twenty years of leadership, a business owner should begin to think about moving on.
This can be done over several years, and can include staying around as an elder. Sometimes business owners move on to industry leadership, or to managing investments. But at some time an owner needs to define clearly who will inherit the business and how that will be done. This is delicate because it often involves not only family members but outside managers. At some time, a key manager may want to have a piece of the business. A next generation buy-out may include a team of family and non-family owners.
The new generation does not just inherit business as usual. There is no type of business today that is not vulnerable to larger business roll-ups, international competition, and the need to re-think how the business is operated. That is one reason why the wisdom of many years of ownership may not be suitable for a changing environment where new threats have emerged. The new team needs control over the business so they can renew it, and lead it in a new direction.
These are the four phases of succession. You can easily pinpoint where your business is. You should look at the tasks of the earlier stages and see if you have successfully accomplished them. If you haven’t, you may need to get together and have some serious inter-generational talks. You can also look ahead and predict when you will have to move toward the next stage, and what you need to do. To achieve a graceful succession, you need to pay attention and move your business through each of these key phases.
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