It’s another great weekend, though it is fast moving to a close.
Before we kick off with another busy week let us consider a few tips on how to successfully hand over a family business. The majority of businesses globally are family businesses and this is why the succession element is critical, otherwise decades of hard work by the founders or parents could end up in the drains due to poor handover of the business to the next generation. Family business succession or transitioning a family business to the next generation is not a small thing and should not be treated lightly as many people do.
In Part 1 of my article, I intend to basically address key considerations that an entrepreneur should take into account way before even starting the handover or transition process. I will do another blog on issues to consider during the transition. The long time before that handover requires many considerations, and these are the issues for my blog (rather our blog) today as I believe you are a critical part of this whole blog idea on this site. The focus is you my dear entrepreneur.
In my opinion, an entrepreneur needs to consider the below issues several years before he or she begins thinking of his or her final exit.
- Interest and passion. It is well known that passion is a key driver to entrepreneurs in business. While planning for your business transfer you need to take this into account. Don’t you think so? We have all seen families in which parents really struggle to steer their children’s career. In some cases it gets very bad with people not talking for a while or parents refusing to pay fees. I’m not joking. So, before you force that son or daughter who’s mind, body and soul is in being a highflying on-the-move executive in some global multinational, into running your challenging business that involves moving into the villages frequently and using some local undocumented and un-researched negotiation skills in search of supplies, better think twice. A terrible mismatch in interest and passion is a recipe for transition and business longevity chaos.
- The needs of the business. Certain types of businesses might have unique requirements, and you don’t need to assume that someone with your blood and genetic configuration will be as successful as you have been. Ok? If your business requires bringing in some very weathered, seasoned and bespectacled guy very different from your children, why not go ahead and hire that person? For example, you might need serious connections to get into key government offices talking with old civil servants. You wouldn’t want to send it a young son there with a swag and balancing trousers that just pisses of those old folks and make you lose huge tenders. It’s really up to you because you know your business better than I do. I’m just giving tips.
- Adequate preparation. One of the reasons why I insist that you need to start this transition idea many years ahead is the fact that good preparation needs time. Never rush a son or daughter into business responsibilities that they cannot and are not ready to shoulder. Take it easy, man! Carry our proper grooming and mentoring over some years, if you have already identified the right person or persons to hand over to. This is not something you do in the twinkling of an eye. Look back and check out the number of years you spent learning and fine tuning your business skills, before you became that suave and very successful entrepreneur of today. Don’t assume that the young generation’s IT skills that are several times yours mean that they are indeed very intelligent and they actually know a lot of business management. Far from it.
- Self-discipline and control. A business owner or leader’s self-discipline and control is another critical element to business success and continuity. Don’t you agree with me? You need someone who can stick to the properly thrashed out and agreed tactical and strategic plan unless otherwise. You need someone who is not easily drawn into a useless and hurtful price war with that key competitor threatening your business. You need someone who will not issue a cheque and spend tens of thousands of dollars (good dollars as some countries have terrible dollars) on a new car model that has just hit the city as a status symbol. Successful business needs discipline and control. I don’t know how to emphasize this but I guess you get what I mean here. Don’t you?
- Balancing power play and creating harmony. Family folks are sometimes fond of having feuds that could last forever. Sometimes you fail to see the rationale. Don’t get me wrong. There are very nice families with internal peace that lasts forever, but there are also some with the opposite. Very large families especially need more care. Sometimes children inherit greed for power, money, etc. from parents and grandparents. Some things bypass parents and move straight from earlier generations into the current generation. While planning in the long term for your business transition, ensure you address this matter if you think it exists or could surface. Interestingly, as a parent you can see these traits sometimes. I love a Nigerian proverb that says that what a parent can see far away while seated down, a child may not see it while standing up. Interesting! Isn’t it? Plan to minimise risk of feuds. Balance power, responsibility and authority. Create harmony while you transition the family business. You are not dealing with angels and sometimes the human nature sets in. This is another powerful tip to successfully hand over a family business.
- The ownership and management perspective. Some business consultants advise that the young generation should first manage before they own a portion of the business. In fact some even go further and advice parents to make the children pay for the value of shares they are getting, on the reasoning that the children will value it because they have suffered financial pain in getting it. Sometimes people do not value free things. Makes some sense, but it’s all up to you. My point here is that you should make the next generation understand and appreciate these two perspectives as different. Ownership is different from management though in many family businesses these two are infused. So, coach and mentor your potential successors to act like managers when they are managing, and act like owners when they should. The perspectives differ and sometimes there are conflicting interests between the two. Ok? Got it?
- Think and plan for the long-term. I have already mentioned this somewhere in my first points but let me emphasize it here. Long term perspective is critical to very good business transition. It could guide your mentoring and development plans. It could guide courses and programs that you need your successors to attend. It could guide on how you comport yourself as an entrepreneur when you know you want to retire in the next five years. Don’t wait until you are in a wheel chair, or have probably started signing a cheque of $100,000 thinking that you are paying $10,000, before you take succession issues seriously. Don’t laugh. I’m serious. There are even people who grow very old and transition leaving behind chaos in their enterprises, starting with nobody being able to draw money from the business bank account. Some want to ascend into the next world with their cheque books. Come on, you can do better than that! We are talking about the best tips on how to successfully hand over a family business.
- Ensure you have a foundation of good corporate governance. Do you know corporate governance? If not please, I beg, go and do some reading and get acquainted with this. Great businesses worldwide practice good corporate governance, and I believe you will hand over a great business to a great next generation to build it for a greater generation to come. If you don’t have those plans don’t worry. Ok? If your children see you not having good business structures in place they will most likely do the same. If they don’t see you having proper systems and procedures, checks and balances, chains of command etc. in the business, they will probably run that business in an ad hoc and crisis mode forever. Get things right before you hand over that business, if you really want your years of effort building that business to last.
- Balance outsiders with insiders. My last tip on how to successfully hand over a family business relates to outsiders. I mean people not within your family confines, not even distant relatives that you require five or more minutes to explain the relationship you have with them. Belief me or not, though family businesses form the majority of businesses globally, the majority of their employees are neither members of the family nor blood relations of any kind. Trust me. Your business is safer with a good blend of insiders and outsiders. And don’t just limit this to only junior positions. It’s important for senior positions too. Critically important. There has got to be an external balancing voice of reason even when family executives are tearing each other due to various personality issues and family matters. There has got to be an external expertise that probably the family lineage lacks or has not been able to develop. There are very skilled and talented folks out there that far outpace those sons and daughters you think you have trained extremely well. So, why not tap into that in the interest of your business?
Ok. I will have another swift landing today, due to the fact that I have written so much. I need you to continue coming back to this blog, so I will be wise enough not to bore you with extra-long blogs!
The Wise Entrepreneur