Many Baby Boomers have been extremely successful at creating thriving family businesses that can provide for future generations. They are business-savvy, hard-working, and know what it takes to run a business. However, at some point, these business owners need to learn how to not run their business – how to gracefully exit. There will come a time when the next generation runs the family business.
Family businesses often struggle with this transition. Here are three of the common mistakes made by family business owners who do not successfully prepare for the transition required to keep the family business successful when they’re no longer in the role of boss.
1. Not Asking Their Children What They Want
Parents often consider it an unstated family obligation for children to go into the family business, even to the point of setting a career path for their children to do so from a young age. The children often feel trapped on this path, with little opportunity to exit or even to discuss other career paths.
When there is a family business, the very first discussion with children should not be about the imposed aspirations of children in the family business. Rather, they should begin with these very simple questions: What do you want? What are your dreams?
These questions recognize the importance of the child’s wishes and open the door for other discussions about what the family business means to the family, its history, and legacy.
If (and only if) there is this initial buy-in from the children, can the next step can be to set a path for how they might be involved in the business in the future. What role do they see themselves playing within the business? Are they preparing to take over in the future, or do they want to be involved (operationally), but not in charge? What responsibilities can they take on now to help prepare them for their future role within the business?
These discussions can’t start early enough. The implicit assumptions in some families of “joining the family business” are very strong and influential. Children from a young age think about the question, “what do I want to do/be when I grow up?” so it’s never too early to shape those conversations to allow the children to have a sense of ownership over their destiny.
Remember, when creating this path, it must acknowledge the children’s goals and visions. Do not just rely on your hopes and assumptions for the future of the family business. Be open to hearing what your children have to say and keep an open dialogue.
2. Not Letting Go – The “Sticky Baton”
Transitioning an operating family business does not happen overnight. However, at some point, the next generation will have a degree of control that they didn’t before, and the previous generation will have less control.
The “sticky baton” is when the previous generation lets go, but doesn’t really – they stay there looking over the shoulder of their children, second-guessing decisions that ought to belong to their children. By doing this, they are not allowing the next generation to stamp their own identity on their new roles and, therefore, on the company itself. For the previous generation, it’s one thing to see their children in senior management positions and to respect their decision-making authority. However, when those decisions start to impact the identity of the company itself (which may have been shaped by the previous generation), they push back.
While their intent is always to do the right thing (give the benefit of their experience), this sort of behavior can seriously undermine their children’s authority, and their ability to take the business forward.
Before making this transition, make sure you are confident in your children’s abilities to continue the business. Share your knowledge and expertise before they take over control. What essential knowledge do they need to have? What tips and tricks can you share with them to help build their expertise and confidence? How can you start to turn to them for advice and solutions related to the family business?
An example of how not letting go and not preparing for transition can lead to the downfall of a business is from a family friend of mine. Bill made all of the decisions for his family business. He didn’t have any interest in involving his children in the business and resisted getting help with succession planning. He believed he knew what was best for the business, so it made perfect sense to remain in charge for as long as he possibly could.
However, there came a time when Bill was forced to pass the baton due to health issues. Unfortunately, the business was dependent on him, and he struggled to give up control. Additionally, his children didn’t want to suddenly get involved in the family business that they knew very little about. This spelled the end of the family business.
It is difficult to truly pass the baton if you still feel like the only one who can effectively run the business. Additionally, if your children do not have confidence in themselves, they won’t take the baton when you try to hand it to them. Early on, begin to involve your children in the business in a meaningful way. Then everyone will feel comfortable and capable when it is officially time to pass the baton.
Part of this process means finding a new role for yourself, the person who ‘previously’ held a management position. To address that, let’s move on to the third mistake boomers make.
3. Not Setting Up Clear Rules, Roles, and Procedures
Founders of family businesses (in particular) often operate in an environment where they are entirely in control and answerable to no one. When transitioning to the next generation, there are suddenly more stakeholders (of different generations and with different roles) who have a genuine interest in the happenings of the family business.
In such an environment, governance becomes essential as a way to manage those stakeholders and set up a structured way for family members to be accountable to each other in respect to the family business and the family’s assets.
Make sure there are clear rules about decision making, communication, and day-to-day expectations of employees. Clearly define the roles and responsibilities of each family member within the business. Not everyone can run the show, but everyone can contribute and play an important and meaningful role in the continued success of the business.
There should also be rules about what one has to do in order to be allowed to join the family business or to join that group that manages the family assets. These are about making sure the family business is run as a meritocracy. These types of rules are extremely important because nepotism—favoring people simply because they happen to be relatives—is bad in any business or organization. It leads to a conflict of interest, jealousy, and poor decision making, and it can limit the potential of employees.
Often, the founder has a clear idea about how things are run, but there is no formal record of these procedures. Take the time to thoughtfully consider how you run your business and how you’d like to see it continue to run in the future. Have this information recorded (this process is often best done together with someone external to the business) so that everyone is on the same page during times of transition.
During transitions, there should be discussions regarding the established rules, roles, and procedures to re-evaluate whether they still serve the goals of the business. However, if there are no rules to begin with, rather than having a focused conversation, the family may end up in chaotic arguments based on each member’s assumptions.
As more generations join the business, everyone needs to feel that they are a valued member of the family business. When clear rules, roles, and procedures are in place, everyone has a keen understanding of how they can contribute to the future of the business.
It is never too early to prepare for the future transitions that will take place within your family business. The majority of mistakes are made because of a lack of communication and planning early on. You can avoid common conflicts by beginning these conversations and applying the strategies I’ve shared long before it is time for the big transition.
This was also posted at Linked In as 3 Mistakes Baby Boomers Make When Transitioning Their Business To Their Children.