Tag. You’re It! Defining Future Roles in the Family Business

“In real-life, few family businesses really formally prepare the next generation for leadership”

As the younger generation takes on a more active role in the family business we need to better define their job positions and responsibilities to avoid conflict. In real-life, few family businesses really formally prepare the next generation for leadership, because it’s a little like succession planning where it’s often treated as a process you need but don’t want to work on. Avoiding the discussions increases the likelihood of future job role confusion and conflict and having a higher number of family members entering the company than the business can support.

What risks are there to DOING it?

  • Spark up family conflict
  • Create unhealthy competition between family members vying for increased responsibility
  • Potential for compensation discrepancy issues between family members

 What risks are there to NOT DOING it?

  • No real strategic direction for the leadership of the company
  • Not financially viable without having the right people in the wings to manage and grow the family business successfully
  • Risk not having next leadership prepared for taking over in an orderly way
  • Create concern for outside lenders with no clear founder succession plan
  • Might create the unplanned need for an interim CEO
  • Risk over-hiring family members and having to grow the business faster than desired to absorb higher payroll or worse have to terminate family members and “prune the tree”

Five Takeaways to make the transition work

  1. Identify Future Top Job Positions – Create a Future Organization Chart
  2. Determine the Best Job Candidates – Family and non-family Members-Be objective
  3. Anticipate Potential Trouble Spots – Sibling conflict, compensation inequalities, role competition
  4. Prepare Comprehensive Development Plans for Incoming Generation-Skill, education and experience gaps
  5. Gain  Acceptance from Related Parties-Family members, employees, suppliers, customers, advisors

Creating Family Business Dynasties

How does a family business become a dynasty?

It’s all about the “S” word.

Succession. Not to sound like Captain Obvious, but the key to family business longevity and creating a dynasty is succession planning. If it’s so obvious, why do only 12% of family firms make it into the third generation?

The first generation is the founder and works much like a sole proprietorship. The second generation often gets the handoff while the business is still on a growth curve and there are only a few family members involved. The third generation is more complex because the founder is often not present, there are more family members involved and the business may be reaching the maturity stage.

12 Reasons Family Businesses Fail to Become Dynasties:

  1. Senior generation failing to “let go”
  2. No formal timetable and planning for transition
  3. Lack of confidence in younger generation
  4. Senior generation sense of immortality – “I’ll Never Die”
  5. Taboo subject – too sensitive to discuss
  6. Failure getting family members on same page with strategic direction
  7. Late planning too close to transition event
  8. Reluctance to choose next leader between children
  9. Family members in business because of legacy not genuine interest
  10. Family conflicts left unresolved
  11. Inadequate training and coaching of next generation
  12. Business model fails due to lack of innovation in later generations