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Five Steps to Successful Business Succession

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The great majority of family businesses in North America are still owned and operated by descendants of the founder. The business acumen that these first, second, third, and sometimes fourth generation managers possess largely determines how much longer the business will remain under family control. To perpetuate a business, the current owners and managers must first identify and then prepare a successor to take the reins.

There are exceptions, of course, but most owners have difficulty developing their own offspring into qualified managers. They’re usually too emotionally involved. And don’t forget mom; she has more influence over how the kids are dealt with than most owners would ever be willing to admit.

Some of the most effective owner managers I’ve known are not nearly as adept at teaching management principles as they are at implementing them. Let’s face it, some of us are simply better doers than we are teachers. But when this is the case, the successor and the business frequently suffer.

If you are the current leader of a family business and you have yet to name a successor, here are my recommendations based on the most successful management transitions I have observed.

1. Don’t allow offspring to join the family business as full-time employees until they have achieved measurable success in another business.

Take it from me -- a son-of-the-boss myself -- no matter how hard your kids try, and no matter how effective they are, to the other employees they will always be the owner’s kids. It’s an old saying, but extremely applicable here, that “It’s difficult to be a prophet in your own land.” The same concept holds true for taking over the family business.

The employees who were coworkers last week (the same ones who “taught you everything you know”) are suddenly subordinates. In one fell swoop, the “kid” makes the leap from part-time summer worker to full-time executive. Ask anyone who has ever done it and they’ll tell you that it’s not an easy transition.

Before joining the family business, insist that each potential successor get a job in a highly profitable, well-managed business (with a similar product mix and similar customer mix of your own business) in another city. Most importantly, resist the temptation to use your professional relationships to get the job for them. Five years in this “training ground” is approximately the right length of time. If the potential successor can earn two or more promotions in a non-family environment, the odds increase that he or she has developed the confidence and the “right stuff” to successfully take over the management of the family business.

2. Before promoting a successor to CEO, insist that he or she first achieve measurable success in purchasing, sales, operations, and financial planning.

Until an owner actually observes potential successors performing key job functions, it’s difficult to determine where their talents lie. Depending on the size of the business, even the president may be required to personally perform one or more key jobs in the company. On the other hand, general managers of larger companies usually have the luxury of concentrating almost exclusively on top management tasks.

3. Recognize that while ownership is inherited, management skill may not be.

When you select a successor, make sure your business goals are clear -- to perpetuate the family business. Just because your children are your flesh and blood doesn’t mean that they possess the natural talent or inclination to manage the family business. It’s no disgrace for potential successors to come to the realization that they would be happier teaching school, coaching football or playing music for a living.

Everyone loses should the owner use guilt to entice family members to make a career choice that they will forever regret.

4. Don’t allow your ego to kill the golden goose.

If a family member is currently unavailable to assume the top job, be realistic enough to hire a professional manager to run the business in the interim. This choice will allow the business to perpetuate while a family member develops.

In this situation, it is also wise to make the development of family members in training as part of the professional manager’s job description and accountability. You want to make sure that the professional manager you hire understands his or her role from the outset.

5. Set a retirement date.

If the owner doesn’t possess the personal discipline to set a retirement date, succession rarely occurs in an orderly manner. Don’t be guilty of hanging on so long that your successor loses the fire in his belly and never has an opportunity to implement changes in the organization.

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