Let’s say, for the purpose of this blog, that your family has met, and you have agreed unanimously that both your family and business will benefit from a process of management and ownership succession planning. Everyone is on board, and all feel charged up that this decision will help pave the path for another generation of family business prosperity. But don’t get cocky! The devil is in the succession planning details, and there are still a few potential impediments that could force your succession project right off the rails. What might these items be?
What could derail your Succession Planning?
- The most basic barriers are unforeseen or unanticipated events that occur over the lifecycle of any business or family. Think natural disaster, The Great Recession, the loss of a key customer, the loss of a key manager, a sudden, serious health issue, or an abrupt change in marital status. Any of these could be a sufficient distraction to render the succession project less urgent and important.
- Poor decision-making processes. As we’ve written many times, family-owned business leaders say they make decisions by “consensus.” Upon examination, they totally misuse and abuse the word! What they really mean is that they make decisions only when there’s unanimity among family members. This leads to a virtual tyranny of one or a tiny handful of people who can unravel or kill any deal at any time. Achieving unanimity is difficult even for simple matters like where you’re going to have dinner tomorrow night. 100% agreement on any major family business decision is exceedingly hard to come by. And yet, most family-owned businesses have no backup plan for when the default unanimity fails. The lack of decision-making criteria and processes in family businesses is epidemic, and it threatens not only succession projects but almost all operational aspects of the family firm.
- Lack of reasonableness. We’ve written before that reasonableness is the key ingredient in any kind of family business transaction. When people get too greedy, or they engage in “line in the sand” or “my way or the highway” types of thinking, succession planning is nearly impossible. Whether ownership or management succession planning, participants need to remain flexible and be willing to negotiate – let’s face it, any succession project is simply a negotiation when boiled down to its simplest parts – in good faith.
- Lack of objectivity over appropriate future roles and responsibilities. When my son was playing high school baseball, we visited another school where the coach had posted his philosophy for all the parents to see. His first rule was “Your son is not as good a baseball player as you think he is. Be objective.” Especially when it comes to management succession, family members have trouble seeing that they are not the superstars they may have wished to be. They rationalize that their roles should be equal “because we’re siblings” or “because we’re cousins.” Your roles as siblings may be equal in the eyes of parents and other relatives, but that’s not true in business. In business, someone must be first among equals and take the quarterback role. Other players may have talent in sales, finance, or operations, and they should pursue areas of responsibility where they can deliver the most value. But not everyone is cut out to be the president of the company just because he has the right last name. Be objective about your strengths and weaknesses as well as those of others.
- Unwillingness to invest in the best planning advice. A prospect phoned in a few weeks ago in need of some strategic planning help. The name sounded familiar, so we dug back into the archives and, sure enough, they had approached us several years ago with the same need. They made a decision in 2011 to hire a local advisor because his price was the cheapest among the firms they solicited. Can you imagine the shortsightedness required to entrust the planning for the next 10 or 15 years of your family business to an advisor based solely on cheap price? It boggles the mind! Whether it’s legal, tax, or family business succession planning advice, invest in the best. You’ll come out way ahead in the long run.
Family business succession planning is more a marathon than a sprint. Deciding to undertake the process is the first step. Managing the process and all of the barriers and pitfalls along the way is another key requirement for making sure you get the most out of your succession project.
“good article”!
Questions? how long, approx., does it take with your help?
how much, approx., does it cost_________________________?
I’ve seen all of these issues or challenges over the years. However the most difficult to address is the last. How does one know that they have hired someone who really knows what they are doing? Do you rely upon the advice of friends? Will an interview provide you with the comfort level that you need? Do you sometimes get the feeling that you know more about strategic planning processes then the person that you hired? How can you tell if you’re being misled? The size of their fee doesn’t always equate to the quality of the service provided.
Hi Mike-
Almost everyone has been burned by consultants who really, in the end, didn’t know what they were doing or didn’t produce the desired results (and boy do those jacklegs make my life harder!). Interviews can be flawed, so relying on professional references, referrals from other business owners, and samples of work products (don’t TELL me, SHOW me!) work best. You’re right; fees can vary wildly and are not always indicative of quality. We actually tend to be underpriced compared to lots of our competition, and we worry that maybe that fact actually hurts our professional credibility.
These are some great tips for planning family business succession. I definitely agree that it’s best not to look for unanimity in the decision making process. Like you said, my family can’t even decide where to go for dinner!