Family Businesses and the Challenges of Succession

Family Businesses and the Challenges of Succession

Mark Bradford

Published by
Mark Bradford

14th November 2018

One of the biggest challenges a family business is likely to face is succession. Handled well, and the business will continue to thrive through one, two or more generations. However, if not enough attention is paid to this important stage in a company’s history then the business can at best stagnate, or at worst go into decline.

One of the big succession challenges occurs when a younger generation becomes involved and they have an entrepreneurial zeal that is at odds with the senior generation. Here we will look at the risks, challenges and opportunities that such a situation presents.

Imagine the following scenario:

A family business which has been in existence for over 50 years and the 2nd generation has guided it through changes in the marketplace, difficulties in the economy and seen it grow slowly but steadily over that time. It has become a substantial business with a large number of loyal hardworking employees. The senior generation are well respected by the customers, staff, suppliers, etc but are heading towards retirement. The next generation are in their 30’s and 40’s. After spending time away in further education and developing careers away from the business, they have been asked to consider joining the family business to ensure that the legacy is continued when their parents retire.

They decide that this is the right thing to do for continuing the family legacy and for their own careers and personal development. However the next generation think the business is old fashioned and heading up a dead end with the marketplace in turmoil due to the advancement in technology relating to the sector their business trades in. The current owners see this too but want the values and the ethos of the business preserved.

What are the risks?

• The different generations start working together in the business but fundamentally disagree on the way forward.

• The junior generation damage the family and business reputation with employees, suppliers, customers, etc by turning the business on its head.

• The senior generation don’t fully let go of management and hold back the younger generation in such a way that their enthusiasm is affected and their true capability is not fully exploited.

• The senior generations’ retirement plans and income stream are affected by the junior generations’ strategy.

What are the challenges?

• Getting the 2 generations to work in harmony towards a common goal or shared purpose

• Getting the current non-family management team and workforce to adapt to the generation changes

• Keeping customers, suppliers, banks, etc. onside as the business goes through entrepreneurial change

• Funding the change in strategy

What are the opportunities?

• The business can use its financial stability and strength to adapt quickly to changes in the market

• One family member can be assigned to run a new department or newly formed subsidiary to maximise the sales development opportunities

• The loyalty of the workforce, if handled sensitively and wisely, can help the next generation to take the business through the necessary changes

• Acquisition of a company in a different sector or a competitor in the current sector who has adapted more quickly to the market changes might be achievable where there is a younger generation ready to take in that type of challenge.

So what steps can the family take to address the challenges ahead?

• It is vital for everyone in the family business to understand, appreciate and accept the values on which it has been built.

• There needs to be a properly facilitated family meeting to discuss and agree the shared purpose, and way forward for the business

• It is important to share hopes, fears, and expectations for the future of the business otherwise misguided perceptions develop which can lead to conflict.

In some circumstances taking advantage of the entrepreneurial spirit of a younger generation can be exactly what a long standing family business needs to ensure its survival in a fast changing business world. For others it can be a calamity waiting to happen as the younger generation join a business with governance structures not suited to managing the succession appropriately.