You started a business many years ago and it has grown more than you could possibly have dreamt of.  To the point where the time is coming for you to take easy street a little and let the next generation come in and take over.  But where do you start?

The reality is, if you would like one of your children to take over the family business at some stage, the succession planning process needs to start far far earlier.

Back in 2003, Moores, Barrett and Craig developed the 4-L Framework for family leadership and succession.  This framework suggests there are four stages to a successful succession between the generations of a family business:

  1. Learning Business
  2. Learning Our Business
  3. Learning to Lead Our Business
  4. Learning to Let Go of Our Business

So let’s take a bit of a deeper-dive into the four pillars of this framework.

Learning Business

This pillar focuses on the build-up of experience and qualifications.  Outside of the business.

It is important for the incoming generation to know and understand what it is like to work for somebody else who is not family.  This way they are able to learn the market, learn skills and develop qualifications and a reputation which they will need when they re-enter the family business.   In so doing, they earn the respect of those around them and develop the skills they need.

Focusing on both technical (for example, an accounting degree, business degree, MBA, relevant trade) and self-management skills (such as personal discipline, attention to detail, pride and responsibility) will stand them in good stead when they return to the family business.

Which brings us neatly to a conflict, an area of risk.  What if they don’t want to come back into the business?  In many ways, the greatest family CEO’s are those who didn’t intend on ever working within the business.  They came back with an independent career and were able to steer the business in successful ways into the future.  Ultimately, for the incoming generation to be respected either by their teams or their family, they need to experience working life outside of the business.  Yes there is a risk they won’t come back (and it is one of the most common risks with family-run businesses), but the risk of them not attaining the experience they need outside of the business is far greater.

Learning Our Business

The next step in this framework is to learn the family business.  Every family business is unique, and special in it’s own way.  It is important for the incoming generation to learn their unique family business from the inside before they consider taking over the helm.

This step involves clearly learning and understand the values of the business.  Whilst a business needs to adapt and change as it develops, and inherently there will be a shift in values from the older generation to the next one, learning the existing values so they can be “continued differently” is fundamental to a successful transition.

There are two pathways which the incoming generation are expected to either choose between or adopt:

  1. Maintain the previous philosophy and adjust the detail. Philosophies such honesty, hard work, and debt aversion.
  2. Recognise and develop the market value of the business. This will often be one with the employment of professionals to manage the day-to-day running of the business. 

Learning to Lead Our Business

The conundrum faced by many family businesses is the reality of business and family converging.  Inherently within a family dynamic is the lack of hierarchy.  Siblings typically hold equal rating and ranking.  In a professionally run business however, a hierarchy exists where some employees carry more responsibility than others.  For the incoming generation of a business, the need to navigate through this conundrum becomes paramount to the success of the succession plan and ultimately will drive how the handover is conducted.

Part of this involves the establishment of systems and processes which has the dual effect of improving the performance (and market value) of the business whilst at the same time adding a sophistication to the business which circumvents potential for conflict between siblings.

Fundamentally, a family-run business is successful because it is “family run”, this step is designed to ensure the “family run” portion of the business is not forgotten.

Learning to Let Go of Our Business

This step focuses more on the exiting generation rather than the incoming one.  To truly be successful, the existing CEO needs to plan for and understand their role during the exit process.  Two questions need to be answered:

  1. What needs to happen if the business is going to continue successfully in the family?
  2. How is the successor to be appointed and how will the retirement process be managed?

As with everything in this world, planning is key:  develop a timeline; create management development systems; stick to the plan.

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