Evolve Business Advisory

Evolve Business Advisory

Take the Drama Out of the Family Business: Five Steps to Get Started With Succession Planning

 

Have you watched the HBO show, Succession? Sh** really hit the fan at the end of season two. If you’re not familiar with the show, don’t worry, we got you. It’s loosely based on the real-life Murdoch family, who are renowned international media proprietors (they run News Corp, which owns NY Post, Wall Street Journal, Times of London and more). Anyway, back to what we were talking about: Succession is about the Roys, a (dysfunctional) family who own a huge media empire. The show begins with Logan Roy, the family’s patriarch who’s well within the age of retirement, but he hasn’t decided how to divide his empire among his children or when to hand over control. As you can guess, drama unfolds. 

This premise of this show isn’t different from reality. There’s always something in the news about corporate power struggles or legal battles among relatives over the family business. No? Well, let us refresh your memory: did you know Adidas and Puma were founded by brothers who were rivals? There’s also the tale of Canada’s own McCain brothers. History’s full of stories like this: The Koch family, the Ambanis, the Burch couple…the list goes on. Seriously though, watch the show. It’s pretty good. 

You’d think that with so many cases in the past, people would’ve picked up on the lesson—nope. Apparently 72% of business owners still have no succession plan in place to handle leadership transitions if they should find themselves unable or unwilling to continue managing their enterprise. About 8 in 10 entrepreneurs blame this oversight on being too preoccupied with managing their company’s day-to-day operations, according to Rocket Lawyer.

When it comes to family businesses, there’s a common misconception that succession is simply about stepping into the predecessor’s shoes and running the business the same way, but really, it’s a lot more complicated than that. But hey, if you’re running a family business, don’t panic. You can still fix this.

Maybe decades ago, it made sense to pass on your business to the child expecting them to continue using your playbook and make decisions the same way — it doesn’t work like that anymore. When you simply decide to pass on your legacy to your oldest child without considering the job description, their skills, interests, expertise, and the changing market conditions, you are basically setting them up for failure. This is called “sequel fallacy.”

Think about it. You’ve probably spent your whole life building your shipping (textile, manufacturing, or any kind) business and now you want to retire. You’re ready to hand your business over to your child, but *surprise* they want to be a TikTok influencer instead. Well, now what?

In family-run businesses, failures in succession planning are more common than success stories. Some of the reasons many small businesses don’t manage to “keep it within the family” is due to poor communication, power struggles, lack of interest from the next generation and most importantly – poor succession planning!

The global fashion brand, Gucci, is a great example of sequel fallacy. Gucci was founded by Guccio Gucci, who built his business with his line of quality luggage and handbags. When Guccio died in 1953, the business passed on to his oldest son, Aldo, who quickly expanded the business to the major markets outside of Italy—he made Gucci an international fashion brand. However, what initially seemed like a succession planning success story quickly turned into a disaster because the next generation had different visions and ambitions. Long story short, after a lot of drama (legal trouble, revenge and whatnot—seriously they could make a movie out of this), Aldo’s son, Paolo, and his cousin Maurizio eventually took over Gucci and basically ran it to the ground: Gucci had a negative net worth of $17.3 million.

With this in mind, let’s reiterate right away that succession planning is crucial to any business. The future of your company completely relies on having a suitable successor in place, in case the worst-case scenario happens and you, as the CEO or Founder, is unable to continue running your business and need someone to take your place.  

If you haven’t considered your succession yet, here are some tips to help you get started with succession planning in your family-run business:

Analyze the changing scenario. As families grow, it brings in more diversity. Individual family members can have a very different set of interests, expectations, and behaviors. In the Roy family (HBO show, Succession), Logan’s son Kendall, who’s a little bit of a daddy pleaser with a drug problem, has always dreamed of stepping into his father’s shoes, while Siobhan has spent her time elsewhere, building a career in political communication. Then, there’s Roman Roy, the black sheep of the family. Connor’s off doing his own thing. Who should be the successor? Exactly. You need to understand the changes in the market, as well as your family members, so you have a better idea of what your business, family, and owners need in the future.

Seek advice from other family-run businesses. If only we all had our personal Yoda. Speak to other business families to get a sense of how they managed their transition process. Sure, their situation may be unlike yours, but you can still get insight into the process they used. Ask questions — how did they go about choosing a successor? Did they consider the differences between past and future generations, along with changes in the market? Seeking advice will help you think outside the box and go out of your comfort zone when it comes to decision-making.

Don’t be tied to the old ways. You’ve seen Moneyball, right? Billy Beane basically revolutionized baseball. Respect your predecessor’s way of thinking and how things have “traditionally” been done, but don’t get stuck. At Evolve, we always say “if your business doesn’t Evolve, it will die,” and that’s true in this case too. Find a way to honor the past, but embrace new ideas. Remove any preconceptions about how succession works and start with a blank slate, taking in all the important factors affecting your decision. If Billy can do it, you can too.

Take your time to make the decision. There’s a lot of pride and honor that comes with the next generation taking over your legacy and keeping it within the family, but don’t make the decision too quickly. Picking a successor too soon, without preparing them, can not only put a lot of pressure on them. Focus on developing a plan and a handover process that can be implemented over time, considering any new happenings and adapting the course as needed. Does this sound too obvious? You’d be surprised how often people jump the gun without thinking things through so give it some thought!

Communicate. Succession planning affects everyone, including the family, the business, the employees, and the communities where each of these groups operate.  Communicate with your stakeholders and understand what worked in the past and where the gaps are. Also get input from potential successors on where and how they think they can contribute. Make your decision taking all these factors into consideration: history, future, innovations, and ideas for improvement. 

While this is just an outline to mentally prepare you for the process, there’s a lot more to succession planning: from reviewing potential successors and evaluating your business to setting a map for the future. Evolve Business Advisory has worked with businesses, large and small, and helped leaders with their succession planning. We know it’s important to take into consideration the nature of your business, the market trends and conditions, the skills of your potential successors, and gaps in your business before establishing a succession plan that will make it possible to continue your legacy. When you’re ready to embrace the roller coaster ride that is succession planning – contact us to get started.

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