Preparing a Family Business for the Next GenerationBy
Baby boomers are reaching retirement age at the rate of 10,000 per day, according to the Pew Research Center. That’s prompting scores of family businesses to be passed down to Gen Xers and millennials. Of course, such transitions are seldom easy, and they can be made more difficult due to generational disconnects. I asked family business experts for their advice on intergenerational family business succession. Their dos and don’ts follow.
Do: Train and coach the successors who will one day lead your family business. “Millennials [born roughly between 1982 and 2004] particularly love mentorship,” says Courtney Templin, chief operating officer at JB Training Solutions in Chicago, and co-author of Manager 3.0: A Millennial’s Guide to Rewriting the Rules of Management (Amacom, 2013). “They have often relied on others to tell them what to do from an early age.”
You also want to get them to buy into your company’s vision and mission, says Aaron McDaniel, a corporate manager, entrepreneur, and author of The Young Professional’s Guide to Managing (Career Press, 2013). “With technology, great customer service looks very different in execution today than 20 years ago, but the principles are the same. If you work to ingrain the mission and vision in the minds of your successor, it will help build the type of legacy you want to leave on the business,” he writes in an e-mail.
Do: Let members of the younger generations working in your business fail, at least occasionally. “Millennials’ parents are overprotective. They swoop in and help out a lot. But failing is one of those really big learning experiences, if people are allowed to make mistakes and cope with them on their own,” Templin says. McDaniel agrees: “Don’t let the failures get catastrophic, but let them mess up on a couple orders. Ask yourself, is it better that they make the mistake now, while you are there to catch it, explain the lesson, and help clean up? Or is it better that they make the mistake after you have gone? As they say, it is better to make a mistake with thousands now than with millions later.”
Do: Really leave the company when you retire. This one sounds easy, but it’s probably the most difficult aspect of family business succession, says Joel Freimuth, president of Blue Pearl Consulting, a Chicago company that works primarily with family-owned manufacturing and distribution businesses. “It’s very difficult to get the older generation out of the company when they need to give up the reins. They don’t know what else to do, and often the children are not helpful in transitioning them,” he says.
One client company reserves an office in its warehouse for its 84-year-old founder. “He sits in there and comes out every once in a while to yell, ‘That isn’t the way I would have done it!’ at someone,” Freimuth says. Sometimes that’s harmless, but other times it’s dangerous when an emeritus CEO won’t get out of the way, says Amy Renkert-Thomas, a joint managing director of family business consultancy Withers Consulting Group in New Haven, Conn., who served as president of her fifth-generation family business for a dozen years. “If everybody in the office feels like they’re used to taking orders from the senior person and they wait until that guy shows up to tell them what to do, that can be very undermining for everyone,” she says.
Do: Call on Gen Xers [born roughly between 1965 and 1982] to help smooth difficult transitions, Freimuth says. “They are the best at making every generation feel there’s still a place for them in the workplace. They can create nice bridges between their fathers and their little brothers, because they are open to using technology and experimenting but they also can understand the traditional ways to do business.”
Don’t: Set unrealistic expectations. “Don’t leave a company expecting your successors to grow it by 50 percent, or expand to X amount of locations by yearend,” Templin says. On the other hand, millennials especially need to learn that it’s not enough just to try hard in business. “Help them recognize that trying isn’t always good enough. They have to accomplish something,” she says.
Don’t: Turn over your company’s technology and social media to your successors without mastering it yourself. “When it comes to using new technologies, I have seen many boomers, my parents included, shut down and avoid using it,” McDaniel writes. “While it is a good idea to let your younger successors manage these parts of the business, it is important for you to understand these things to ensure the business is still being run properly and is not being derailed by these new tools.”
Don’t: Expect your successors to purchase the company from you. “It’s our experience that millennials think they’ve paid into the company by working there for the 10 or 12 years they’ve been there. The idea of paying on an installment plan for the company so they can take ownership is foreign to them. They expect to inherit it,” Freimuth says. “It becomes a challenge to extract value for the outgoing owners.” He often solves the problem by changing the company bylaws and operating agreements before the ownership is transferred, giving the founders a percentage of the profits until they die.
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