Business Family Leadership

Okay, you have a family business. Now the big question: Are you planning on passing it on to the next generation? I’m sure that’s part of your hopes and dreams, but did you know that most families businesses just can’t withstand the “Next-Gen” succession process.

The foundation of any family-owned business is of course family. Dealing with the fast-paced and even faster changing dynamics of doing business in a global economy is hugely challenging on its own. However, developing a healthy family dynamic that facilitates succession can be even more strenuous. All too often, when the members of a family business are not deeply emotionally bonded to each other and the firm’s purpose it can feel like the leader is guiding a blindfolded team through an emotional minefield.

Family Business and Navy SEALS

Consider this: according to an estimate based on data from the Department of Defense the estimated salary for a Navy SEAL with more than ten years of experience is about $54,000. Even though every member of a seal team is highly trained, no one operates as a superstar or diva. They operate as a unit, meaning that when something needs to be done, everyone holds themselves accountable to make sure it gets done. No one complains about the hours, or suggests that they need a union or whines that they should be paid more than another team member. Moreover, everyone is highly engaged. Clearly they are not sticking around for the high salary, or for that matter the retirement plan. Why is this? They are driven by a higher purpose.

What do Navy SEALS have to do with family businesses? Creating a culture of massive growth, productivity and deep engagement only happens when the family and the teams in that culture are bonded as a unit and that just like in a SEAL unit happens as a result of the relationships within that culture.

Increasingly more family businesses are recognizing the need to bring in outside expertise and talent at senior levels, and they understand the importance of checks and balances that independent, non-family members can provide to their company.

According to a KPMG Family Business Global Survey, only 10% of family firms have boards constituted entirely of family members. Family businesses around the world are clearly seeking out external expertise and knowledge.

The Lifespan of an Organization

As a leader you can assess the economic value of your firm by looking into things like assets, share price and the dividends owners receive. However, I’m sure you know that many highly valued organizations disappear in less than a generation (estimated to be 20 to 25 years). This is because either no one bothered to take a look at the emotional value of that organization or they assumed that the blood connection of “we are family” would be enough to solidify the emotional bond needed to create a smooth transition between generations.

We have found that all too often that while the economic value of your organization may be steadily ascending, the emotional value of that same organization is very often at least equally descending.

In the first generation of a family business, emotional attachment is high because the founder likely is driven by their own very personal emotional drivers that other family members either don’t know or have no way of understanding. The result is that emotional attachment decreases with the subsequent generations.

Disengagement: It’s not just for employees!

There is great concern around the fact that more than 70% of the workforce in the United States today is disengaged. That being what it is, when we look inside business families those numbers are very similar, (and often worse).

There are many reasons why employees become disengaged. However, at its core, disengagement is a result of the lack of a true bond. For your family business members (and employees) to be fully engaged and fiercely loyal, there must be a deep emotional bond to the leader, the driving purpose and the people within a firm. Sadly, most Next-Gen leaders have lost touch with that purpose, making it very difficult to have the needed bond with the present leader or even the firm itself. That bond is the superglue that allows transition and succession to take place successfully.

With a healthy bond, conflicts can be resolved by returning to the essence of what cements the family. Without such a bond it’s easy to hit what seems like a fatal impasse and owners can be tempted to sell their shares and leave.

3 Tips for Creating a Successful Succession Bond

To successful facilitate next generation transition:

1) Discover and/or develop a driving purpose and culture that gets people off the fence.

As sad as it can seem, not everyone (including family members) are a fit with your business. If your purpose and culture are not crystal clear, you will have the wrong people sticking around. The wrong people with be disengaged, or worse actively disengaged (sabotaging).

2) Develop a strong purpose driven Full Monty Story.

When you think about sitting around with the people with whom you have a deep and trusted connection, you will realize that one of the things that bonds you as a group are the common “war stories.” Having a clearly defined, well-articulated “Full Monty Story” — a story that reveals not just the successes but also the common struggles is an integral part of creating that common bond. This must be a true story that portrays the driving purpose and culture of your organization. However, this must be also be a story that shows everything (Full Monty) — meaning it is vital that it shows vulnerability.

3) Find out who your people “really” are.

It’s easy to assume that because someone is a family member, they are bonded to you. I promise you that if that’s your assumption there’s a very good chance that this will come back and bite you worse than a rabid Rottweiler. People are disengaged (treat something like it’s not important) when they feel they are not important. All too often we hear the next generation leaders who find themselves waiting in the wings of succession complaining that no one cares about who they are. The true bottom line of family business is it’s all about the relationships! Family businesses are great, but unless you are HRH Queen Elizabeth II — and your heirs have to take over — developing and maintaining strong emotional bonds is the key to successful generational succession.

In review: The foundation of any family-owned business is family. But far to many family businesses will end up at least emotionally bankrupt because they just can’t withstand the “Next-Gen” succession process. You must deal with that reality if you want your family-owned business to implement a succession plan that beats the odds. In a fast-paced and the even faster changing dynamics of doing business in a global economy, developing a healthy family dynamic that facilitates succession is strenuous.

While it’s inevitable for families to have issues, believing that your family will just get through it because blood is thicker than water is a fool’s trap. Each generation comes with strengths and weaknesses. G1 may have the emotional drive that comes from starting a business, while the present generation may have the familiarity with technology. Both of these are strengths. Meanwhile the G1 leader may see the present generation as entitled and distracted, while the present generation may see G1 as out of touch and stuck in the past.

Without a deeply binding emotional bond to each other, and the driving purpose of your organization firmly established in each generation, business and particularly succession will be an emotional minefield. Remember that disengagement is not exclusively an issue of employees. It is a major issue with generations of a family business as well. If not looked at and addressed before it gets its tentacles around your family members, it can be the very thing that brings your organization down. As the owner of a family business, you need to face the fact that not everyone is suited to your type business, and that includes family members. If someone is not a fit, but you believe he or she must stay in the business, so you force them to remain, you will not only poison them against the business but in turn you will poison the business itself.

However, it is possible to keep a family business intact and thriving. One of the most powerful ways to bond people is through stories. These stories must be developed and crafted to be inclusive to truly create strong emotional bonds. To create such impactful stories, you need to really know your people — including your relatives. Thinking you know someone (even a family member) is very different than actually knowing them. You must find out what drives them, what they aspire to, what they fear, and what gets them out of bed in the morning. When you don’t know these things, it will create conflict and conflict that is not dealt with in a way where each party feels genuinely heard is radioactive: the evidence that it is killing you (and your organization) may not truly show up for years.

Finally, no one can create a successful family business succession plan alone! Great families have great advisors for every area of the business. Leadership is strategic, it is visionary, it is influence, it is many things, but more than anything it is about being masterful at creating deeply-bonded relationships. And deeply-bonded relationships are the only thing that will keep your family-owned business from becoming just another blip in history.

With gratitude,
Dov

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