Family Business Succession: The Conversation You’re Missing
The initial conversation every family business needs to have…
(and almost none of them do).
Succession Planning Support & Advice – By Mark Bailey Consulting
The Initial Conversation in a Custodian Succession Plan is one of the biggest steps that family businesses overlook.
It is about allocating time to determine whether your successor really wants to take on your role and follow in your footsteps. In reality, if you started the business, it was most likely your skill set or passion in the first place. As an Incumbent, your skill set or passion may not be your Successor’s.
A simple but common mistake is forgetting to ask your Successor this basic question:
“Over the next few [months/years], I wish to work fewer hours in the business with the aim of [retirement/3-day work week]. With my help and support, what are your initial thoughts on taking over my role?”
If you don’t ask your successor this question to ensure it’s something they want to do, they may feel it’s a burden to take on the business automatically. This burden will develop because they won’t want to let you down. Your successor might suffer in silence; they might not be honest with you and simply say, “This business/industry/career isn’t for me”. Most importantly, you won’t ever be able to truly hand the business over, because they probably won’t want to receive it from you. This will lead to a phase of hesitancy on both sides and stagnation in the business.
My Lived Experience of a Misunderstanding
I remember taking steps to succeed my father in our business. To find out his end goal, I asked him, “What does he want to do?” He replied that he didn’t truly know. I couldn’t work out why he didn’t know. From my perspective, wasn’t it a simple question that surely required a simple answer? Surely my father knew what he wanted to do?
What I failed to realise at the time was the poor communication on my part. I hadn’t realised it then, but we were talking about completely different things. I was talking about the lifestyle he wanted to live and how we could make that work in the business. For example, did he want to reduce his working days per week and spend more time on holiday? How many days would he like to work each week, two, three or four? Did he want to emigrate to Spain and work remotely (which was on the cards at the time)?
His thinking was based purely on a working role within the business, not on a lifestyle context. For example, does he want to do more marketing and networking, or get more involved in daily management tasks?
At the time, we were working with a leadership coach and mentor, Susan. When Susan and my father sat down together to soundboard ideas about the next stage in his life, he didn’t realise what my poor communication meant to him, and we were thinking of two different narratives. Now, bearing in mind we’d worked together for many years and were very good at almost knowing each other’s thinking in most situations, this was one situation where it took a 3rd party to point out the obvious. We were both asking the same question, but we meant something different!
This is why it is imperative to have that initial conversation to make clear what you mean and in what context. From this initial conversation, we are looking to obtain several clear, agreed points:
Who is stepping down – the “Incumbent”
Let’s first highlight who is stepping back, stepping down, or retiring from the business. Sounds simple, but it could be more than one person. A husband-and-wife team who both want to retire at the same time is common
Who is stepping up? – the “Successor”
Hopefully, the second step is just as simple. Who is stepping into these positions? Again, there are multiple successors. Have you worked out who is taking on each role, or are there any changes that need to be accommodated? For example, taking one person’s role and splitting it between two people’s existing workloads.
Your first conversation point: create an organisational chart
One of the first tasks I undertake to understand a family business and the dynamics at play is a simple exercise. Ask each family member to draw an organisation chart detailing who each person is, their title, and what they do within the business.
Why start with this simple exercise? Because it’s a great conversation starter! You’ll be surprised when each person doesn’t fully realise what you or others do within the business. Why not add the business’s shareholders to your chart as well, and be as transparent as possible so everyone involved fully understands the business structure? This task can be done individually, with a consultant such as myself, or as a group. Group sessions work better, as when run correctly (by this I mean a constructive conversation where no one person dominates the room and everyone has a chance to speak their mind) they spark conversations and ideas that otherwise wouldn’t have come up.
Once everyone has had a chance to complete their chart, we are going to redo the same exercise, but this time we will write down what this looks like in 5 years’ time.
Subjects to talk about:
- I’ve suggested 5 years, but does this suit your timeline? Some businesses may have short or longer timescales.
- Has the Incumbent fully retired from the business or achieved their wishes?
- Where does the Successor see themselves on the chart?
- Have the shareholders changed?
- If so, have they been gifted or has a family member purchased them?
- Who is on the board of Directors?
- What role is each of the Directors undertaking?
- How about your management team, are they the same people?
Again, I advise each family member to draw their chart in turn. Create an environment where they can express their wishes or concerns. Whilst our aim here is to create a chart that starts to define our end goal, it’s not always straightforward and will likely change as you go through the whole process.
Your turn: Create your own organisation chart
- Existing business structure:
a. Who does what role?
b. Their title and reasonability within the business. - End goal business structure:
a. Same as above but what has changed?
Some of these conversations can lead to awkward questions or answers. However, one thing I promise is that it’s easier to have the conversation today than in 5 years’ time, when family members have assumed their roles or ownership of the business.
Ready for a change?
If your family business is a bit lost or you’re unsure how to start these types of conversations, then book your free call today.
Mark Bailey is a Family Business Consultant helping SMEs improve communication, profitability, succession planning and growth strategy. For more family business and small business sales support find and follow Mark Bailey on Linkedin.
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