As a longtime advisor who helps business owners craft plans to put their companies in the hands of successors, I’m often asked questions about how companies can be transitioned to their adult children. Before moving forward, I suggest that there are at least four questions to ask before passing a business to the next generation.
Business transitions from one generation to the next are complicated because so much is at stake: owner’s financial and emotional wellbeing, the company’s success, and the wellbeing of the entire family. Yet the goal of the current owners (for simplicity’s sake, we’ll call them Generation 1 (or Gen 1): Identify the right person (in Generation 2 or Gen 2) to lead without forcing anyone to do something they don’t want, damaging their relationships, or threatening the success of their organizations while also having their children put some skin in the game.
Note: I use Gen 2 or child to refer to the adult child or children who are possible successors.
Once the Gen 1 leaders set their goals, here are four questions they should consider before deciding whether to put a member of Gen 2—and which one(s)—into the CEO’s chair.
Question 1: Does your child want to be part of the business?
Owners sometimes tell me that their children would be “crazy” to take a pass on the “amazing opportunity” to take over their business. My first question is always: How do you know? Running a company may not be as meaningful to them as it was to you.
- Ownership is not easy, nor is it for everyone. It is a financial, emotional, and lifelong commitment many people are not willing to make.
- As an individual or as a group Gen 2’s sense of obligation can be stronger than their interest.
- Does a child want to work with their siblings or other family members?
- There is no shame in declining the opportunity to become a business owner.
The only way to know whether a Gen 2 successor truly wants to lead the business is to invite them to engage in a discussion. Invitations must be specific because successors need to know what they’re committing to.
Question 2: Does the business fit the G2 child and does the child fit the business and the family?
Identifying a G2 successor who is willing and motivated to assume leadership is the first step. The second is to do a bit of matchmaking: Is the G2 child capable of running a company that is likely far more complex and valuable than it was when G1 stepped into ownership?
- Has the G2 child demonstrated the qualities of entrepreneurship that they will need to be successful?
- Is the G2 child capable of learning how to do what G1 does to lead a successful business?
- Do the members of G1 and G2 agree that the G2 child is the best successor choice?
A successor whose dream and intent it is to assume ownership may be unable to handle the challenge. They may not realize that until after committing to ownership. Always having a Plan B is key.
Question 3: Does the G2 child’s timeframe for ownership match that of G1?
It’s important then for G1’s timetable to align with G2’s because no one wants to leave a company in the hands of an unprepared successor and only foolish or uninformed successors want to lead before they are prepared.
- Elements of a G1’s timetable include whether they are ready to step away from active involvement in their companies and when they want to begin the next phase of their lives. As individuals live longer, it’s not uncommon for G1s to want to remain active into their 70s.
- Elements of a G2’s timetable include how well prepared they are to lead, and if they have the patience to wait until G1 is ready to step aside.
- It is not unusual for a transfer of leadership to take several years (three to ten) because it involves a sequence of events or stages.
Question 4: Is G1 capable of teaching and mentoring the G2 successor?
G1s are doers; they decide, act, and lead decisively They know their business so intimately that they rarely give thought to how the do what they do. Teaching and mentoring, on the other hand requires breaking down complex tasks into components, creating an organized curriculum, allowing G2 successors to make mistakes, and stepping aside to let them lead.
- Are you ready to embrace a new kind of success? One that could be as meaningful as running your company?
- As your successor learns to lead, miscommunication and misunderstandings are almost inevitable. When that happens, can you remain cool and maintain your relationship with your child?
- We use three rules of engagement to keep lines of communication open: 1) Always assume the other party has the best of intentions; 2) Be honest and never accusatory; and 3) Be playful. Don’t leave your sense of humor at home.
It’s a challenge to transition leadership of an enterprise from Gen 1 to Gen 2, and some families decide that they prefer that a successor not be a family member. Some families determine that adding a business relationship to a family relationship (e.g., father / daughter becomes CEO / COO) is too risky because family ties are irreplaceable. CEOs are.
Other families take on the challenge. They have the exploratory conversations (often with the help of professional facilitators) necessary to separate what everyone involved wants from what they feel obligated to do. Transitions from Gen 1 to Gen 2 are complex, yet they are possible through thoughtful planning, imagination, and grit.
Elizabeth Ledoux is a co-author of the award-winning It’s A Journey: The MUST-HAVE Roadmap to Successful Succession Planning, as well as Accelerate Your Entrepreneurial Flight and Understanding the Growth of the Entrepreneur. She frequently speaks to organizations and business owners about challenges and opportunities in private and family business transitions, business and individual growth, and the business succession journey.
She serves as Chair for TIGER 21 in Denver, Colorado and was Chair for 14 years of the Women Presidents’ Organization’s Denver chapter.