Great title for an article, right? A great topic, too … if only it were possible to know if and how early preparation saved a family business.
But there isn’t.
There are simply too many unexpected twists and turns, route changes and reboots in every transition journey to know that early preparation is the one thing that prevented a family business transition from becoming a catastrophic failure.
What we do know is that longer planning runways dramatically increase the odds of successful family business transitions because long runways give owners time to consider transition paths that they may not have envisioned, then choose and embrace one as an acceptable outcome.
Rules of the Road
In our practice, we introduce owners to six principles that help them achieve acceptable transition journey outcomes. The first is to “Put relationships first.” In other words, if the transition of a family business doesn’t protect or enhance owners’ relationships with the people who are important to them, the transition is not successful.
The second principle reminds owners that it’s their business transition journey, so it’s their responsibility and privilege to create transitions that generate acceptable outcomes for themselves, their companies, successors, and families.
Which brings us to the principle that is key to today’s topic: No business transition is perfect. To be successful, a transition need not—and cannot— meet every goal of every person involved. Instead, a successful transition delivers acceptable outcomes for owners, of course, but also for family members / successors, and the companies they own.
Before we focus on acceptable outcomes, a quick rundown of the last three principles.
Principle 4: Owners aren’t only moving away from their roles as owners, they’re moving toward a new and exciting phase of their lives. We call that phase an owner’s Next Adventure™.
Principle 5: Owners must ultimately put an end to their companies’ dependence on them and their own dependency on their companies if their companies are to succeed after they leave.
Principle 6: A transition roadmap is indispensable. One hundred percent of the owners who have competed our Transition Roadmap Developer™ process have successfully transferred their companies to successors.
Acceptable Outcomes
Until owners stop and take time to think about and articulate their goals for the transition of their family businesses, most don’t realize just how many objectives they have.
When we ask owners to paint a picture of a meaningful and exciting future, our prompts include:
- What is important for you to have or to be doing?
- What are the people in and connected to the business experiencing? How are they doing, and how is the business operating?
- What family, friends, etc. are you spending time with (or want to), and what are you doing together? How often do you spend time together?
- How do your important relationships feel/work?
- Where are you living? Do you have more than one home?
- What things make you happy?
- How is money working in your life?
- What are you doing for your health?
- What is your spiritual life like?
- How are you spending/enjoying your time?
- What are you exploring or learning about today (art, hobbies, travel)? How?
We’ve organized these categories in a tool called The Objectives Matrix™ and ask owners to (1) think of “the possible” (no matter how far-fetched) and (2) identify the goals they will not sacrifice.
Typically, owners identify between 35 and 60 objectives and mark 10% of them as non-negotiable (or Deal Breakers™). Painting a picture of a Next Adventure and how to leave a company healthy and whole is far easier when owners start by identifying their individual objectives in each segment.
Owners take another huge step toward describing the acceptable outcomes for their transitions when they single out their Deal Breakers, yet there’s more to be done. Allow us to use a story to illustrate.
Jerry and Juliai owned a successful nursery business and were ready to move on to their Next Adventure. The couple had two sons, both in their early 30s, who had expressed interest in taking over the business. Unfortunately, the brothers’ youthful sibling rivalry had matured into a simmering battle over everything from determining credit terms for large customers to which supplier to use to who had the bigger office.
Jerry and Julia knew that if they chose just one son to run the business, the simmering battle would boil over, and the family would be irreparably damaged.
In short, they were stuck.
When we met the couple, we asked them to use The Objectives Matrix to identify their goals and point to their Deal Breakers. The couple was determined to keep the business thriving and, in the family, and would reject any transition path that created a rift in the family.
As always, we initially presented to owners two of the handful of transition options that bookend the continuum of possible transitions: (1) status quo / liquidation and (2) a sale to a third party. Knowing the answer, we still asked Jerry and Julia if selling the business to a third party would be an acceptable outcome. We pointed out that in this scenario, they could begin the next phase of their lives almost immediately.
Their reaction was, to say the least, negative. “We promised the boys that they’d run the company one day, and it’s been their dream since they were kids.” We noted that their sons might be able to work for a new owner, or that Jerry and Julia could pass a portion of the sale proceeds to their sons who could then set up their own businesses. In short order, Jerry and Julia vetoed the idea of selling to a third party.
Then we dove into the other three options, one of which was to transition the business 50/50 to the sons, and their sons would engage in intensive coaching and conflict-resolution programs. Jerry and Julia conceded that it would take years for any program to change their sons’ behavior, and the couple didn’t want to wait years to begin their Next Adventure. In fact, they believed that no program could erase their sons’ long history of competition and rivalry.
Since we knew that although the business functioned as a whole and most of the plants were grown in two greenhouses located miles apart, we proposed another option: separating the greenhouses and gifting one to each son. We asked if that option could produce an acceptable outcome. The couple agreed to think about that idea. Within days they got back to us: “If we split the company in two, each company will need its own computer system, bank account, and contracts with vendors. Since we’ve always attributed our administrative overhead to both greenhouses, all the expenses will double!”
Let’s pause here to recap.
- We presented the owners with several alternatives to see which might yield acceptable outcomes.
- The owners considered — if only briefly — each alternative.
- The owners also looked at the alternatives from their successors’ point of view. Would their sons see a sale to a third party as a broken promise? Would they agree to work together while they were being coached to behave in new ways, or would they be happier working separately?
How early preparation saved a family business
Did early preparation save Jerry and Julia’s family business? Well, only time made it possible to (1) consider transition paths they hadn’t envisioned; (2) weigh the pros and cons of various paths; and (3) view possible paths from their successors’ points of view.
Time to think through alternatives and create a strategy was an important key to getting these owners “unstuck.” Together, they selected the best option for them: to give each son half of the business so that each had one location of their own. Only then could the couple embark on the next steps of their transition journey:
- Transforming their roles from parents and owners to peers and guides.
- Broadening their vision from short-term goals to creating a structure to support the family’s connection to the business for future generations.
- Transferring the power and responsibility for decision-making to their sons in a way that would help their sons learn from their choices.
- Shifting to their sons the relationships they’d built with employees, vendors, and customers and begin focusing on their relationships outside of the business.
- Expanding their sense of purpose beyond the business to finding fulfillment in new activities, including supporting their sons’ success.
All these transformations from business owner to one’s life beyond business take time. Keep in mind that successors also need time to make the transformations necessary to become successful owners. To help both owners and successors gain a clearer understanding of these transformations we’ve created Metamorphosis, a complimentary, 90-minute, virtual workshop.
We encourage you to invest 90 minutes in yourself, your business, your successors, and your family. Join our Metamorphosis workshop to gain clarity on your transition journey and chart a course towards your Next Adventure™. Register here at transitionstrategists.com/workshop
