After 30 years in this work, there’s one statistic that still keeps me up at night.
60% of transitions are going to fail.
When I share this number with business owners, the gut reaction is like, well, they didn’t lock down their will enough or they had a bad tax strategy. And so all the money went away and that’s just simply not true.
That 60% of transitions failing is actually because the family couldn’t communicate. So it was communication breakdown, missed expectations, people not on the same page. And it was actually only 4% failing because of legal and tax reasons like that.
Think about that for a second. Only 4% fail because of technical, legal, or tax issues. The other 60%? People problems.
Why Do Most Business Transitions Fail?
And I think that’s why the industry average success of generational transitions from Gen 1 to Gen 2 is only 30%.
When we talk to people, they’re like, “Well, I’m actually about to go talk with my lawyer about a transition strategy.” And we work with a lot of amazing lawyers and attorneys and people, and we love our partners and they are 100% essential in a process like this.
But when you start with them, the amount of time that you are going to spend with them talking through the process and what that looks like is drastically increased. And you’re putting that 60% of transitions failing because of bad communication at risk.
You do need the tax and you need the estate and you need the legal agreements. You have to have all of that. There’s no doubt about it. However, what we’re finding is that advisors are not solving the right problems or they’re solving the right problems, but they’re doing it sometimes in the wrong order.
The biggest mistake is truly waiting for a crisis to force an action. Because if you can get ahead of it, it’s so much easier, so much less expensive.
Like the money is great, but if you’re not talking to your husband, if you’re not talking to your wife, if your children are not speaking to each other, the cousins don’t know each other, employees are unhappy, that is a big deal. That’s no fun.
What Are the Biggest Mistakes Business Owners Make in Succession Planning?
A lot of times we hear from owners, they think they know what other people want. But a lot of that is making big assumptions about what someone else wants.
My son definitely wants to come into this business. None of my kids have any interest in this business whatsoever. Someone said they don’t want any of the money. My spouse is okay if I keep working. All of these things are assumptions. And if it’s not from the mouth of the other person and we don’t give them space to kind of think through what they actually want…
Sometimes for the next gen, they need to be educated on what’s actually possible and what it means and how it would affect their life in a positive or negative way so that they could make a decision on if it’s something that they wanted to engage in.
One of the biggest landmines is that everybody’s going to want this business. Everybody’s going to want these assets. And that is absolutely one of the biggest landmines that you can have.
Our assumptions are landmines.
What Is Transition 3.0?
There’s something really cool that we’ve started talking about and that’s Transition 3.0. How do you protect those relationships, especially in a succession scenario? It’s actually involving the successor in designing what the future looks like.
If you think of the traditional way that people might’ve done succession planning or wealth transfer planning, you would work with your advisor and then you might pass away. And then everyone would find out. There would be like in all the movies, right? Let’s read the will, what happened? Who’s doing what?
Transition 2.0: Okay, I designed everything. Everything’s all buttoned up. Now I’m going to inform and announce to everyone else how I think this transition is going to go.
Transition 3.0 is the collaborative design. It’s what we see consistently working because as an owner, you give a choice to the next generation. There’s an opportunity for you to participate here. Would you like to do that? And if they want to, you get to build it with them and you’re no longer doing it to them, but you’re building it together.
In Transition 3.0, you’re looking at what you have and helping to match the assets that you have to the person’s lives. Somebody may want the business and want to come into the business and love it. Other people may choose not to do that and there may be another way where they could see some of the opportunities and use the assets to a better benefit.
You’re able to build it with your successors instead of without them.
How Do Successful Family Business Transitions Work?
With our clients, the thing we’ve seen is 95% are successful and they are in step with their family as they’re going through. And I truly believe that it’s the foundational work that we help them do on the people side of the transition.
Our Evolve program is a 12-month guided engagement where a business owner along with successors can come in and do a people-first path to discovering their business transition. So not just the functional side, because we know there are great advisors out there who all help in that area. And they’re absolutely needed in this process.
This one is the people first approach and in 12 months there’s a guarantee that you’ll have a roadmap forward or we’ll keep working with you at no cost.
The whole process is designed to walk you through and introduce questions that maybe you didn’t even know you needed to think about. So you can be even more prepared.
Can You Have Legacy and Harmony in Business Succession?
People sometimes believe that they cannot have legacy and harmony together. In our process, we’ve proven that you can have legacy and harmony together. And not only can you have it, it is absolutely more successful when you do.
This is about your life, it’s about your journey, it’s about relationships and people that you care about. And it’s about helping everybody get what they want and use the business to be the wings, the wind underneath the wings instead of the anchor that destroys everything that you’ve tried to build in your family and in your relationships.
Transition is a journey, not an event. It’s not like this thing that is going to happen someday. So go on a journey, invite people in with you and you can have a lot of fun along the way too.
When Should You Start Planning Your Business Transition?
The best time to start is now in the near future. Whether you’re leaving in two years or 12 years, it doesn’t matter.
You can do it reactively and join the 60% who fail. Or you can do it proactively, build the strategic foundation first, get everyone aligned, and be in the 95% that make it and are successful.
In 12 months, you’ll know where you’re going, how you’re going to get there, and that the people you care about are in step with you. And if you don’t have a roadmap at the end of the 12 months, we’ll just keep working with you for free until your roadmap’s complete.
If you’re facing a transition in the next few years, book a call with us to explore whether our Evolve program might be a fit for where you are in your journey.
