We received a long email from a listener who is considering going into his parent’s business. He has a career in a different industry but has worked in the family business before. His folks have an option to get external professional management into it, but they are reluctant because it’s part of the family heritage.
Many businesses are considering succession as a strategy to hold onto an asset that makes money and will grow its capital value. Getting this right begins with an understanding of what the deal and the process would be between the founders or parents and successors or kids. These engagements can become extremely emotional and very complicated. The debates often get dragged into the history of the relationship and personalities involved rather than what right is for the business.
Here are two negotiating positions worth considering from either side of the fence. The logic holds for family succession, management succession and new partner formation in existing businesses.
Founders typically hold some of the following emotional mindsets regarding their businesses.
This makes negotiating with founders tiresome. They sway from resignation to regeneration and from withdrawal to “all-in”. Messages about the intent and the relationship between them the successors can be confusing and conflicting. Navigate them slowly and with empathy. Clarity comes from engagement and time and the process needs patience.
Strategically, the founders need and want the following, even though many struggle to express it:
Successors come into this environment opportunistically or reluctantly.
Reluctant successors either have no other options or are driven by family duty and responsibility. In many cases, the business is simply not saleable, and the founders face a dire economic outcome without the intervention.
Opportunity is often motivated by a respect and admiration of what the founders have built and excitement to be part of the future journey.
If reluctant, the emotional mindset will be governed by impatience and possibly resentment.
If opportunity drives the successor, an enthusiastic mindset and positive approach to learning, engagement and the business sets it for a smoother ride into the future.
Strategically, the successors need and want the following, but may struggle to express it because they are not yet aware of what matters and what doesn’t.
Both the above scenarios give insights into the backdrop for negotiations between the founders and successors. Understanding this will ease and de-personalise the negotiation between the parties and open the opportunity to get the relationship built right in service of the business. Either way, the following approach has yielded the most sustainable and successful outcomes irrespective of the nature of the successor – reluctant or opportunistic.
This will provide enough time for the successors to understand the dynamics of the business and environment.
This process will not necessarily defy the fact that 72% of family succession efforts fail. But it improves the chances of success dramatically. Family businesses are clouded by assumption more so than management succession and new partner succession. Families tend to hold fixed views on each other, carry resentment because of history and, if conflict avoiding, rely on assumption in the decisions made in succession.
We work with family businesses across all sectors of the economy. With personal history in this space, we have developed and deepened our interest in how to manage the dynamic and more importantly, establish a structured process of engagement that will serve the businesses first and the family as a result. Should your succession efforts stall, reach out to us and we facilitate the engagement to ensure your business becomes an Asset of Value.