Passing on a business to the up-and-coming generation can be one of the greatest joys of a family-owned enterprise. But when the next generation takes over, they tend to make some big mistakes, despite the fact that things are staying “in the family.” What are these mistakes and how can they be avoided?
An executive in a family business, a business leadership coach, and the founder of Intinde, Angela Civitella has some advice for avoiding what she feels are the top five mistakes the next generation might make when taking over the family business.
- Lack of a long-term strategy: Many founders of successful family businesses are overly conservative, which can lead to an unclear future vision of the business as well as less-than-ideal fund management to sustain a business—and make it grow from its core purpose. Long term vision and strategy are key to a family business’s continuity.
- Excessive dependence on founders: A second generation leader can lack the hunger, drive for success, and self-initiative of the founder. Thus, when problems arise, rather than solving them, s/he looks to the first-generation leader for answers.
- Secretive style of management: This involves lack of information sharing with the core management team, lack of clearly conveying goals and objectives, and believing that everyone is on a “need to know” basis. Often a lack of transparency is due to the fact that the 2nd generation leaders don’t really have—or know how to establish—a sound business plan for the future. This makes planning difficult and can leave employees without a clear blueprint to proceed.
- Friction due to lack of succession planning: A succession plan establishes an orderly transfer of the management and ownership of the business to the second generation, while avoiding liquidation. It considers tax treatment and other anticipated expenses and allows incorporation of the family’s non-tax objectives. Without a clear succession plan, the second generation may compete for power positions—even if they are not qualified. These power struggles can cause a volatile work environment leaving employees unmotivated and frustrated.
- ‘Eldest first rule’ doesn’t have to apply: The best succession plans are based on cool-headed appraisal of the strengths and preferences of the next generation. It might mean favoring younger siblings over elder siblings, skipping a generation, or even going outside the family. Remember, the key priority is to safeguard the business and keep the legacy. It’s not a question of inheritance, but competence. A meritocracy approach needs to be applied. The family may need to be open to the possibility that an outside (non-family) candidate may be the best person to take the business into the future.
Intinde offers one-on-one leadership business coaching. Offices are located in Montreal, Boston, Miami, and Fort Lauderdale.