Who Will Lead After You Exit?
Even if you aren’t planning to leave your business in the next five years, getting a succession plan in place now can be a smart move for both your firm and your family.
Failing to develop a succession plan impedes growth and can cause bitter squabbles among family members. While some family members may want to be part of the business for years to come, others may secretly hope you will sell the business and distribute some proceeds to them.
One element of a succession plan is to identify and develop potential future leaders of your business. This can get tricky if you envision having your spouse or one of your children lead your business.
Here are a few steps to consider:
Get the family engaged before putting the company up for sale. Explain the importance of succession planning and ask for their input.
Determine which family members have the interest and potential to lead your business in the future. Indicators of leadership potential include curiosity, integrity, commitment, competence, and adaptability.
It’s common to assume that your family members will have the same level of excitement about your business that you do. That’s not always the case. Some family members may prefer to spread their wings and pursue opportunities in other fields. But perhaps they haven’t told you yet.
Give them opportunities to demonstrate their potential. See how potential future leaders perform in managing people and projects. Let them work in different areas of the business so they can see everything that goes into running your business. Encourage them to analyze business opportunities and growth strategies. Identify their strengths, weaknesses, and knowledge gaps.
Find leadership development programs to match their needs. The best time to train leaders is before they are unexpectedly thrust into a leadership position during a crisis, such as your long-term illness or death.
Identify and coach talented leaders from outside the family. What types of talent do you need to hire and train from outside the company? You may want to hire future leaders with skills and experiences that complement those of designated successors within your company. Or, you may want to hire someone who could step in and fill the void if your designated successor changes his or her mind about running your business.
If you ultimately decide to sell your company, having a deep bench of well-trained leaders will improve your company’s value in the eyes of the buyer.
Why Leadership Coaching Matters to Family Members
“Leadership coaching is about bringing consciousness to our interpersonal patterns to give us insight and choice,” explains Katy Mitchell, founder of KSM Leadership Consulting. “Left to our own devices, we bump along in life reacting to situations as we always have, regardless of the result.”
For LCG clients who need to build a succession plan, we recommend working with leadership consultant Katy Mitchell, who has had great results helping business owners address succession issues and the interpersonal dynamics of a business transition.
She believes leadership coaching provides an individual with an opportunity to rise above one’s natural inclinations to make a choice on how to show up not because it’s what has always been done but because it is what is needed in this specific situation.
“Interpersonal patterns can often get set in childhood with our family of origin,” notes Katy, “So imagine the effort needed to undo patterns when your family members are also your co-workers, boss, or employees. This is sticky territory for the best of us. Leadership coaching supports creating new habits, behaviors, and patterns so that both the family and the business can function at their best.”
What About Non-Managing Family Members?
When one family member is being groomed to be your successor, it can lead to envy and resentment among other family members. They may feel they are being left out of the decisions and potential revenues.
To be fair to other family members, you could ask your designated successor to buy your business from you for the fair market value and and then you distribute the proceeds from the “sale” to the rest of the family. If your designated successor doesn’t have sufficient cash, you might have to bring in outside investors as partners in the business.
All of this activity will affect how the non-family employees in your small- to mid-size business view their own prospects. They may feel unsettled enough to look for opportunities in organizations in which family members don’t play such prominent roles.
Katy believes leadership development and coaching is useful for anyone who is stepping into a broader role in an organization: “Family managers and non-family managers both need to navigate unique dynamics in a way that is beneficial to the business while also increasing technical and leadership skills.”
“Family members who are owners but not managers in the business benefit from coaching as well,” she adds. “Conflict and tension are part of any working group whether that group is a management team or ownership group. Often ownership groups don’t put as much effort as the management team does into role clarity, structure, decision-making, communication, and negotiating authority. That can create additional challenges for ownership groups. Clarifying the ownership expectations paired with coaching is a strategy that can help strengthen the family relationships while also supporting the business.”
Other Issues Will Crop Up
Identifying and coaching future leaders is just one element of succession planning. Financial, legal, and estate planning issues must also be considered.
Succession planning will be different for every business owner. But don’t put it off. Failure to plan an exit strategy or succession plan often leads to tragic consequences. Some owners die or suffer a debilitating illness without ever having given clear instructions on what they want to happen to the business. This is an avoidable fate.
RECOMMENDED RESOURCES
Harvard Business Review: Developing the Next Generation of Leaders in Your Family Business
For more information on succession planning, download our free guide Succession Planning Simplified.