FRI 24TH NOV 2017

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Bringing the family business community together

Turn Succession Inside Out!

26th June 2017 Elle Hansen, Regeneration Partners

Comparing outcomes in terms of desire and practicality with kids taking over the family business.

A founder’s vision of family business succession often goes something like this: install the first-born son down the hall with a title such as senior vice president and have him work in the business for a couple of decades. Then when the founder is ready to retire, the chosen son smoothly takes over and continues to develop the founder’s vision.

That’s a nice dream. Of course, things don’t always turn out that way. In reality, the next head of the company may be a daughter, second-born son, cousin, sibling, spouse or outsider. The founder may not be comfortable with it, but it may be best for the company. In fact, one recent study from the Family Business Review comparing outcomes when first-born and second-born sons took over companies found the first-born were more likely to eventually be replaced.

While there are many variables to a strong family business succession, there is one constant. That is the value of having a candidate for future leadership get outside experience working for another company. This does not mean spending a summer doing an internship at a major customer, vendor or partner of the family firm. It means winning a responsible position in the outside world, relying on family influence as little as possible, and making it on his or her own for a couple of years or longer.

One objection to this approach might be that it seems to fly in the face of one of the reasons people start and sustain family firms. That is, to provide employment and career opportunities for family members. Also, if a candidate’s eventual objective is to work in the family firm, it may seem to make sense for the candidate to only be exposed to how things are done in the family firm, including getting to know systems, employees, customers and partner firms. Won’t working elsewhere just confuse matters?

These objections are understandable but the evidence doesn’t support them. In fact, working outside the family firm has so many benefits for candidates and companies that it should be a given in almost all circumstances.

One study recently published in the Journal of Small Business Management looked at candidates who came to lead family firms after establishing independent careers elsewhere. Researchers found returnees benefited in several important ways from the outside experience.

For one thing, candidates who worked outside the family firm proved they could lead effectively when their last names didn’t matter. When they returned, they could make decisions with confidence that they had earned the right, not just inherited it.

Also, researchers suggested returnees succeeded because they did not regard themselves, nor were they regarded by others, as less than equals to the previous generation of leaders. They also had taken risks and made it on their own. Overall, researchers said returnees were more entrepreneurial, proactive, risk-taking, innovative and alert to opportunities, with resulting benefits to the firm and the founders.

Succession can be a daunting task to contemplate when it comes to leaving gauzy dreams behind and actually making it happen.

But one trick that can make it more achievable is to turn the vision inside-out. Don’t nurture the next generation inside the protective embrace of the family business. Send them out into the world and, when they return, they’ll be better able to handle the job.

Find out more at familybusinessregeneration.com

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