Over the past few decades, Behavioral Economics (aka Behavioral Finance) has focused on what most psychologists have been studying since the late 1800s … namely, despite how we like to think about ourselves, we are not purely rational beings driven solely by logic.
Given this now widely accepted fact of modern science, how could we expect human beings to act without emotions playing a significant role when it comes to exiting a business one has built, grown, and has been a central part of their professional (and often personal) identity? Especially when you consider the blood, sweat, and tears that likely went into building and sustaining the business. Furthermore, when family is involved, how likely can it be that no feelings will emerge in the process of considering, planning, and executing a transition process?
It is, of course, exceedingly common to ignore the role of one’s emotional (or internal) life in daily decision-making, and to believe our conscious minds completely dictate how we move through the world. Relatedly, transition/succession planning experts and researchers refer to the following as the most common reasons that exit/succession planning is ignored rather than carefully and proactively addressed, as stated by family business owners:
I’m too busy.
It isn’t that complicated.
The kids aren’t ready.
The business isn’t ready.
While there can be truth to many, or all, of these statements, as a result of accepting them without exploring underlying psychological factors, there is a fundamental failure to adequately and effectively plan a successful exit.
In my coaching and consulting work with family businesses and family business members since 2008, I have found that addressing the following three areas of the planning process are critical as they are often impacted by hidden psychological mechanisms and the needs of the current gen/owner:
Loss
Substitution
Departure
Loss – When determining a successor (whether a family member, employee, or outside buyer), the business owner comes face-to-face with their own mortality. Often, regardless of age, owners (on some level, often unconscious) encounter the fact that, even after they have left, the company will continue … a symbolic reminder that the world will march on without us.
Although consciously this can be of great comfort to the business owner by providing a sense of legacy, most owners have difficulty facing the harsh reality of human existence that we all deny in order to function effectively in the world and lead full lives. To quote Neil Peart, a writer, musical lyricist, and highly respected percussionist and drummer, “we are only immortal for a limited time.”
Other defense mechanisms and reactions often at play include denial (“I’ll be able to keep doing what I am doing until I am 85 with no negative consequences or impact on the company or family”), persecution (“The kids are pushing me out”), regression (sudden, unexpected, childish behaviors) and extinction bursts (one more big project or major deal that keeps an owner tied to the business for the foreseeable future).
In my experience, listening closely to owners for clues about how they are facing (or not facing) this undeniable loss provides significant insight into how to move the process forward. In addition, exploring how they have previously managed loss in their lives can lead to fruitful discussions on their anxieties, fears, and how they wish to be remembered after their exit.
However, ultimately, open acknowledgement of the closing of this chapter of the owner’s life is critical. This can be done with good listening skills and empathy from trusted others, through hearing the stories of other owners who have exited or sold their businesses, and by creating “emotional space” (tolerance and acceptance) for owners’ complicated and often contradictory feelings as they move closer to transition.
As one close colleague told me when he was in the process of transferring his business, “Everything I have to do right now is the exact opposite of what I have spent my entire career learning how to do. On a gut level, it all just feels wrong … even though I know rationally, I have to let go.”
Substitution – An owner in the early stages of exit preparation is less likely to take concrete action, more likely to object to any forward motion, and stands a greater chance of frustrating family and advisors who would like to help them plan a transition.
This is where the value of establishing a relationship with a trusted advisor is clear. Similar to hiring a CPA or Estate Planning Attorney, family business owners and their family members can access trained, qualified, and experienced third-parties who can help owners begin to consider their life after exit…their “next chapter.”
Owners are best prepared when they have answers to how will they replace time formerly spent at work, meals and meeting with clients and vendors, relationships with management and staff, and, perhaps most importantly, their identity as a business owner.
There are various studies that show a majority of business owners regret their decision to exit once the initial “shine” wears off. Through recent discussions with a close and well-regarded colleague, I have begun to understand and frame this experience as a “post-transition/post-deal depression.” Exited owners have more freedom and time, but often lack purpose, meaning, activity, social connection, and, in many ways, a new sense of self that must be built.
For many of them, it is crucial that they begin exploring, selecting, and engaging in activities long before their exit; this can include joining one or more boards, starting a new business, teaching, mentoring, consulting, revisiting interests and hobbies that were abandoned long ago, and joining community or philanthropic organizations. Days filled with golf or playing with grandchildren are not realistic plans, as they do not satisfy many of those needs that exiting business owners have for influence, impact, relevance, purpose and quite often, a healthy and appropriate sense of value to the world.
Departure – The potential for problems in the business and among family members is significant if the actual departure is not adequately planned and managed. Examples of challenging post-exit behaviors include continued involvement with the company, antagonism towards the next gen or new management, or misplaced blame or anger directed at family and friends.
In making sure that exiting owners are moving towards the next part of their lives, not simply dealing with the loss of their business identity, it is critical to mark this important moment in time. Throughout human history, rituals help us recognize and move through stages of life. I have seen success using rituals such as:
creating a look back at the departing owner’s impact (through videos, photographs, storytelling),
multiple celebrations (in other words, one that includes employees, vendors and other business colleagues, another with family members, and even another with friends),
symbolic representations of the owner’s contributions. A physical gift that an owner can possess and gaze at can be psychologically impactful at the time of exit, but perhaps more importantly, is comforting in quiet post-exit moments of doubt, regret, or even despair.
Employees and family members can (quietly) brainstorm these and other ideas to support an effective departure. I have seen the positive impact of photograph collections that display the owner’s history and development of the business, journals filled with heartful comments, stories, and memories from employees, clients, vendors, and family members, valuable objects of meaning to the owner (such as a gold-plated version of a manufacturing company’s product, or a scale model of a company building or other structure). These sometimes include a personal inscription or quote that is similarly meaningful, perhaps even a saying or expression the owner themselves often used.
In summary, addressing loss, replacement, and departure thoughtfully not only can assist the exiting owner emotionally, but can support the very real transition of leadership for the company.
Putting in time and effort beyond the legal, financial, and structural components of transition demonstrates to everyone that working in a family enterprise goes well beyond an exchange of work and time for financial compensation … that being part of something larger than oneself, appreciating relationships, and caring for others’ emotional lives truly differentiates working in an enterprise that attends to far more than just the bottom line.
About the Author - Michael Klein, PsyD, is the author of Trapped in the Family Business: A Practical Guide to Uncovering and Managing this Hidden Dilemma (trappedinthefamilybusiness.com).
He holds a doctorate in psychology from The Graduate School of Applied & Professional Psychology, Rutgers University and can be reached at DrMichaelKlein.com.
Copyright MK Insights LLC and republished here with the permission of the author.