The first generation builds the business, but the next one ruins it? The handover of family-run businesses faces challenges if a proper succession plan is not put in place in time, says the consultancy APM Group.
A study by the American Management Association (AMA) shows that fewer than 30% of family businesses survive to the second generation, barely 10% make it to the third and only 4% to the fourth.
So choosing the next leader and finding a role for family members is a task the founder should begin early.
"It's the wrong place to start if the founder views handing over the business as trouble because of a generation gap," said APM managing director Arinya Talerngsri. "You should see it as an opportunity to expand the family business through a new point of view."
A transition plan should be between 3-10 years, depending on the size of business, she said.
During the period, leaders should plan to fade from the business step by step and gradually leave responsibility in the hands of successors.
Setting expectations for roles and responsibilities was an approach used by Wal-Mart, the giant US retailer.
Ms Arinya said the first task of the second generation of Wal-Mart leaders had nothing to do with financial management but rather to make sure their employees were happy.
The AMA survey reveals confidence usually comes before ability in most new generations of family business.
"It's not wrong to have confidence. But successors need help to build the necessary skill sets so they need to seek advice to learn as much as they can," she said. "Being confident and never stopping the search for competency are traits in successful descendants of family businesses."
Potential blind spots for successors are failing to cultivate the business networks their parents built, lack of experience and failing to understand the importance of business reputation.
Some successors try to change the way the organisation is run without studying its history enough to know its weak and strong points, said Ms Arinya. New business leaders can learn from trade partners, employees, clients and even rivals about the positive and negative reputations of their business and work from that. "Do not lose your existing clients, but add new ones," she added. "If your children do not possess entrepreneurial DNA, you can build a team that has such talent and add it to the management team." Sometimes the value system or corporate culture is not appreciated when a business is passed from generation to generation. "Family businesses should maintain value systems that differentiate it from other businesses," she said. For example, a family business that focuses on taking care of its people like its own kin could be a unique point that helps retain talent. "If you completely replace the old value system of family business with a pay-for-performance system, it means you are competing at the same scale as multinational companies like Unilever or Shell," she said. "Talented employees may not have a hard time choosing which company they want to work for." Ms Arinya added another reason many family businesses failed in the past 25 years was forgetting to preserve the charms of being a family business. "Making changes is not forbidden, but change for the sake of change is dangerous," she said, adding that change should be accompanied by innovation. The next generation of leaders should forget their yearning for a work and social life balance because small businesses cannot succeed if their leaders are not sufficiently devoted, she said. Parents should learn to accept children as adults to let go of their business. Much attention will be paid to the heir, but the management team who will work for the next generation should not be left out of the transition plan. "Taking care of your staff is as important as taking care of your successor as they can choose to move on to another company that offers a better chance to advance their career," she said. // var ranNum = Math.round(Math.random()*1000000); document.write('http://content.yellowbrix.com/images/content/cimage.nsp?ctype=full_story&story_id=145021955&id=thirdage&ip_id=McClatchy-Tribune+Business+News&source_id=Bangkok+Post&category=Family&random=' + (ranNum));// ]]>//
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