Changing Places

AuthorHouse

Contents

Preface...................................................................ix1. Why Start Now?.........................................................12. Roadmap................................................................113. Your Transition Advisory Team..........................................194. Personal Goals.........................................................295. Taking Stock...........................................................356. Focus..................................................................457. Family Considerations..................................................538. Hiring for the Future..................................................639. Leadership Continuity I: Changeovers and Buyouts.......................7510. Leadership Continuity II: Developing Your Leaders.....................8311. Selling Your Stake....................................................9312. Ready, Set, Go........................................................10313. DOs and DON'Ts........................................................107Endnotes..................................................................109About the Authors.........................................................112

Chapter One

Waiting for the fish to bite or waiting for wind to fly a kite or waiting around for Friday night or waiting perhaps for their Uncle Jake or a pot to boil or a Better Break or a string of pearls or a pair of pants or a wig with curls or Another Chance. Everyone is just waiting. -Dr. Seuss

Any entrepreneur or family-business owner who is considering an exploration of the subject of succession and transition planning has to begin with the question, "Why bother?" After all, most business owners are generally happy with how their business is going, and look forward to continuing to work in the business for a significant period of time, well into the future. It's easy to simply dismiss the issue of succession planning—leadership continuity, in other words—or put it off to some future date.

But, whether you like it or not, the future has a way of sneaking up on you. At some point you are going to be changing places. You will stop going to the office every day, and someone else will take over for you. You will find different ways to enjoy yourself, maybe even crossing items off of your personal bucket list.

You are probably like every other entrepreneurial business founder and owner, hoping to create a successful future, both for yourself and your loved ones, as well as for the next generation of leaders of your company (who in some cases might be your own children). Unfortunately, many entrepreneurial businesses—and most family-owned and run entrepreneurial businesses—fail to successfully navigate the succession and transition process.

Only one in four such businesses makes a successful transition to the second generation, the others failing or being sold before the children of the founders get a chance to take over. Of those that do last to the second generation, only one in three makes a successful transition to the third generation. These are not encouraging statistics.

And this is not merely a twenty-first century problem. The failure of businesses, especially family-owned businesses, to last more than one generation is so pervasive that there are stock phrases in many languages describing the propensity for family-owned businesses to fail before the founders' grandchildren have taken charge:

• In the United States, Shirtsleeves to shirtsleeves in three generations.

• In Mexico, Padre bodeguero, hijo caballero, nieto pordiosero. (Father merchant, son gentleman, grandson beggar.)

• In Brazil, Pai rico, fil honobre, neto pobre. (Rich father, noble son, poor grandson.)

• In China, Fu bu guo san dai. (Wealth never survives three generations.)

• In Italy, Dalle stalle, alle stele, alle stalle. (From the stables to the stars and back to the stables.)

A Head Start

We'd like to help you improve your personal odds by giving you a head start on building a viable succession and transition plan. Our goal is to help you approach the track record of the world's longest-surviving family-owned business, The Houshi Onsen, a traditional inn in Japan that is currently run by its forty-sixth generation of family members.

But be cautioned: even when a business owner works diligently to create business succession and transition plans; things don't necessarily go forward smoothly. While the plans may appear sound, there are often many invisible obstacles and interpersonal land mines that blow up and destroy people's dreams and relationships. As William Bridges has pointed out in Managing Transitions: Making the Most of Change,

It isn't the changes that do you in, it's the transitions. They aren't the same thing. Change is situational: the move to a new site, the retirement of the founder, the reorganization of the roles on the team, the revisions to the pension plan. Transition, on the other hand, is psychological; it is a three-phase process that people go through as they internalize and come to terms with the details of the new situation that the change brings about.

Managing your way through these transitions is the key to successful succession planning. Founders and owners need detailed plans with carefully plotted paths to help the different generations of owners and leaders uncover these land mines and successfully navigate through them toward a promising future.

The Reality

Given the importance of careful planning to the continuing success of an organization, it is perhaps surprising that the number of U.S. organizations with a formal succession plan in place decreased during the most recently studied five year period—from 29 percent in 2006 to 23 percent in 2011—based on a poll from the Society for Human Resource Management (SHRM).

According to the SHRM poll data, less than a quarter of businesses have a formal plan in place, though the numbers improve when informal plans are considered, with more than one-third, or 38 percent, of organizations currently having at least an informal succession plan or process in place (up from 29 percent in 2006). The number who said their organization had no intentions to develop a plan remained roughly unchanged from 16 percent in 2006 to 17 percent in 2011.

Sixteen percent said their organization's staff size is too small to create a formal succession plan. Again, not surprisingly, virtually all family-owned and run businesses fall into this grouping. The owners of these businesses keep their eyes on the road directly in front of them, but spend little or no time thinking about or worrying about what challenges might face them in the future, when they have to consider transition of their business ownership and management to the next generation of owners and managers.

Why Avoid It?

The obvious question is why do entrepreneurs avoid succession and transition planning? Again looking to the SHRM report:

The number one reason organizations are not developing formal succession planning is because more immediate projects are taking precedence—not surprising given that organizations...