Joe Davis, Associate Principal, MLA Companies
In closely held businesses, one of the most difficult experiences is the transfer of the business from one generation to the next. There are many opportunities to transfer the business successfully; however, there are also many opportunities to squander what has been built.
To successfully transfer the business to new leadership there are many key elements that will aid in a smooth transition from generation to generation. Desire, trust, and the ability to let go are essential attributes that must be present if the business will be sustained through the generational transformation thus creating generational wealth.
How many times have you seen a business suffer after being taken on by the next generation? The most critical aspect for transferring family business from one generation to the next is for the new leadership team to possess the true desire, competency, and “fire in the belly” to take on the business. Often the desire of the incoming leadership is a result of an understanding that the transfer is a result of a formidable path that was destined to take place because of their relationship; but without true desire to operate the business to its maximum capacity, the business, and those within, will suffer.
The successor must be the right fit for the position, and possess the knowledge, passion and commitment to the business to keep it heading in the right direction. It is also critical for the successor to have the desire and foresight to continue implementing new ideas, adjusting to new market forces, and developing business practices that will allow for long-term growth and sustainability. Having the right desire for the position will lead to innovative thinking, growing sales and a transformed business.
The intermediary key to a successful transfer is to build trust. Trust needs to be built not only with the one(s) to whom the business is being transferred, but also within and among those who will continue with the new leadership team.
It is often thought that trust must be built over time; however, most often trust is an innate characteristic of oneself that shines through his or her leadership. To gain trust, one must first be willing to trust those around them and lead by example.
"The best way to find out if you can trust somebody is to trust them."
Finally, a successful transfer of closely held business to the next generation will include the “old guard” letting go. Often, this is the most challenging step of the transformation process, particularly if the current leadership team is comprised of the first generation, who founded the business and dedicated their career to facilitate its current successes. However, it is very critical for them to stand down and let the new leadership team take the reins so they can fully integrate and start building for the future.
Many times, the first generation will hold on to the business for a prolonged period of time, taking away opportunities for the next generation to gain first-hand knowledge and experience that will allow them to transition into the leadership role. This is often complicated by parent/child or brother/sister dynamics. The result may be the first generation failing to empower the next generation to make critical decisions that will fundamentally give them the experience necessary to make decisions in the future.
The transfer from generation to generation cannot happen overnight, and must take its due course to get there. Through the desire for continuous improvement, gaining the trust of all parties involved and the predecessor leadership letting go, the family business can be transformed into generational wealth.