Historically, when a person or a couple of people started a new business, it was because they identified a need, or they believed they had something special they could offer customers. Often, it was a way for someone to do something they enjoyed or to better utilize a special skill. From these beginnings, the entrepreneur(s), when successful, would grow the business and establish themselves.
How they grew the business often led to a variety of decisions — some were good decisions and some maybe not so much. Where the decisions resulted in more revenue than expenses and enough to sustain the necessary efforts, the business would grow over time. During this process, certain behaviors and values would become engrained in the business practices. The belief in these practices can have great value and become the operating principles.
In businesses that continue for an extended period and grow, there is generally a need to bring other people in to help with the work. Those workers often were family members. Under that arrangement, the family hierarchical structure was easily transferred to the business. Little thought was given to an organization chart. Nonfamily members were usually fit in, as circumstances required. As with the structure, which was just assumed and accepted, the values and established practices of the original entrepreneur were perpetuated by the additional family members and new employees. Passing things along becomes a way of life. No one questions the practices, and they just become how the organization does things.
But things change
In fact, the regular acceptance of everything becomes the norm, until a crisis of sorts. The crisis can be the result of internal differences of view or because of changes in the external environment. With regard to the internal considerations, anyone who has dealt with a family business knows the governing process is far more difficult and complex than in a public business or a private business without other family involved.
In the family business, issues that are normally addressed as part of family dynamics, conflicts between generations or between siblings regarding how things are done or career choices that result from different perspectives or interests, get easily transferred to the operating environment. They impact the day-to-day matters, strategy discussions and job assignments, and can easily impact both family relations and other employees.
In those situations where the family interactions do not play out in drama for the business and things operate efficiently and effectively, it doesn’t mean it is always smooth sailing. It is important that regular consideration of the external environment be a routine practice. Without being attentive to what is going on in the community, the business environment and the company’s specific marketplace, you may be blindsided. The business that just accepts the values, practices and leadership without responsible analysis is likely to get some unexpected surprises.
The passing of the baton
It may not be the principal objective when a business is started to consider the owner’s legacy, but once the first member of the family is added to the operation group and especially when that person is of the next generation, the issues of to whom and how will the business be passed on begins to play a role in business decisions.
Making sure the business is sustainable and can bring the desired benefits to the owners and employees is no easy task. A business that operates with a short-term perspective can do this more easily than one that has a long-term perspective. When your principle focus is meeting this year’s goals and budget requirements, your decision-making probably considers the factors that have an immediate impact, most of which are easily known and addressed. When you start thinking about what you will pass on, you might start looking down the road a number of years and think about family roles, as well as external factors, that will/can impact the sustainability of the business at the desired levels, the fog gets a little thicker.
Unfortunately, many organizations take the position that the values and practices that have been engrained in the business will be just as effective in the future as they were in the past. But change is all around us. We may fight it and say these ideas are going to ruin everything, but like it or not, women got the vote, young people go off to school and see what other people do and think, and various factions of society seize power and change things. Organizations that don’t recognize this and don’t give new leaders the opportunity to work effectively in the new environment will become the next generation of buggy whip manufacturers.
Not all values and practices have to be thrown out, they just need to be re-examined and see how they fit in today’s environment and where they might be tweaked when necessary. The critical element in this process is for the older generation to determine how best to make this analysis and look at the situation with fresh eyes. Generally, there has to be a true shifting of control, so the new eyes can have proper impact. We’ve seen a few organizations where the president said he will retire and the son is to take over, but Dad still comes in four days a week and wheels the same family influence from the new office down the hall. The son isn’t ready, and in fact, by our observation, the person who should be running the business is the younger daughter.
Making the transition
One of the tools most helpful in making the transition from one generation to the next is the use of an ongoing strategic planning process. This is not a one-year budget program, but one that really looks down the road three to five years and is adjusted in each cycle after circumstances are examined and a game plan is reviewed in light of mission and vision considerations, and all the other important factors. Since this plan happens over time, it also takes into consideration who will be doing what work, when and what skills will be required. This process also allows the leading generation to move from a very active role in day-to-day events to guidance on strategic events, still shaping the organization but preparing for a comfortable transition.
In this process, the organization can look at its structure, its people, its resources and the direction of the organization based on both internal issues and external matters. The SWOT analysis (strengths, weaknesses, opportunities and threats) identifies critical issues and can be used to set a plan in place to address the most important matters. It also prepares the organization for change and an opportunity to review some of those practices that were put in place in the past that no one thinks to reconsider.
Without using such tools and talking about real transition as circumstances change, the chances of passing a meaningful baton gets harder with each generation.
Ardon Schambers is president and principal at P3HR Consulting & Services.