Ownership & Governance

Family Business Transition – The First 5 Questions

Of all the literature and intellectual capital out there treating family business transition planning, there may be none simpler than this:    FOB | BOF

The Family Owned Business and the Business Owning Family are opposite sides of the same coin:  the business is certainly affected by family ownership, and the family is most definitely affected by owning the business.  When planning for what comes next, to concentrate on one without the context of the other yields an inefficient transition at best, but at worst leads to the extinction of both.  That is probably why we still struggle with balancing family and business, especially across generations, even after millennia of experience all over the world.

Change is Change No Matter the Setting – and it’s always hard

Family businesses are more likely to survive rough patches and tough times when cruising along under stable ownership and leadership – just like commercial jets at altitude regularly fly through violently turbulent air but come out the other side unscathed.  Think about that.  Have you ever wondered why the vast majority of commercial airplane crashes occur within a few miles of airports?   It’s because flight is inherently a bit less stable during transition periods when the ailerons and flaps are in motion– i.e., takeoffs and landings – than at altitude.  And it is a lot more difficult to survive unpredictable forces like wind shear at 1,000 feet than at 30,000 feet; in both cases you lose 1,000 feet of altitude.

Recognize that transitioning ownership of family businesses has always been a difficult event; the roadsides and ditches of history are littered with dried husks of once thriving commerce – and too often of once thriving families who owned them.  Emotions run high and complicate the process, frequently to the point of losing sight of the real objective.

Simplify, Simplify, Simplify

So what do you do when faced with complexity?  Simplify.  Reduce both sides of the Family|Business equation to the lowest common denominator.  Start with these 5 questions:

  1. Has your family met to explore transition options?

For that matter, does your family meet to discuss anything?  It’s not uncommon for the controlling generation to act like autocrats or (hopefully, benevolent) dictators, and younger generations feel powerless and voiceless in their company.  Family discussions are difficult for many, but make an effort to become more comfortable with them.  Eventually you will be able to discuss the pros and cons of several possible alternatives:  transfer to the next generation, sale to a private equity group or to a strategic buyer, sale to management, a full or partial ESOP, among others.  These may seem like questions of ‘What’ and ‘How’, but at some point you will come to an understanding of ‘Why’.  And you will then have achieved a true breakthrough.

  1. Have you agreed on where you want to be in 3 years?

Shifting focus on ‘where we’re going to be’ rather than ‘what we’re going to do’ draws attention toward multiple visions of what could be and away from a recipe of ‘correct steps’.

  1. Are you aware of the common mistakes families make in transitions?

Regardless of the path you choose, you are not the first to travel it.  Countless other families have, with varying degrees of ease or difficulty, reached the other side.  Their collective wisdom is out there and accessible, if you know where to look.

  1. Is the business tuned up to get you there?

Only after the family’s own plan is in place can the complementary business plan be developed. It will require unanimity and clarity among the owner and his/her leadership team, especially the four lieutenants in the FISH Capital® disiplines: Financial, Intellectual, Social and Human.

  1. Do you have a map and itinerary?

Every business has a strategy, of greater or lesser complexity and quality.  Middle market family businesses tend to embrace the simple over the complex, and ‘Strategic Planning’ has probably scared off many more than it has helped.  The best ones are ‘S.M.A.R.T.’ – Specific, Measurable, Achievable, Relevant and Timely.

The Only Constant is Change

Don’t settle for just managing change – lead it to where you and your family want to go…

Category: Ownership & Governance

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Chuck Meek About the Author: Chuck Meek

Chuck brings a unique background and perspective with regard to transition planning in privately held businesses. He earned his A.B. degree in Russian Studies & Language from the University of Chicago in 1984. After serving as a Naval of…

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  1. CC

    November 29, 2012 at 6:46 am

    Very relevant discussion for me. If only I could get my patriarch to get to step 1. At 74, he’s still in denial that there will ever be a transition in our future. Thanks for the insightful tips!

    • You’re not alone, CC. More and more people enter this phase every day, week and month. Eventually, family business transition planning will enter the mainstream, if only to help thoughtfully unlock the liquidity most owners will need later on.

    • scottk

      November 30, 2012 at 11:40 am

      I understand, my father is 68 and won’t let go.

  2. scottk

    November 30, 2012 at 11:39 am

    Having dealth with a father who kept changing the terms of the transititon, than reneging completely by bringing in two siblings (they were jelous of the fact that I tripled the business in five years and wanted a piece of the action) and wanting to split between the three of us, with he keeping control, pre-planning and iron clad agreements are necessary. I bowed out started my own company, in the same field and market, grew it from $0 to $5 million in revenue in two years and forced them to sell to me for a significant loss. (I don’t feel bad)
    The lesson here is get the deal terms worked out just like you would in an acquisition from a nonfamily member. It is your livelyhood at stake.

  3. Roger McCann

    November 30, 2012 at 2:59 pm

    Thank you Mr. Meek for your invaluable advice. Two family members own small businesses and your insight into “simplifying” the transition with SMART goals will help them keep their business on solid ground.

  4. There are probably as many variations on this theme as there are names in the Yellow Pages. For all the pain and pleasure family business transitions cause, why do you suppose there are no accepted standards, no ‘best practices’ to embrace, no common landmines to avoid?

  5. Tony

    November 30, 2012 at 4:16 pm

    Well written and thoughtful Chuck. Thank you. I’ve seen the same challenge with the investment adviser trying to manage the family’s wealth. It’s more difficult because of these dysfunctions. Communication is key!

  6. Jon Talty

    December 3, 2012 at 12:01 pm

    As someone who serves many FOB’s in the real estate arena, I am sensitive to the complexities and oftentimes serve as a third party arbiter and/or parish priest. Thank you for your insight. My hope is that given the last several years of turmoil, FOB’s are more sensitive to survival and evolution and as a result, communicate more effectively and with purpose. Time will tell.

    • And thank you for yours, Mr. Talty. You should be honored: Trusted advisors may be asked to take on roles outside the ‘usual and customary’ scope of their specific expertise – but that only comes at the tail end of the like/know/trust cycle. Well done!

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