Preparing the Next Generation for Ownership of a Family Business
What does it take to create a successful family business owner? Family businesses often focus on developing their next CEO or management team, but rarely stop to think on what they should be doing to develop all of their next generation’s potential owners (whether they are active in the business or not). CMA recently asked family business owners to reflect on just that. Below, they share experiences from their families in navigating the complex role of family business ownership and learning what it means to be (or NOT to be) an owner of a family business.
Which factors are most helpful in shaping successful owners?
- …especially in understanding the language of business. If some family members don’t speak that language, it makes it tough for them to feel included and informed. They may find themselves deferring to people just because they feel lost. Getting the whole family comfortable with the basics of business, accounting, finance, law, etc. will make all ownership conversations more productive.
- The most valuable thing a family business can do for its next generation is to educate them on what it means to be an owner of the business and a responsible member of the family. Encourage them to ask questions early and create a life plan. Help them to see how the business does (or doesn’t) fit into that plan. Be transparent about the realities and responsibilities of being an owner (or being a family member, but not an owner).
- Learn as much as you can from others who have already lived these experiences. If someone else’s past can help shape your future, take note! Ask other family business owners for their advice. Peer learning and benchmarking are critical. Many family businesses think no one is as dysfunctional as us – if they only knew!
- Experience is critical.
- Simply walking the property with one of the managing family members can provide huge insight into how owners should interact with the business. Does the CEO walk through the grounds and pick up trash off the ground? The opportunity to notice these things in real-time teaches future owners the characteristics of leadership and being a role model that they would like to emulate.
- Working in the business helps future owners to learn the company and industry. If the family member is doing a good job with the responsibilities they’ve been given, it can instill the value of hard work and the pride of accomplishment. This may also build credibility with employees.
- Valuable experience can be gained by working outside the business. Leaving the business, industry, and/or city brings a diverse perspective that can benefit both the business and the family.
- Cultivating a more adult relationship with the business and the family. When family members leave for college or other experiences, they can gain a sense of themselves as adults. Learning about themselves and the way the world works can build up trust and position the family relationships for success before they return to the business or assume an ownership-only role.
- Recognizing that ownership status can affect family dynamics. When some family members are owners and others are not, it’s important to be proactive in managing the challenges this presents for relationships and family culture. Aim to provide mentoring and shape discussions around possible ownership scenarios and how they will impact the family.
- For many families, owners are stewards rather than investors. Learn the principles and meanings of stewardship.
What can you do to start preparing your family’s next generation right now?
- Start a peer forum for teenagers who are growing up in family businesses. This can also generate internship swaps, allowing children from one family business to work in another family business so they are able to gain relevant experience outside of their own family’s company.
- Think about how you present the business to your children: What do your dinner table conversations say about the business? Are you grooming them with the expectation that they’ll enter the business without giving them a choice? Do they know that they can have a “day job” as a pediatrician, but also still be owners of the family business? Are you on the opposite end of the spectrum, never talking about the business so they may not know they have the opportunity to join? Avoid pigeon-holing your children, but make sure they also see the business as an asset. Frame the business as an opportunity, but don’t apply pressure.
- Provide transparency and coaching around what the business means for children’s life plans – both if they decide to enter the business or not. Encourage questions and long-term thinking.
- Look for ways to teach about the business in an engaging way. For example, elements of gamification can be incorporated by starting an investment team with the next generation. Choosing how to invest together will teach them not only about money management, but provide a window into how things will work as a family business. Teamwork lessons learned will provide a strong foundation of working through things together.
- Create opportunities for the next generation to practice their presentation and speaking skills. It’s never too early to begin emphasizing the importance of being articulate and being able to clearly communicate a message.
- Consider establishing a philanthropic component for the family to give back to the industry and community. Involve teens and early adults in giving and have them report on their efforts to the family (i.e., skill building).