by Agatha Johnson, featured in Family Business Magazine Oct 2022
Family enterprise transitions can feel a lot like walking a tightrope. The future is unknown and scary. There is so much at stake. What will you do after you leave? Will the family business survive? Will the next generation uphold the family values in a way that honors the family legacy? And like walking a tightrope, the key to success is all in one simple word: balance.
A Delicate Balance Between the Past and the Future
One of the greatest fears that multi-generational family business owners face is whether the whole enterprise will last once they pass the torch to the next generation. Financially speaking, a large percent of family wealth is lost each time it passes to the next generation and is completely gone by the third passing. Unfortunately, the same can happen with the family’s values, as well.
Typically, a lack of leadership and stewardship training, coupled with trust, initiative and communication barriers, are the primary reasons for this unfortunate trend. But family business owners struggle with what they should do (and when) to ensure the transition goes smoothly. Some are looking for a step-by-step process while others throw caution to the wind and “wing it.” And insofar as these approaches go, it’s a mixed bag between those that go well and those that…well, don’t!
While I never like to speak in absolutes, I will say this much: nearly all of the most successful family transitions I have seen are achieved when the current generation is able to balance two things: preparing the next generation and preparing themselves.
Like so many things in life, mastering the transition of the family business and wealth from one generation to the next is a delicate balancing act. But finding the right balance isn’t just haphazard. It takes careful planning and preparation to get right.
Preparing the Next Generation from Birth
Whether it is easily recognizable or not, children, grandchildren, and other family members are watching and absorbing the way you operate the family enterprise from afar—soaking up little bits of information here and there as they are exposed to the operations. But have they learned the right lessons? Have you taught them all they need to know to take over the family business with relative ease?
The truth is it can be hard to tell. Some leaders begin the process of a major life transition with complete confidence, only to discover the leaders they had the most faith in were not ready. The opposite is also true. Some leaders have a tough time letting go, only to learn that they had less to worry about than they imagined.
A family that thrives in all generations understands that success is about much more than just financials. It is about both the qualitative and quantitative aspects of life.
Like life in general, transitions are a process that open so many opportunities—opportunities to build on relationships and the four areas of wealth. After all, this is about your family and your values. It is not a business transaction.
Bequeathing a legacy that is sustainable long after you’re gone will require getting the family involved early and often. The sustained engagement over time will ensure you are passing along the seeds of wisdom and guiding principles that reflect and align with your family’s mission.
After years of planning and successor grooming, the day will finally come when it is time to pass the baton of the family business into the hands of the next generation. Undoubtedly this transition will elicit a host of competing emotions from pride to fear and excitement to anxiety. But not simply because you’ll be transferring what you’ve built over the course of your lifetime to your successors, but because it may be difficult to imagine who you are and what you’ll do outside of your business life. How will you spend the next twenty years? What will your Life 2.0 look like?
It’s ok if you can’t answer this right away. It may take some time and soul-searching to finally gain some clarity. But take note of your mindset as you approach the next step. Are you lamenting what is being “lost”, or celebrating what is being gained? Allowing for growth or fixed on the past?
Even though you are leaving your role in the business, it doesn’t mean you have to give up the side of you that thrives in this environment. Nor do you have to abandon or ignore the parts of your identity that are tied to your business-centric talents. In fact, we recommend you don’t.
Instead, use your skills, experience, and expertise to capitalize on new possibilities. We like to use the Six Elements of Wealth to help our transitioning business owners brainstorm ways they can put their talents to use. We find this helps them to focus on what can be, rather than what has already been.
Embrace the Next Step—Even if You Feel a Little Wobbly
People tend to resist change because they fear they will not be able to adapt to new ways. Oftentimes, they also fear that they will lose something of value. In the case of business transitions, this sense of loss can be particularly poignant.
We have found that our WillKate clients find Life 2.0 far more rewarding when they have visualized and imagined this next chapter ahead of time—for both themselves and the next generation of family leaders. What will your transition look like?
If you’re interested in learning more about our exclusive work with multi-generational family enterprises, we encourage you to download our more extensive guide here.