According to PwC’s fall 2019 Family Business Survey, 62 percent of family business owners expect to pass the baton to the next generation. But many businesses lose their way when making the transition from startup to a more structured, complex organization.
Despite solid intentions, only one-third of family businesses are expected to last beyond the founders’ generation while even less—an estimated 12 percent—will make it through the second generation to a third.
A confluence of factors make succession planning more urgent. The enormous baby boomer generation will retire en masse by the end of this decade. But according to the PwC research, over half of family businesses are unprepared for the transition to the next generation.
Prior to this year, many companies’ succession plans were likely informal. Even if junior family members wanted to be involved in the business, PwC found that about half weren’t trained to take on senior roles, which include responsibilities such as executive decision-making and long-term planning. However, the pandemic has forced many organizations to acknowledge the vulnerability of their senior owners and to take steps to adapt to this disruption as well as whatever comes next.
Senior owners and their presumptive junior successors may look at the prospect of a leadership shift differently depending on their individual situations and aspirations.
Senior Leaders Feel the Time Is Right
Given the amount of pivoting that's required of business owners as a result of this year's disruptions, some tenured leaders are considering handing the reins to younger family members who are better equipped to try new innovations, riskier technology and practices and fresh marketing approaches.
For Konrad Goess-Saurau, the founder of car equipment manufacturer AutoBead, timing was everything.
“When we moved our family from Austria to England and opened for business in a new country, I recognized the importance of brand awareness,” Goess-Saurau says.
“I don’t fully understand today’s digital channels, but my son Markus does," he continues. "For example, he implemented automated marketing and data analysis that allows us to anticipate a customer’s next purchase and prompt them with relevant communication. I thought, why fight it? Let’s hand the business to the person with the best chance of success.”
The pandemic led Sophie Bowman and her business partner Jackie Nepola, to think more intently about the future of their PR firm Brand Branding.
“We always planned to have a next-gen division, but we fast tracked launching it when the pandemic hit. We have delegated graphic design and content creation to my partner’s teen daughters,” Bowman says.
“Not only can the teens close deals because they relate to consumers that brands struggle to reach," she says, "but this approach also gives younger family members a career at a time when there’s no guaranteed job security in someone else’s company.”
Timing also played a role in the leadership transition of the architectural firm Metzger Mandl from father to son.
Even if you already have experience in the profession, you need a training period to learn how to run a business. Then, you need to look for ways to make the company your own.
—Eli Metzger, owner, Metzger Mandl
“My partner died of pancreatic cancer at age 52. David ran the business, while I brought in the work and led the design responsibilities of the firm,” explains founder Marvin Metzger.
“While I struggled to keep everything going, my son Eli got his architecture license and was honing his craft with other respected firms," he says. "He took over running the practice in a way that kept up our level of excellence in the area of multifamily housing in New York City.”
Metzger agrees with Goess-Saurau and Bowman about younger family members’ propensity for innovation.
“I just turned 82 and technology is not a regular part of my life. I still draw by hand," he says. "There’s no way that I could have continued to function in the architectural arena without Eli’s technology skills.”
In addition to timing, what are other considerations for owners planning to hand over the reins?
“Make sure you can let them run,” says Goess-Saurau. “If you hand over 50 percent and keep a tight hold on the rest, you are limiting their impact.”
Metzger concurs. “It’s important to have a family member who is honest, hardworking, wants to learn, has a strong moral compass and shares your basic vision. But there are times when your opinions will differ, and after enjoying much success as the boss, a senior owner might struggle giving up control and depending on someone else.”
Joining the family business should be in the best interest of younger member growth, Bowman adds.
“You want to guide children towards finding their unique gifts and passions and show them how to create a career around both,” she says.
Junior Leaders Examine a Variety of Angles
On the other hand, proposed junior leaders must carefully think through whether taking over now—or ever—is the right move. Considerations include:
- the business' long-term potential from a products and services standpoint,
- its degree of financial solvency and
- whether the organization's vision and purpose align with junior owners’ passions, beliefs and personality type.
Markus Goess-Saurau, the second-generation owner of AutoBead, examined his father’s company objectively before taking over.
“AutoBead had all the hallmarks of a great business: products with proven track records, longstanding, repeat customers and a good story to tell,” he says. “And having started other businesses on my own, now seemed like the right time to step in—especially because my last business was an agency specializing in the type of digital expansion AutoBead needed.”
Alison Gutterman is the president and third-generation owner of Jelmar, a household cleaner manufacturer. She and her second-generation owner father felt it was important for Alison to work two years outside the company so she would have the skills and perspective needed to decide.
Coming in, Gutterman knew she had to choose her battles wisely.
“There were a lot of things I wanted to change at the company, but I also wanted my colleagues to respect me and didn’t start with them all right away,” she says. “I also proved that I was willing to work hard, that I’d never live off my dad. I took calls in the middle of fire drills and while I was in a store aisle shopping.”
Metzger Mandl second-generation owner Eli Metzger considered other careers before taking over the family business. For him, the notion of ownership was attractive, as well as the opportunity to re-imagine a product for the 21st century. He recommends that prospective junior owners take over in phases.
“Even if you already have experience in the profession, you need a training period to learn how to run a business,” he says. “Then, you need to look for ways to make the company your own. The pandemic gave me the chance to put my fingerprints on the practice because we are dealing with a crisis, and it’s my job to steer us through.”
If there’s one thing COVID-19 has taught us, it’s the value of pivoting. If done thoughtfully and systematically, shifting the leadership of a flourishing family business can be highly rewarding for both senior and junior leaders.
Read more articles on leadership.
Photo: Getty Images