Three Keys to Success
You’ve taken a great journey and you are finding yourself well set up answering some very important questions. Take a moment to celebrate where you are!
You have decided to establish a Family Office (or Family Investment Office). You answered no to including family members in the structure. The next step is to determine if you have the right professional managers in place? Do keep in mind to remain successful a family enterprise does not have to always be run by family members. It happens that we don’t find the right people for the job with in our own family unit and that is ok.
I would like to bring us back to thinking about family business succession. Statistics show that 30% make it to the 2nd generation, 13% make it to the 3rd generation and only 3% make it to the 4th. Why? 60% because of breakdown of communication and trust within the family, and 25% because heirs are unprepared for required roles and accountability. This is 85% due to the so called soft, or better yet, essential issues, and 15% due to all other causes.
These essential issues make up:
- No common vision between interested parties
- Lack of a communication framework for all parties involved
- Not able to deal with conflict, particularly around sensitive issues
- Not having all involved parties support the succession
- Being ambivalent about planning for transition. This is a big one where you make excuses that you are too busy, the time is not right, or knowing the discomfort is too great to sit the family together and start a conversation. (it’s a hard it’s a hard and if you don’t buckle down you will not succeed)
The continuity process is an ongoing process. The best time to start was 20 years ago, the next best time to start in now. Something more to keep in mind are the three keys to success:
- Have a Board of Directors with outside accountability and independent directors. This diversity can add great perspective to the board and keep you ahead and on track.
- Have a Clear Strategic Plan. When there is consensus on the direction of the business the road map is clear.
- Having regular Family Meetings. Bringing the family together and embarking on sharing the family vision and outlining a set of family values is a great way to start. Shared experiences grow the bond of family and tighten the glue that keeps you together.
A list of ten best practices to the success of a long-lasting family enterprise are:
- Skill at resolving paradoxes
- Focus on process (i.e. intentional)
- Human resources committee
- Succession task force
- Becoming students of family business
- Pruning the family tree
- Seeing wealth as neutral
- Careful decision making
- Going beyond business
- Managing family philanthropy
A clear strategy is essential for multigenerational transition and the continuity of a family enterprise. You must know where you are going. You need the right decision-making structure and appropriate governance in every circle – family, ownership, and the business. There needs to be a clear process where the entire system is engaged and working systematically together – collaboration is key.
Having the right professional managers in place is a vital part to the continued success for your family enterprise. With a clear plan communicated to the family, you are on the road to successful succession and a great continuity plan.
Decision Tree Question: Do you have the right professional managers in place?