You have built a successful family business, so now what? Maybe you’re starting to see retirement on the horizon, but how do you select the right person to take over and lead the company you have built?
Selecting the next generation of leadership is critical. A lot of family business owners hope to keep leadership of the business in the family, but just because it’s a “family” business, doesn’t always mean family members are the best person for the job. We believe that your role as the owner is to put the best possible people into the right roles. This does not always mean that a family member should be running the business.
So now you might be asking the question “But can I have a family business without having a family member lead the company?” We believe you can if you have a solid succession plan and process in place.
Based on our experience in succession planning with business owners, we have prepared the following insights to highlight several best practices you can follow.
Selecting Your Next Leader
1. Start with your core values and beliefs.
You have spent years building your business and its culture. It is imperative that the next leader understand your core values, why they are important to you, and the role they have played in building the culture that has contributed to the success of your business. You should not be considering any candidate unless they share and live these values. This is where an existing employee (family member or non-family member) may have a leg up on outside candidates. As part of the process, score each candidate on how they exemplify each value.
2. Define and document your vision for the company.
Do you have a documented plan and vision for the company? Your vision will be key for determining who is the best future leader of the company. This will help determine the types of skills and experience they will need to be successful. You also will need to share your vision with the next leader and make sure they understand the rationale behind your plans. They will need the flexibility to develop their own plan and vision, but it is always beneficial to communicate why you have chosen a certain direction and the decisions you have made to achieve your vision.
Another key part of the vision should be outlining the governance process with family and non-family advisors. This will help reduce the chance of misalignment and conflict inside the business and within the family unit. Using an outside advisor in the process can help reduce the chance of conflict as well. They can serve as a sounding board, facilitate family discussions, deescalate conflict, separate business and family matters, and serve as a trusted advisor throughout the process.
3. Define the characteristics you are looking for in a leader.
Not only do you need to know what characteristics you’re looking for, you need to document them in writing and include details about why those characteristics are important for the success of your business. As you document the characteristics, we recommend being as detailed as you can (e.g., needs to have run a similar size business, must have directly worked in finance and operations, etc.).
4. Know what steps or methods you will use to identify prospective candidates.
There are several steps you’ll need to take into consideration when you are identifying prospective candidates. For example, are there family members who are or maybe aren’t already involved in the business who bare the key characteristics you identified as important? There might also be non-family members inside or outside the business you should consider. Will you hire a recruiter to find outside candidates? If so, what is your budget to find the next leader?
Our experience tells us that in most cases, developing the next leader in-house typically results in the best outcome. This person is already familiar with the company and has a firsthand understanding of your values and vision. This also provides you with the opportunity to train, educate, and mentor the next leader long before turning over the reins to them.
5. Establish a method for how you’re going to evaluate the top candidates.
Evaluating candidates is not something you want to do alone. Not only can it be overwhelming, but it will also be hard to be objective. Choose who will be part of the decision-making team and provide clear direction on how you will evaluate each candidate using both qualitative and quantitative data. The team can be made up of both current team members and external advisors.
6. Execute the selection process and define the transition plan.
Once you make your selection, another important process to have in place is a smooth transition plan before the current leader exits the business.
7. Develop your plan of attack and start the process early.
With any important business decision, having a documented plan and process is key to making sure you are successful. Choosing the next leader to run your business is no exception. You’ve got a lot invested in your company beyond dollars, so when it comes to selecting a new leader to take your family-owned business to the next level, it shouldn’t be an impulsive decision. You need to be strategic about your selection process and give yourself the needed time to make the right decision. The plan should include a timeline for the selection process to be completed, who is part of the decision-making process, and what you are looking for in terms of the next leader.
Whenever possible, this timeline should be measured in years. This allows you the opportunity to introduce the new leader to key contacts (e.g., customers, vendors, lenders, etc.). It gives these key stakeholders a chance to get to know the new leader and get comfortable with him or her. Many times, these stakeholders and key employees have “bet” on you as much, if not more, than the company. So don’t underestimate the need to get them comfortable with the new leader before you step back from the day-to-day operations of the business.
Key Takeaways From Our Experiences Helping Family Businesses Select the Next Leader
- Start with your core values and beliefs.
- Define and document your vision for the company.
- Define the characteristics you are looking for in a leader.
- Know what steps or methods you will use to identify prospective candidates.
- Establish a method for how you’re going to evaluate the top candidates.
- Execute the selection process and define the transition plan.
- Develop your plan of attack and start the process early.
Transitioning a family-owned business to the next generation family or non-family leader is not easy, but following a proven process can make the transition easier and significantly increase your chances of success.
If you would like to talk and learn how we help companies with succession planning, give us a call, or drop us an email, we would welcome the opportunity to learn more about your business and what you are looking to achieve with your succession plans.
If you found this topic interesting, our strategic partner DWH published this content that you may find relevant as well: Succession Planning: Preserving Company Legacy and The Importance of Transition Before Transaction in a Family Business.
About Jeff
Jeff has over 25 years of strategic planning, business development, and business transformation leadership experience. Having worked with mid-market, closely-held and family-owned businesses his entire career Jeff has a unique understanding of how these enterprises operate and the challenges they face.
He is passionate about working with business leaders to build strong cultures while developing and executing strategies that deliver exceptional results that benefit all the company’s stakeholders. Jeff’s hands-on approach to working with companies begins with a commonsense approach to strategy development.
With extensive experience in organizational turnaround and growth Jeff follows a defined process (disciplined, focused, intentional) to guide clients from strategy to execution. His experience covers a multitude of industries, with an in-depth understanding of automotive manufacturing.
Jeff holds a Master’s in Business Administration from the Capital University School of Management and earned a Bachelor of Arts in Business Administration and Management from Ohio Dominican University.
