South-Western - Management  
What Successful Successions Need
Topic Entrepreneurship, Planning
Key Words Succession planning, family-owned business
News Story

Only an estimated 30% of family-run companies make it from one generation to the next. 30% are passed on from founders to the next generation, and 30% of those survive to the next generation, and so on. The key to a smooth succession and the continued growth and success of the family business is foresight, planning, and communication.

Alfonse Mattia, an accountant who works with family-owned businesses in New Jersey, says that failure to plan for succession is one of the principal causes of strife for his clients. The first step to a healthy succession is the founder's willingness to make and talk about arrangements. Some owners don't want to give up any of their power, which can cause real problems for the next generation. If families don't openly talk about problems, they can fester until they become impossible to handle.

Outside help is critical to planning for the family business. Psychologists, business schools, and family business specialists can provide significant insights to help families realize they are not alone in dealing with their problems. Bringing kids into the family business requires a delicate touch. Experts say kids should come into the company when they are young and learn the business from the ground up. However, they should also gain experience outside of the company, especially right after college. This experience can help them develop a sense of identity and worth separate from the family, and can give them a safe arena to make mistakes while they are learning about themselves as managers.

The decision of who gets to be the next CEO should be made as early as possible. Sharing ideas, vision, and experiences from one generation to the next should begin early in the transition process. Experts say it's also important to keep the members of the family who are not active in the business out of the decision making, while still treating them with loving fairness as family members.

Questions
1.

What three things should be considered when planning succession in a family business?

2.

The article tells us that only 30% of family-owned businesses make it to the next generation. What are some of the problems unique to family-owned businesses that causes this phenomenon?

Source "What Successful Successions Need," Business Week Online, Jan.25, 2005, pp.D1, D5.
Instructor Discussion Notes Discussion Notes
These notes are restricted to qualified instructors only. Register for free!

Return to the Entrepreneurship Index

©2005  South-Western.  All Rights Reserved     |