Many business owners believe that their kids are as passionate about their businesses as they are. In some cases, the children may have actually told them as much. So, they assume that their kids will someday take over running the company.
Our experience is that few of these owners adequately communicate their expectations and test their children’s understanding of what their responsibilities would be. Others don’t realize that the kids are just telling them what they want to hear. The result can be a disorganized or inopportune sale of the company when it finally becomes clear that a family succession is not possible.
Why Not?
Clearly, running or even working in a family business isn’t for everyone. But many owners inadvertently stack the decks against themselves. Owners who engage their kids only to help solve the problems in the business, may inadvertently leave the kids with a lopsidedly negative view of the business. And those who don’t engage their kids at all, perhaps in an attempt to shield them from the stresses of entrepreneurship, miss an opportunity to pique their kids’ interest in the business.
Even in small businesses still run by the founding entrepreneur, succession from one generation to the next must be planned and executed over many years. Owners need to help their children develop a broad array of skills, expose them to multiple functional areas, test their ambition and leadership capabilities and teach them to be appropriate risk takers. Owners who engage their kids during this preparation phase, even if this happens when they are employed outside the family business, will know long before a crisis develops whether their kids will be capable stewards of the companies they built.
Surprises
However, even when an owner is doing almost everything right, there can still be surprises. After all, as long as the founder is still available to answer questions and is taking an active interest in the business, it is impossible to simulate a complete succession. And when it is obvious that an owner’s dream is for his/her child to take over running the business, it can be difficult for the kid to offer a competing point of view and risk disappointing his parent.
Other times the owners ignore even the most obvious signs. We have known owners who thought they were communicating effectively with their children and were correctly gauging them as ambitious future leaders, but who failed to recognize that the children were never the first ones into the parking lot in the morning or the last ones out at night.
Consequently, it is important for business owners to work with an experienced third party who can objectively review the succession plan and evaluate the children’s desires and capabilities to run the family enterprise.
Bootstrap
When a family succession is suddenly not an option and the decision is to sell the company, Bootstrap Capital can help make the transition more palatable.
For starters, we are comfortable with the sellers rolling over a significant amount of equity so that, for instance, they do not have to completely exit an attractive investment just because of a succession timing issue.
We are also comfortable having family members remain in the business and to continue their professional development. We understand that the non-standard career tracks in family businesses can make finding employment elsewhere challenging. And we also value the unique perspectives about the business that family members can provide.