Hubler For Business Families
   

Inside-out Succession Planning - Part 1

What motivates a successful plan?

Only about one in three first-generation family-owned businesses successfully transfer to the children. A quarter of those businesses fail to transition to a third generation. Why such dismal results?

In my experience, it's because the founder did not adequately plan for succession. The succession program was not anchored by a clear "inside out" reason.

Inside-Out Succession PlanApplying a Model
I coined the concept of Inside-out Succession planning from the realization that owner-entrepreneurs must first decide WHY to develop a succession plan. They must ask and answer "What is my core purpose?" Only then can a plan truly succeed.

What is that core purpose? Why would an entrepreneur plan for succession? Age? Family pressure? The feeling that "it's time to pass the baton?" Yes ... and no.

Yes, there can be different core purposes. They represent the inside ring of the model and include economic security, health, family unity and legacy. These four core purposes adequately identify the range of motivations for succession planning, which we will discuss in a moment.

But, no, a core purpose will not produce a successful succession plan as long as it remains vague or undefined, such as "I'm getting too old for this." The entrepreneur who has a clear purpose is motivated to give direction to the plan. Once motivated, the entrepreneur can integrate that core purpose into the four different, yet related, plans. These four plans are the perimeter of the Inside-out Succession Plan model, which I will discuss in Part 2.

Missing the Bull's-Eye
The core purpose is the bull's-eye to aim for and hit. Knowing the core purpose is the entrepreneur's critical first step in developing a succession plan.

I believe that many business families confuse succession planning with ownership planning. Ownership planning is just one of the four processes at the perimeter of the Inside-out Succession Plan model. Entrepreneurs go directly to an ownership plan because it is a common myth in family-business circles that the primary reason for completing ownership and estate planning (their concept of succession planning) is to avoid taxes. So by default (and unconsciously) the core purpose for succession plans becomes "avoiding taxes."

In my experience, it is not unusual for technical professionals to support this notion. They plan from the perimeter, or "outside in," using one of the areas depicted on the outer ring of the model.

When tax planning and tax savings replace the core purpose, a tax-driven program can create problems for the family. I frequently see ownership of stock gifted prematurely to younger-generation adult children, only to have those young adults say that they want to be bought out when it becomes time to plan for succession.

That's just one example of why the entrepreneur must first have a clear, underlying core purpose (bull's-eye) that drives succession planning. Let"s look more closely at these four different core purposes.

Economic Security
Owner-entrepreneurs who are in their 60s and 70s are often quite aware of the need for a financial exit strategy that guarantees their lifestyle. For years they put everything into the business they created and now need concrete assurance that they and their spouses can be sustained without putting the business or themselves at risk. Developing a financial exit strategy is critical for a family business. Economic security can be a major factor that includes a financial exit strategy, but succession planning should consider more than tax planning or tax savings. 

Health
This can be a highly emotional motivation for succession planning because, whether stated or not, owner-entrepreneurs are implying that they are "playing the back nine." This can create fears: fear that they have to "let go," fear that they are "being forced out," even fear by others that their loss of leadership could harm the company.

To help overcome their fears, I developed a process called "The Last Challenge of Entrepreneurship." Essentially it means that entrepreneurs need not leave their companies. Instead, they need to change their job descriptions so they become designers and champions (along with their adult children) of the new ownership and leadership arrangement for their business. They are not "promoted out" but "promote the outcome."

Legacy
There comes a time in almost everyone's life when the person wonders, or at least thinks about, whether he or she has made a difference in the world. It's as natural as aging and doubly likely for individuals who started and sustained their own successful businesses. Harvard Business School's Laura Nash defines legacy as "your gift to the future to help others find future success." Nash is referring not only to the financial aspects of legacy but also to nonfinancial ones, such as family values, heritage, service and philanthropy.

This also implies another side of legacy: how we want to be remembered. When most entrepreneurs contemplate retirement, they begin to wonder whether others in the family appreciate what they, as business founders, have done for them.

Most entrepreneurs will deny it, saying they do not need to get or care about or have concerns about getting that kind of validation from their families. As a family-business consultant with a psychology background, I can state with confidence that this is a deep, significant and common desire to consider candidly when determining a core purpose for succession planning. Incidentally, this is also what younger-generation adult children are looking for - parental approval and appreciation for joining the family business.

Family Unity
No entrepreneur wants the family torn apart by business or financial differences. So to preserve family relationships, many families mistakenly avoid talking about their differences. I call this "Hubler's Spec of Dust Theory." Family members won't bring up differences - they keep sweeping them under the rug - because it might upset family gatherings, events or holidays. Yet by not discussing differences, they inadvertently create the very pile of dust they are trying to avoid. Thus, the core purpose of maintaining family unity could become a key driver for family-business succession planning.

Powering Purpose
An entrepreneur needs to determine what core purpose is the motivating reason for a succession plan. Is it economic security? Health? Legacy? Family Unity? Some combination?

Once that decision is made, the entrepreneur becomes the architect for building the succession plan. And with the involvement of adult children, the transfer of the company becomes an embracing, thoughtful process with a clear and successful outcome.

In Part 2 we will delve into succession plans and priorities more closely.

If you enjoyed this article please consider leaving a comment below, sharing it and/or subscribing to have future articles delivered to your RSS feed reader.
blog comments powered by Disqus
     
click edit icon to configure CONTENT-SMICONS element

Ownership PlanningAdjusting a Business Father Dream - Part Two
In Part One, we saw how a proud entrepreneurial father watched the dream for his children erode into a nightmare with seemingly no avenue to a happy ending. But with the right planning and honesty among family members, the dream for family and business harmony can be revived. Read More
Adjusting a Business Father Dream - Part One
This is a story about how an entrepreneurial father watched the dream for his children erode into a nightmare with seemingly no avenue to a happy ending. Read More
Succession Planning - Family Business Fathers - Part Two
Offer your own hugs. Reach out to each other. Let other family members know what you want emotionally. Demonstrate involvement. A dad who is emotionally engaged is invaluable to a successful family-owned business.  Read More
Succession Planning - Family Business Fathers - Part One
I have realized over years of consulting just how vital dads are in the emotional development of their adult sons and daughters. Fathers who take the time to bless their children by participating in their lives recognize the powerful bond that is created. The fathers' investment of time and energy reaps tremendous rewards in the relationships they enjoy with their sons and daughters. Read More
Intellectual Property and Succession Planning
Many conflicts can erode family relationships in a family-owned business - succession, ownership, estate management, leadership, retirement, perceived fairness and more. But one of the most unique and damaging can be the disagreement over intellectual property.  Read More
Inside-out Succession Planning - Part 2
Understanding the Four Plans Read More
Inside-out Succession Planning - Part 1
What motivates a successful plan? Read More
Emotionally Speaking - Exploring the poignant points of passing the torch
Many family businesses go through a terrible time when the leadership succession process is in full swing. There is not only the technical matter of learning the job, but also the emotional matters of loss and the need for validation and passing the torch. Read More
10 Most Prevalent Obstacles To Family Business Succession Planning
Ten obstacles derived from my observations of client situations that became stumbling blocks and obstructed their ability to move from their current state to successfully navigate the succession planning process. Read More
Plan Now to Ensure a Successful Transition Later
Marvin Schwan established a successful multibillion dollar business and was an extraordinarily successful owner/entrepreneur, yet at the moment of his death, everything he worked for seems to have fallen apart. What went wrong? Read More
Through Family Philanthropy and Service Wealth Enriches Your Life
The family, business and community all benefit from acts of philanthropy and service. Family philanthropy and service allow you to express your values in meaningful and tangible ways. Read More
The Successful Family Business is Both a Successful Family and a Successful Business
The leader of a successful family business has to answer two questions that the leader of a publicly held company doesn't have answer Read More
Heritage is the DNA of Your Family Business
Heritage will never show up your family business's balance sheet, but it is one of your richest assets. Read More
Where Does Your Family Stand
Your family values live in your family business. This business legacy contains powerful emotional forces like belief, fear, control and acceptance. Under the stress of change, especially succession, those forces become even more evident-and perhaps conflicting. Read More
Family Wealth Management
An important part of wealth management is often overshadowed by the amalgamation of wills, taxes, trusts and investments that make up the financial side. The often-neglected side of wealth management is its emotional side. The emotional side of wealth management requires managing the impact wealth has on family relationships. Read More
Attuned to the Importance of Wealth Preservation
Wealth preservation is important for your family-owned business because it impacts both the family and the business. Protecting economic security benefits both the business and personal relationships. For family businesses, particularly those preparing for a transition in management, wealth preservation is a top priority. Read More
The Richness of Your Family Legacy Articulated and Preserved
Your legacy weaves together the spectrum of values, emotions, relationships, and personalities found in a family with the ambitions, struggles and successes of business. Have you ever looked at your unique tapestry? Read More
Fine Tuning Your Legacy
I would suggest that legacy is both financial and non-financial. I have come to look at legacy as your gift to the future to help others find their own success. Read More

Now Available:



Cornerstone of Hubler for Business Families:

The Soul of Family Business


SCHEDULE YOUR FREE ORIENTATION MEETING.

Take this risk-free first step in ensuring the continued success of your family business now. There is no charge for the orientation meeting other than out-of-pocket expenses for travel. 

TOM HUBLER WILL GIVE YOU A FREE ORIENTATION.

Does your family business need help with succession planning, conflict resolution, management or other issues? If so, we'll arrange a one-on-one orientation meeting with you and Tom Hubler to help you explore the possibilities of working with us. If you choose, your family and business associates can also attend. Here, in a relaxed environment, you can talk about:

- Key family business issues
- Plans necessary for the success of your family-owned business
- Possibilities and expectations
- Terms of the relationship
©All Rights Reserved | Hubler for Business Families - America's preeminent family business consultants
Ownership Planning | Management and Leadership | Business Planning | Family Planning
Contact | Site Map