Each generation brings different thoughts and skillsets to the proverbial table and, unfortunately, these don’t always align. Nearly every family has its fair share of issues that has caused rifts and ripples between family members. In some cases, these disputes can go on for months, or even years, over perceived hurts.
According to a recent article in Forbes, “Only 30 percent of family businesses survive the transition from first to second generation ownership, with 12 percent surviving the transition from second to third.”
Imagine what even a minor dispute could do to a family business, which is more than just a paycheck for its founders. It is both an inheritance as well as a legacy, which means emotions tied to its success – particularly for its founders – are likely to run high. That’s why it is critical to plan for potential disruptors, particularly if plans include the eventual transition to a new generation.
Watch a webinar presented by the First Bank Center for Family-Owned Businesses on effective methods and best practices to help manage and resolve conflict within a family-owned business.
According to First Bank, although an owner who is part of the first generation might be ready to transfer the business to the next in line, he or she may still have reservations about whether those successors will be able to effectively run the business. The next generation may also need time to acclimate to managing the business day-to-day and to learn the intricacies of the market.
In addition, founders may wish to transfer control gradually while retaining some ability to manage, or at least guide, the family business even after it has officially been transferred. It is important to consider these options and, when the next generation prepares to step into a leadership role, ensure these expectations are clearly outlined in the path forward. However, this process will be much easier if founding owners take the time to prepare younger generations along the way.
Engage younger generations in the company as early as possible. This does not mean employment at an early age but rather exposing them to family business discussions and age-appropriate topics throughout their lives. This can help ensure younger generations understand the inner-workings of the company and the decisions needed to maintain its day-to-day operations from the very beginning.
Of equal importance, as these younger generations approach a working age, families should ensure they start from the ground up – whether sweeping the floors, working the production line, packaging the products, or answering the phones – well before there is any consideration of a leadership role within the company. Gaining an understanding of every role within the company will help ensure they understand not only the importance of each position but also how they contribute to the company’s overall success.
Another option is to encourage younger generations to gain outside experience before they begin full-time employment within the family business. This provides them with an outside perspective as well as additional knowledge they would not otherwise have access to from within the family business. It also promotes a new way of thinking that could eventually be applied back to the family operations. This outside experience also gives current generation owners within the family business, not to mention non-family employees, with greater confidence in the younger generation because it demonstrates a willingness to earn the path forward versus an inherited handout.
The founding owners should also take time to fully consider and evaluate the talents and skillsets that the next generation will be contributing to the company in order to identify the most appropriate roles.
Where will they bring the most value to the company? What do they want to do? What drives them? What seems to excite them? Considering these questions in advance will help ensure the success of younger family members within the company while also benefiting the business over the long-term.
According to Lainey Agers Strohmeyer, Vice President of Human Resources and Development in First Bank’s Human Resources Department, “For family businesses, engaging the next generation in the organization as early as possible is critical to their long-term success. Just as important, however, is also helping the next generation leverage their strengths and skillsets so that they may find their unique niche within the business.”
An outside perspective can also be useful. A parent or grandparent transitioning power might not have an objective view of the true capabilities of the child or the grandchild they are considering for a leadership role. Conducting a thorough review that includes input from multiple contacts throughout the business, including peers, managers, and direct reports, is a smart approach. This helps ensure the role is fully vetted, strengths and weaknesses are fully considered, and combats against potential accusations of nepotism.
As a fourth-generation family-run business, First Bank has deep expertise in succession planning. Learn more about preparing future family members to lead as well as engaging the next generation for long-term success.
As the world evolves with each generation, it is critical for current leadership to embrace the changes that come with it. Consider social media. Over the past 20 years, the volume of social channels has exploded, affecting everything from the ways a business approaches customer service and marketing to communications with clients and everything in between.
With each generation, a new mindset is introduced. This new way of thinking can help leaders better understand how new technologies, for example, can be adapted and applied as a new best practice within the family business, keeping it fresh, modern, and growing. Preparing for this inevitability is smart but welcoming, embracing, and encouraging change is even smarter.
Business News Daily recently noted the 2017 study from Robert Half Management Resources that found “30 percent of the executives surveyed said communication skills represent the greatest difference among employees from different generations.”
According to the study, “Baby boomers tend to be more reserved, while Gen Xers prefer a control-and-command style. Gen Y (millennial) employees prefer a more collaborative approach to communication, and the youngest workers, those in Gen Z, like in-person interactions best.”
Similarly, the way each group embraces change also differs. Per the study, “Gen X and Gen Y employees tend to see change as a vehicle for new opportunities, while Gen Z is used to change and expects it in the workplace.”
These attitudes, while different, can be used for the greater good of the business. A diverse workforce, who behave and think differently, is a positive. This can lead to better product offerings, reaching a wider customer base in a more meaningful way, and more. But, understanding how to communicate with one another – from the top to the bottom and vice versa – is equally important.
It is smart to create a culture that embraces change and encourages collaboration at all levels. In other words, ensure younger generations are comfortable sharing their thoughts, make it a point to ask experts in specific areas to weigh in on relevant topics, and take the time to listen to everyone’s point of view. It is important that every level of the organization feels respected and opinions of decision makers are weighed equally.
That is not to say that conflicts won’t arise and managers will need to implement strategies to keep discussions on track but maintaining open communications channels will help. In addition, understanding the need to adapt a communication or management style to better meet the needs of a specific generation will go a long way to mitigating potential issues.
Watch our video on effective strategies to manage and resolve conflicts within a family business.
Although a founding generation is driven by entrepreneurship, over time, succeeding generations begin to focus on managing the current state of the business while growing revenue. However, shifting away from passive management, and maintaining a spirit of enterprise will be instrumental to success throughout the decades.
According to a recent article in Family Business Magazine, an entrepreneurial culture can “lead to lower risk, the creation of substantial new wealth, and the perfect opportunity to train, evaluate, and incorporate the next generation into the family business.”
Much like a rain maker in a law firm or a new business team at an advertising agency, dedicating a team of employees to developing new ideas, products, services, or networking with those who might be able to bring opportunities is instrumental to the success of the company. Among the younger generations, it also reinforces the value of the company and the blood, sweat, and tears it took to build the business from the ground up.
As stated in the article, “Becoming an enterprising family also requires the next generation to rise to the challenge and seek out opportunities for growth and profit … they can no longer depend on the indulgence of their parents and grandparents, but must up their game to meet the standards of professional venture investors. This will push them to become entrepreneurs who seek and exploit opportunities through creativity, vision, and lots of hard work.”
It also brings a level of excitement back into the business and allows younger generations to have a real sense of ownership in the overall success of the company, and an even greater sense of pride in contributing to its legacy. Entrepreneurship should be a way of life within a family-run business, and encouraged to be passed from generation to the next.
Despite conventional advice available to family business owners, the nuances of successfully transitioning a company to a new generation of leaders are subjective and vary between each company and the personalities contained within them. The business of transitioning a company is more concrete.
First Bank, the Dierberg family, and First Bank’s Chairman and Chief Executive Officer, Shelley Seifert, are committed to continuing to grow and innovate as the bank of choice for families and family-owned businesses for now and well into the future. First Bank has worked with thousands of family transitions and have teams who understand the pitfalls and the unique opportunities of succession planning.
For assistance on preparing your business for the next generation of leadership, reach out to our Wealth Management succession planning experts. Many family-business related resources can also be found at First Bank’s Center for Family-Owned Business.