Please enable JavaScript
Email Marketing by Benchmark

Passing the Torch without Getting Burned

How to Build a Robust Gen 2 Company
By Susan Galvin and Renée Garcia

Imagine a business that was built out of a garage into a vibrant and profitable company. The owner was a happily married man in his early 60s. His three adult children were in the throws of their own lives, working and raising young children. There had been some discussion on what would happen to the family business when Dad decided to retire, but he was going strong and the need to transition the company seemed a long way away. Then Dad went on vacation, there was a freak accident, and suddenly he was gone. With the company being their mother’s primary source of income, the children had a decision to make: continue to build the company and carry on their father’s hard earned legacy or sell it. A difficult determination to make while in the throes of grief. A quick and frenzied decision was made that the daughter who lived closest would pick up the torch and keep the fire burning. She quit her job and started running the company, navigating it toward an uncertain future.

We don’t have to imagine this scenario because this is a story from our lives.

This true story yielded many lessons. First, it is never too early to start talking about succession. Life has a way of throwing curve balls that don’t leave time for creating a clearly articulated plan.

Second, the transfer of power in any type of organization requires careful strategy, planning and communication. For family-owned companies, there is the additional layer of navigating the family dynamics. Transitioning to the next generation can be tricky, as well as complicated by emotions, relationships and the concrete need for a livable income.

John A. Davis and Renato Tagiuri at Harvard University visualize the family business system as three overlapping circles of Ownership, Family, and Business. Family members may occupy one or more of these circles. This blurs the boundaries and can complicate communication and operations. For example, a family-run business may have a father as an owner, an in-law as a manager and a blood relation as an employee. The perception of each of these stakeholders is going to be influenced not only by the position they hold in the company, but also by the position they hold in the family. This can lead to confusion regarding the shape of the company when it is passed down to the second generation.

Third, communication is key throughout the life of a business, but particularly when the time comes for transitioning a family-owned company to the next generation. During what is typically an emotional time for the family, poor communication can threaten both the business and family relationships.

To successfully transition a company to the next generation and develop a framework for growth, a values-based approach can illuminate the best strategy for moving forward.

Sharing family values is not the same as sharing business values. For example, a family that values loyalty believes in supporting one another through hard times. Cousin Joe who has a history of being fired after three months on the job can be shown emotional support, invited over for dinner or allowed to stay in the family’s guest room. The business, however, must have high-performing employees to be profitable. Thus, Cousin Joe may not be hired simply because he is family.

Businesses started and managed by family members need to have clearly articulated values and envision the same goals for the company as it moves forward. This is like having a North Star for a company, guiding all decisions and focusing resources toward the success of the business.

Many companies have Mission, Vision and Value Statements that were developed when the company was new. Moving to the next generation is a perfect time to revisit these statements. This allows the family to celebrate the company that has become successful enough to be handed down to the second or third generation of a family. It is also a time to evaluate whether these values reflect the current direction of the company and will continue to revitalize its next iteration.

Once all stakeholders are clear on the company’s values, these statements serve as a reference point in the midst of change. Think of company values as the extra guest at the dinner table. When decisions are being debated, these beliefs are consulted. The values guide the conversation and serve as a yardstick, an objective measure to evaluate current and future decisions. A company that is aligned with its values, meaning it practices what it believes, is angled to be financially viable and a place where employees take pride in their work.

As families transition to the second generation, purposeful discussions about company values allow for productive communication, strategic planning and a cohesive succession strategy. The following steps help begin a stakeholder conversation that is values focused.

Step 1:

Have family members complete the following questions and share their responses:

■The company was started because ...

■The company stands for ...

■I believe the company is ...

■The company is different from other companies because ...

■When I leave the company I want it to be/stand for ...

Step 1 helps stakeholders take a big picture view of the company and remember the essence of who they are and why they exist. By completing Step 1, the family is primed to delve into the more complex question: “Where will the company go in Gen2?”

Step 2:

If you already have Mission, Vision and Value Statements, now is the time to review them. These statements should represent the best version of your company. It can be helpful to flip the script and think of it as Values, Vision and Mission Statements. We believe that successful companies lead from their values to their vision through their mission.

If the company doesn’t have these statements, articulating the values, vision and mission of your company is an engaging process that takes some dedicated time. The result is a document that guides all of the company’s decisions, inspires your employees, educates your customers and sets you apart from your competitors.

Here is a quick guide to the types of questions that can start the process.

Values: This is foundational. What three to five words or short sentences describe what your company stands for?

Vision: This is aspirational. What do you want your business to become?

Mission: This is practical. How will you work toward your vision? For example, we worked with Alpha Granite in Austin, Texas, to create the following Values, Vision and Mission Statements:

Values:

■Integrity and passion for excellence infuses everything we do.

■Success is built by supporting an environment of mutual commitment, teamwork and appreciation for one another while ensuring long-lasting customer relationships.

■Solutions are delivered by a dependable, dynamic and creative team.

■Professionalism and a proactive approach are of prime importance along with an emphasis on safety and effective utilization of resources.

Vision:

■To be celebrated as the finest creator of luxurious surfaces by leading the industry through innovation and best practices.

Mission:

■To provide our customers exquisite products through our responsive, dependable and highly skilled team.

Leading from well-developed Values, Vision and Mission Statements builds a healthy company culture and creates a leadership framework that provides stability and clarity for moving forward. Having a third-party guide, this discussion can be helpful. Building a business is hard work and emotions become invested. Family businesses are often started with the hope that it will be passed on to the next generation. When the time comes to hand over a company started on a wing and a prayer and built with blood, sweat and tears, founders may find that letting go of their legacy is more difficult than they expected. They may feel compelled to impart some wisdom to the next generation’s leadership. Conversely, Gen 2 may be eager to take over the reins and may bristle at having their vision for the business challenged. A neutral party can guide the process of values clarification and transition the company in a way that respects both sides of this equation, moving all parties to productive results while nurturing future family relationships.

Deliberate conversations that focus on honoring the values of the company, both past and present, can allow the founders of the company to reflect on their accomplishments and pass the torch to the next generation to lead it toward a bright future. Our opening story did have a happy ending. After two profitable, but tumultuous years, the company was successfully sold in a way that honored the entrepreneurial spirit of the father.

About the Authors
Susan Galvin and Renée Garcia are co-founders of G2 Solutions, which works with companies of all shapes and sizes with the goal of supporting them to be productive, profitable and a place where people love to come to work. For more information call (844) 385-4257 or visit www.g2solve.com.