Succession Clarified? – Generation Change in Family Business
For many generations, family businesses have been considered the core of the economy and enjoy a stellar reputation – and not just in Germany. For example, in Germany they represent around 90 percent of non-public companies and employ more than half of all private sector workers. They are engaged in politics, social causes, culture and sports. And they are considered responsible and attractive employers. Family businesses have a long tradition and enjoy a status that is often an advantage for them and – not least for employees – a commitment.
Wanted by the Majority: Generation Change Within the Family
And why not? What grandfathers once founded is today led by fathers – and soon their daughters and sons. Just like one imagines it. And that is the wish of more than half of all business owners. But only 12 percent of family businesses in the world survive up to the third generation. And only one percent goes beyond the fifth generation. How impressive is it that Takenaka from Japan, one of the 500 largest family businesses, dates back to 1610? The descendants of the former founder and temple carpenter are now in charge of a construction company.
Only 12 percent of all family businesses survive up to the third generation.
The reasons why many family businesses do not persist are as varied as they are individual. They may be due to internal as well as external factors. The failure of a (timely) succession is in any case a very critical issue. Neither within the own gene pool nor in the form of an external buyer is a new boss ready to take over. The consequence: Every year, eight percent of all family businesses close their doors.
Generation Change Within the Family: Highly Complex and Individual
To avoid this, experts advise approaching the succession plan early. Three to five years should be budgeted for this. Generation changes are ultimately highly complex and multi-faceted undertakings, affecting many parties. A transfer is by no means only a matter between the old owner and the successor.
To avoid problems, the whole family should be involved in considerations and processes. Also "externals" such as the following have a stake in generation changes:
- Banks
- Partners
- Employees
Properly handling, considering, and balancing all financial, legal and often-neglected emotional aspects is an immense challenge. Given that the owner lacks the experience, tackling these with the help of outside experts is advisable. Indeed, there are examples of successful and productive handovers. But wanting to "copy" their processes is not an option: Every change has its own individual set of screws.
Generation changes within families simplify and speed up the transfer process, but do not guarantee it.
Generation Change: a Challenge not Only for Family Businesses
Every year, 60,000 family businesses in Germany are facing a change. Only half succeed in keeping them within the family. That is not much. But it still gives them an advantage over other companies. After all, the management of generation change is fundamentally a challenge today: If the owners age too quickly, there is a shortage of followers. According to KfW Research’s “Focus on the Economy” from January 2018, about 240,000 successors will be sought in German SMEs by 2019 – a blessing for those who can hand over their business to capable and willing children. This simplifies and speeds up the transfer process, but does not quite guarantee it yet.
Resignation From the Family Business With a View to the Future
"The biggest step is out the door." This Danish saying sums up why owners are often the biggest obstacle to a staff change. These are highly emotional matters – especially for the departing ones. Dealing with own age and mortality is certainly not one of life’s most pleasant tasks. It can be wonderfully put on the back burner. In addition, the commitment to one’s life's work is often very deep. After years of caring, their "baby" has to be given away. Doubts arise easily: Is the successor (already) ready? Will the company stay healthy and strong under the new leadership? Many business owners consider themselves completely indispensable. They don’t let go or loosen their grip. So they may scare off willing successors and dampen the company’s chances to flourish and prepare for the future.
"The biggest step is out the door." – Danish proverb
Bundling Strengths of Young And Old in the Generation Change
Despite all the appreciation for tradition – even family businesses have to keep up with the times. Globalization, fast-pace, universally available information and digital technologies are just a few buzzwords that apply. If you want to survive, you have to be fit for the future. You have to recognize and take on new entrepreneurial challenges. Thus, the departing generation not only has the task of readily passing on knowledge and providing many years of experience. It must set the timetable for the successor’s takeover, who in turn are equipped with the needed skills and ideas.
The change of generations today means that not only the young learn from the old, but also the old from the young. Forward-looking changes and innovation then take place on the fertile soil of many years of experience and tradition. Hence, the generation change is a chance for family business to remain competitive, maintain its beneficial status, and deliver on its promise.
