Yes, I know that your parents didn’t give you a business. But, you’re not going to give it to your kids either. You’re going to sell it to them. Why? You’re going to sell it to them because that’s the fair thing to do, especially if there is more than one sibling. Yes, the lawyers and accountants will encourage you to work it out in some sort of transaction that may not be an outright sale, but the idea is the same. The business is worth so much. You should get only so much and the next generation should pay only so much, based on what the business is worth.
Don’t whine that your kids ought to run the business because you bred them. These kids have great opportunities, especially if they went out to get a real job. Either they have the skills or you are protecting them from reality and they will fail after you’re gone.
If they have the skills, then you need to pay them what they are worth. The concept of “one of these days this will all be yours” is only valid if you discount the price to them, based on their work over time. Don’t expect them to be underpaid for 20 years and then pay you a premium for the business. You will be robbing them of the money they need to succeed.
So, in an effort to make life simpler, I offer the following 12 concepts.
1. The business leader must select, train, and install his successor in his lifetime (Dr. Leon Danco, “Inside the Family Business”, Center for Family Business, Cleveland, OH). And I add that it is not enough to just be a member of the family. You must choose from among all qualified to lead the business, not just among your sons or daughters. You must be willing to train them to run the business. If they are not willing or are un-trainable, you must move on to someone else.
2. There can be but one leader of a business at a time. You cannot retire in place. A leader does not prepare his successor by stepping aside yet staying at the helm. This frustrates successors and infuriates predecessors.
This conduct can lead to no one directing the business and no one taking responsibility. The ship is adrift and the pilot is teaching the first mate a lesson by running the ship ashore. Good job. The leader (king) must remain leader (king) until the next leader (king) takes the helm. To do less is to abdicate responsibility.
Alternately, this conduct can lead to the successor pretending to run the business. “I do everything but the checkbook. Dad still does that.” This is not preparation. This is “playing business”. Further, giving a successor checkbook responsibility and then taking it back as punishment is a sure way to kill a transition.
3. You cannot make demands upon the successor that you will not willingly do yourself. Go sell. Learn how to produce. Learn about finance. You are in charge until the successor is in charge. The worth of the business at the time of the transition is based upon what you do, not what the successor is expected to do. One person, and one person only, can run a business.
You must understand the concept of command. You are in charge regardless of who may advise and assist. You would be wise to listen to all those under your command, whether they are related or not. And you would be wise in not placing too little weight on what the other participating family members say, as they would be wise in not placing too much on it.
4. It is impossible for you to give away your responsibility to run the business. It is not possible for you to “share” power or do part of a function. It is only possible for you to assign real functions (jobs) and then see that the jobs are carried out.
5. You are responsible for the results of the business until you have finalized the transition (sale) of the business. You must be part of this performance-oriented concept and not be a drain on performance.
In family-based businesses, we founders take the assets from the family and put them into the business. Therefore, we are responsible for returning to the family more money and more time than we would otherwise. And if we are not doing that, then we need to fix it so it happens, or we need to go get a real job.
6. You, as leader, assign jobs (authority) to all within the business. You must also assume responsibility to see how these jobs are carried out. You must lead and do so with enthusiasm, loyalty to those serving under you, and eagerness. You do not have any more authority over others than they are willing to give you. You earn the right to lead—you cannot command it.