Discovering the 7 Stages of Succession Planning in Family Business

Family businesses account for a significant part of the world’s economy, with about 90% of all businesses owned and operated by families. However, only 30% of these businesses survive to the second generation, 12% make it to the third generation, and a meager 3% gets transferred to the fourth generation. This highlights the need for proper succession planning in family businesses. Here, we look at the seven stages of succession planning in family businesses.

Stage 1: Establishing Goals and Objectives

Succession planning should begin by setting realistic goals and objectives for the transitioning process. The goals and objectives should align with the company’s vision and mission, and have a long-term perspective. The owners should agree on the purpose of the business and decide what they want for it in the future.

Stage 2: Determining the Successor

Choosing the right successor is crucial to the success of the transition process. The successor should have the necessary skills, experience, education, and passion to take over the business, and the owners should consider both family and non-family members for the role. The decision on the successor should be made in the early stages of the succession planning process.

Stage 3: Developing the Succession Plan

Once the goals, objectives, and the successor have been determined, the next stage is to develop the succession plan. The plan should document the steps to be taken to transfer the leadership and management of the business to the chosen successor. It should also include a timeline for the transition and identify the risks and challenges that may arise during the process.

Stage 4: Communicating the Plan

Communicating the succession plan to all stakeholders is essential to avoid misunderstandings and conflicts. Owners should ensure that the successor, family members, and employees understand the plan and their respective roles. Clear communication of the plan can prevent doubts, fears, and confusion during the transition process.

Stage 5: Implementing the Plan

The success of the succession planning process hinges on its implementation. Owners should ensure that the plan is executed as outlined, and adjust it accordingly as circumstances change. They should also provide support and guidance to the successor to help them succeed in their new role.

Stage 6: Evaluating the Plan

Evaluating the succession plan is critical to assess its effectiveness. Owners should review the plan regularly and make adjustments as needed. Evaluating the plan can help identify strengths and weaknesses, and areas that require improvement.

Stage 7: Continual Succession Planning

Succession planning is not a one-time event. Successful family businesses continuously plan for succession to ensure a smooth transition when the time comes. Owners should ensure that the next generation has the necessary skills and experience to take over the business and continue its growth.

Examples of Succession Planning in Family Businesses

An excellent example of a successful succession plan is the Ford Motor Company. The company’s founder, Henry Ford, passed the leadership to his son, Edsel, who then passed it on to his son, Henry Ford II. The current leader, Bill Ford, is the great-grandson of the founder. This shows the importance of continuous succession planning in family businesses.

Another example is Walmart, the world’s largest retailer. Founder Sam Walton passed the leadership of the company to his son-in-law, David Glass, who then passed it to Lee Scott. The current CEO, Doug McMillon, started his career at Walmart as a summer associate and worked his way up to the top position. This highlights the need to choose the right successor and provide opportunities for them to gain experience and skills.

Conclusion

Succession planning is critical to the survival and growth of family businesses. The process should begin with establishing goals and objectives, determining the successor, developing the plan, communicating it to stakeholders, implementing it, evaluating it, and continually planning for succession. With proper succession planning, family businesses can ensure a smooth transition of leadership and management to the next generation, and continue their legacy of growth and success.