Shows like Succession, Dynasty and many others, give the impression that family businesses are rife with byzantine power struggles, back-stabbing, humiliating ass-kissing. Yet, family businesses are among the oldest, most enduring corporations in the world. For instance, Hōshi Ryokan, a traditional spa and inn, was founded in 718 in Japan and is the world's oldest independent business. French winemaker, Château de Goulaine, was founded in 1000, and is the second oldest business in the world, tying for second with the bell foundry, Pontificia Fonderia Marinelli. Many other such examples exist from across the world and in a wide range of industries. Some of the biggest firms in the world today are family-owned.
The truth is, family businesses are neither snake pits or paradises, they are what they are made to be. They can be resilient and they can be fragile. But one thing they definitely are, is important: family businesses make up 85% of the world's businesses. According to Family Enterprise USA, there are 5.5 million family businesses in America, employing 62% of the workforce.
Only a third of family businesses survive to the second generation. The most important thing to do is to manage survival across generations.
Managing that transition from one generation to another is not only important, it is also daunting. Letting go of a business that you as a founder have worked hard to build, can be challenging, even when the successors are your children or other family members.
Yet, the data suggests that there are clear benefits to managing a transition well. The Boston Consulting Group found, having studied over 200 Indian family businesses, that there was a difference of 28% in growth in market capitalization, between businesses that had planned for a transition and those that had not. It is in transitions that success across generations is achieved.
The first thing you need to do is establish a continuity plan to build a bridge between the present family generation and the next. The continuity plan has to achieve three things:
Pass down assets. You need to decide what ownership form the business should have going forward. It may be necessary to change the ownership form. You also need to decide if you will transfer ownership gradually or or quickly. So, for instance, if you opt for a gradual change, you may transfer your shareholdings while retaining voting control. You also need to determine the kind of vehicle you will use to reduce your beneficiaries' tax burden.
Assign roles. Transition implies that the next generation of owners begins to take on managerial or ownership roles in the business, so that they understand the business before taking control. Part of this task involves picking the best successor in the most transparent and fair way possible, so that you minimize conflicts in the future.
Fostering family learning. Family learning is, as the above point hinted, extremely important. You need to develop the inter-generational skills of the family to ensure that the successor generation is qualified to take over your business. You need to clearly ascertain what skills are crucial to the successful running of the business and whether your successors should begin working in the family business. Finally, you need to create a path to the top without hurting the pathways of non-family members, who might feel side-lined by the ascent of unworthy family members. Fairness and transparency are essential, not just for the family members but the rest of the business.
[{:section_type=>"rich_text", :content=>"<p><span>Shows like Succession, Dynasty and many others, give the impression that family businesses are rife with byzantine power struggles, back-stabbing, humiliating ass-kissing. Yet, family businesses are among the oldest, most enduring corporations in the world. For instance, </span><a href=\"https://www.ho-shi.co.jp/en/\"><span>Hōshi Ryokan</span></a><span>, a traditional spa and inn, was founded in 718 in Japan and is the world's oldest independent business. French winemaker, Château de Goulaine, was founded in 1000, and is the second oldest business in the world, tying for second with the bell foundry, </span><a href=\"http://campanemarinelli.com/en\"><span>Pontificia Fonderia Marinelli</span></a><span>. Many </span><a href=\"https://www.familybusinessmagazine.com/worlds-oldest-family-companies\"><span>other such examples</span></a><span> exist from across the world and in a wide range of industries. Some of the </span><a href=\"https://www.businessinsider.com/the-worlds-21-biggest-family-owned-businesses-2015-7?op=1#1-novartis-21\"><span>biggest firms in the world</span></a><span> today are family-owned.&nbsp;</span></p>\n<p><span>The truth is, family businesses are neither snake pits or paradises, they are what they are made to be. They can be resilient and they can be fragile. But one thing they definitely are, is important: family businesses make up </span><a href=\"https://familyenterpriseusa.com/wp-content/uploads/2020/06/2020-FEUSA-Family-Business-Survey-Report-Of-Findings_2.pdf\"><span>85% of the world's businesses</span></a><span>. </span><a href=\"https://familyenterpriseusa.com/wp-content/uploads/2020/06/2020-FEUSA-Family-Business-Survey-Report-Of-Findings_2.pdf\"><span>According to Family Enterprise USA</span></a><span>, there are 5.5 million family businesses in America, employing 62% of the workforce.&nbsp;</span></p>\n<p><span>Only a third of family businesses survive to the second generation. The most important thing to do is to manage survival across generations.&nbsp;</span></p>\n<p><span>Managing that transition from one generation to another is not only important, it is also daunting. Letting go of a business that you as a founder have worked hard to build, can be challenging, even when the successors are your children or other family members.&nbsp;</span></p>\n<p><span>Yet, the data suggests that there are clear benefits to managing a transition well. The Boston Consulting Group found, having studied over 200 Indian family businesses, that there was a difference of 28% in growth in market capitalization, between businesses that had planned for a transition and those that had not. It is in transitions that success across generations is achieved.&nbsp;</span></p>\n<p><span>The first thing you need to do is establish a </span><i><span>continuity plan</span></i><span> to build a bridge between the present family generation and the next. The continuity plan has to achieve three things:</span></p>\n<ul>\n<li aria-level=\"1\"><i><span>Pass down assets.</span></i><span> You need to decide what ownership form the business should have going forward. It may be necessary to change the ownership form. You also need to decide if you will transfer ownership gradually or or quickly. So, for instance, if you opt for a gradual change, you may transfer your shareholdings while retaining voting control. You also need to determine the kind of vehicle you will use to reduce your beneficiaries' tax burden.&nbsp;</span></li>\n<li aria-level=\"1\"><i><span>Assign roles.</span></i><span> Transition implies that the next generation of owners begins to take on managerial or ownership roles in the business, so that they understand the business before taking control. Part of this task involves picking the best successor in the most transparent and fair way possible, so that you minimize conflicts in the future.&nbsp;</span></li>\n</ul>\n<p><i><span>Fostering family learning.</span></i> <a href=\"https://holdingcompanyexamples.com/family-holdings\"><span>Family learning</span></a><span> is, as the above point hinted, extremely important. You need to develop the inter-generational skills of the family to ensure that the successor generation is qualified to take over your business. You need to clearly ascertain what skills are crucial to the successful running of the business and whether your successors should begin working in the family business. Finally, you need to create a path to the top without hurting the pathways of non-family members, who might feel side-lined by the ascent of unworthy family members. Fairness and transparency are essential, not just for the family members but the rest of the business. </span></p>"}]