7/9/2024
By Jim Moody
One of the scariest moments of my life was taking my 15-year-old daughter on the road driving for the first time. We had practiced in empty parking lots as much as we could, and it was time to let her move into traffic. Turning your business over to your heir has to feel like that on steroids.
How can you ensure the best chance of success for your heir and the business? Here is a recipe that gives you the best chance.
1. Encourage Independence Through College
Make the heir go to college far enough away that they can’t come home simply to wash clothes. College is about way more than education (or partying, for that matter). It’s about growing up. Send them away with the understanding that failure to secure a degree means not being trusted with the business later. Let them sink or swim. And resist the urge to call them every day.
2. External Work Experience
Require them to work outside the family business for at least two years. They must secure their own job and succeed at it. It really doesn’t matter what the job is. Sure, getting experience in a similar business is great, but it’s not part of the requirement. The key thing is that they learn how to navigate in an environment where their last name doesn’t automatically provide entitlement. If they earn a promotion, it’s a good sign they are ripe to come into the family business. Note: Starting their own business and failing does not satisfy this requirement.
3. Apply for a Specific Position
When they come into the business, they need to apply for a specific position that serves the company’s needs. Don’t make a job specifically for them. If there’s no open position that interests them, they need to stay in their current position until one becomes available. Not only does this help prevent entitlement syndrome, it also sends important messages to the rest of the staff that ultimately will help the heir be part of the team.
4. Treat Them Like Any Other Employee
Have expectations. Have consequences if expectations aren’t met. Do a performance appraisal. Don’t bail them out of difficult situations. Compensate them at the rate the job deserves. If you want to provide them with extra money, gift them stock and declare a dividend. But don’t give them double the pay that someone else doing the same job would receive.
5. Provide Varied Experience Within the Company
During their tenure with the company, they need experience in a variety of areas. Once they have established themselves as competent and hard-working, move them into progressively responsible positions where they can learn the inner workings of the company. They need to have real responsibility in those roles and stay long enough to be successful in each role. We’ve seen heirs who have spent six months sitting at the foot of the sales manager, six months at the foot of the CFO, etc. That may teach them an appreciation for the various roles within the company, but it really doesn’t serve them or the company well. It’s an aggravation to the mentors, and it prevents the heir from demonstrating their skills. It also prevents the owner from seeing strengths/weaknesses of the heir, and thus a coaching opportunity is lost.
6. Allow Time to Mature
Like a good dough, they need time to rise before they can take command. Generally, we recommend at least 10 years. Can it be done in less? Yes. But 10 or more is best. However, there is a sweet spot from an age standpoint– between 35 and 45. If you haven’t turned the business over to them by the time they are 45, there are diminishing returns for the business. When we see that, we have to ask a couple of tough questions. First, if they aren’t ready by 45, will they ever be? Second, are you the barrier because you can’t let go?
If you have an heir in the business or soon to be in the business and want assistance evaluating the heir or developing a succession plan, the Misura Group can help. We can also provide coaching to heirs and to owners who are struggling with how to let go. Contact Jim Moody to discuss.
Evolve Strategically,
Jim Moody
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