Why Family Businesses Fail To Do Succession Planning

Summary

In this insightful video, Wayne Rivers of the Family Business Institute discusses the nine main reasons why family businesses struggle with succession planning. From procrastination and psychological barriers to pushback from employees or family members, he explains the complex challenges that prevent effective planning. Wayne emphasizes the importance of starting the process early, addressing both the financial and relational aspects, and overcoming fears of change and fairness. Ultimately, he calls on family business leaders to recognize succession planning as an ongoing process, not a one-time event, and highlights how investing in the right strategy can preserve a business’s long-term success.

Takeaways

• ⏳ Succession planning is critically important but rarely urgent, making it easy for family businesses to postpone.
• 📄 Professionals often focus on 'drop-dead' planning, giving owners a false sense that they’ve completed true succession planning.
• 🙅 Family members or employees frequently push back on the process, causing leaders to lose momentum and delay action.
• 🧠 Psychological resistance to change makes it easier and more comfortable for leaders to avoid succession planning.
• ❓ Many family businesses struggle with the 'how-to'—the lack of clarity and experience in designing a full succession plan.
• 💬 Next-generation successors often lack the courage to initiate difficult conversations about the future leadership of the company.
• ⚖️ Senior generations worry excessively about fairness among children involved and not involved in the business.
• 🔄 Many view succession as a one-time event rather than an ongoing process that requires mentoring and preparation.
• 💸 The perceived high cost of legal, tax, and consulting services leads some families to avoid proper planning.
• 🏢 Without succession planning, businesses risk losing value, losing key people, and facing avoidable crises.

Q & A

Why do family businesses often fail to implement succession planning?

Family businesses fail to implement succession planning because it's rarely urgent, which leads to procrastination. It often gets pushed aside in favor of more immediate, day-to-day tasks.

How does the professional community contribute to the failure of succession planning?

The professional community, including bankers, lawyers, and CPAs, tends to focus on the 'drop-dead' aspects of succession planning, like estate planning, which gives a false sense of security. This approach only addresses what happens if someone dies, not what happens if they live.

What is the psychological barrier that prevents family businesses from engaging in succession planning?

The psychological barrier is that it’s easier and safer to avoid change. Succession planning requires significant change, and people often resist it because change can feel threatening and uncomfortable.

Why is the 'how-to' aspect of succession planning a major challenge for family businesses?

Succession planning is complex and involves many moving parts. Family businesses typically lack experience with long-term strategic decisions, as they are used to making daily business decisions. As a result, they struggle with knowing how to approach succession planning, which only happens once every 20-25 years.

How can professional consultants help family businesses with succession planning?

Professional consultants help family businesses clarify their goals and realistic alternatives. Even if the family doesn’t have a clear vision of their goals, consultants can guide them through the process and help them focus on practical options.

What is the issue with the lack of courage among next-generation successors in family businesses?

Next-generation successors often lack the courage to initiate discussions about succession planning with the senior generation. They may revere their parents too much to push for change, which results in missed opportunities for proactive planning and development of the next leadership.

How do concerns about fairness affect succession planning?

Senior generations worry about fairness when there are both employee family members and non-employee family members involved. They fear that giving the business to employee children may create inequity with non-employee children. However, this can be managed through tools like life insurance or other strategies to distribute wealth more equitably.

Why do some family businesses view succession planning as an event instead of a process?

Succession planning is often seen as an event because the senior generation sets a fixed date for stepping down, but without proper mentoring or preparation, the successor is left unprepared. Succession should be an ongoing process of preparation, not a one-time event.

What is the common misconception about the cost of succession planning?

Many family businesses view the costs of hiring consultants, lawyers, or CPAs as an unnecessary expense. However, these services should be seen as an investment in preserving the value of the business, potentially saving far more than the upfront costs.

How can succession planning impact the long-term success of a family business?

Succession planning ensures that the business can continue smoothly beyond the senior generation’s involvement. Proper planning helps secure leadership transitions, maintain business value, and prevent disruption that could harm the family business in the future.