Do you have any idea how rare it is for family businesses to successfully pass the baton from generation to generation? Just making the transition from one CEO to another in a corporate environment is hard enough. For most family and closely-held businesses, it’s nearly impossible!
Only about 30% of all family businesses successfully continue with their second-generation leaders. Moving to the third generation then drops even further to a mere 12% success rate. Maintaining a viable fourth generation – or beyond – business only happens about 3% of the time. That’s frightening given that there are 5.5 million family businesses across the United States. Maybe more importantly, these businesses account for approximately 50% of the U.S. gross domestic product, they generate 60% of the country’s employment opportunities, and they create 78% of all new jobs.
So why is it so hard for these companies that clearly are the backbone of the U.S. economy – if not global markets too – to continue from generation to generation? One of the biggest hurdles for a family business is succession planning, the process of managing the transition from one chief executive to another. With more than 10,000 Baby Boomers reaching retirement age every day, this problem isn’t going to go away by itself. Instead, it will continue to be the greatest challenge – and opportunity – for family businesses for quite some time.
Why is it so difficult to tackle this problem head on? Because that professional experience called “retirement” is a profoundly personal journey that many family business leaders choose not to face, as if sticking their ostrich-heads in the sand will make it go away. Out of respect – and often fear! – many of their family members and fellow business leaders also choose not to face this challenge proactively. Families that do are far more likely to be successful in making the switch and laying the foundation for years to come. Those that don’t, well you’ve seen the statistics for that!
No matter how harsh or difficult it may sound, you need to face reality and begin planning for your business’ future without you if your goal is to have your family business live on after you move on. If the leader of your closely-held or family business is nearing retirement, he or she may very well need your help to get through the process. Whether it’s just having a frank and compassionate conversation about succession or going so far as to develop a family constitution to create a framework for guiding the process moving forward, that leader likely won’t be able to manage this naturally-emotional process on his or her own. While it may be a personal journey for the leader in transition, it is an organizational imperative to survive the process. The alternative just isn’t an option.
To find out how to proactively manage the succession process in your organization, check out the Succession Planning page of Plus Delta’s website. We just helped a family navigate this critical process and become one of the elite 3% by successfully passing the baton to their fourth-generation leader. It did not come easy for this particular family, and we are honored to have been part of their process – one that not only set the stage for the future of this closely-held business but also made a future possible for a much-deserving family!