Does Your Family Business Have a Succession Plan?

By Nick Di Loreto and Omar Romman in the Harvard Business Review

On why family-business succession built around a presumed heir tends to fail, and the five steps the authors propose instead — closing on Marvel Studios as the model for planning a franchise beyond its original leads. Read April 17th, 2020; notes verbatim from the Roam daily note.

Notes

• Read “Does Your Family Business Have a Succession Plan?” by Nick Di Loreeto and Omar Romman in the Harvard Business Review - Small Business Teamshares Permanent Equity Fifth Partners Son-on-demand Brent Beshore Jeff Brownlow
  • Much to Hampton’s relief, his father announced that Hampton would inherit ownership control and become CEO of the business, just as his father and grandfather had done, effective immediately. As Hampton realized his childhood dream had been fulfilled, he thought to himself: “What could possibly go wrong?”
  • ==As is true in many well-intentioned family businesses, succession in Hampton’s family business was built around the idea that leaders from the next generation can simply step into the large shoes of their predecessors and run the business (and the family) exactly as mom or dad would have done. But that fails to take into account that each new generation of leadership likely has different skills and interests, and that business contexts and needs inevitably shift over time. When a family business assumes that the next generation can simply take over without pausing to consider the CEO job description, governance, or the evolving business context, they may be setting themselves up to fail==. We like to call this the “Sequel Fallacy.”
  • On paper, defaulting to a family business sequel makes perfect sense. After all, what worked for the senior generation should work for their children, right?
  • Families have broken up, reputations have been lost, and businesses have failed all because the generation in control did not pause from tradition consider how to set the next generation up for success.
  • Key Steps:
    • Articulate the changing dynamics: Seek to understand the changing players and dynamics by updating your family tree and analyzing the changes from the last transition period to today so you have better context for what your business, family, and owners need in the future. ==And once you understand those differences, name them explicitly and have several discussions with your family and owners== to explore how those differences might affect the future.
    • Look outside the company for advice. Engage with other business families to understand how they have managed their transition process. While their situation may be different from your own, getting insight into their approach and the reasons they chose their path can shed light on your own challenges and decisions.
    • Be open-minded. Respect tradition and understand why decisions were made in the past. But don’t get stuck in conversations that start with “but that’s how we’ve always done things here.” Instead, ==talk with your fellow owners about what you would do in the absence of tradition.==
    • Don’t commit to succession decisions too early. Instead, develop a plan and process that can evolve over time — one that takes into account new information as it is available and course corrects as needed. Put simply, make succession planning a topic that owners discuss regularly and continue to ask: “Do we have the right people in the right places working well together to make the right decisions with the right information for our ownership and family?”
    • **Talk openly about plans for the future. **Succession planning is a process, not an event, and it equally affects the family, the business, the owners, and the communities where each of these groups operate.
    • In cinema, Marvel Studios provides an excellent example of how to avoid the sequel fallacy. Marvel Cinematic Universe has released more than 22 titles in just over a decade, grossing more than $18 billion during that time, without rebooting itself or replacing its cast. But each subsequent movie has evolved slightly, with individual characters becoming more or less prominent, new superhero talents being developed, and the context of the challenge they’re up against shifting so that different superheroes have a chance to play important roles. As business families and owners, it’s your job (and opportunity) to assume the role of director to create a future in which each of your own characters can survive and thrive for generations to come.
      • The loss of Iron Man and Captain America was perfectly heartbreaking, but it didn’t destroy the franchise. There is a whole host of characters we love just waiting to take the lead

Connections

• Succession Planning · Family Business
• Sent to Jeff Brownlow the same day.
• Read on April 17th, 2020.