One of the biggest problems faced by millions of small business owners revolves around the question: "How do I keep the company all in the family?"
The question is especially pertinent today because many founders of small firms started their enterprises in the post-World War II boom and are now nearing or at retirement age. To them, the question of company succession is pressing.If past statistics mean anything, most of these firms will either fold when the old boss retires or will be sold to someone outside the family. In past years, only 30 percent of family businesses outlived their founders. Either the founder refused to step aside and died without proper estate planning or his heirs weren't interested in taking over.
"No doubt about it," George Abbott of the National Family Business Council has said, "the succession problem is the most important issue facing family businesses."
In too many cases, the company founder just refused to step aside, considering himself indispensable. In one case some years ago, one firm's founder had his son kidnapped and held hostage until the son agreed to leave the firm. On the other side, family business counselors tell the story of a son in New York who removed his father at gunpoint from the family firm.
Leon Danco, founder of the Cleveland-based Center for Family Business, says, "Too many family-owned businesses seem to suffer from "corporeuthanasia" described as the owner's act of willfully killing off the business he started by failing to provide in his lifetime a viable organization with clear continuity. This disaster occurs because the owner of the business cannot face the fact that at some point he will become incapacitated or die. And because he has not taken time to prepare a successor, he takes the business right into the grave with him."
In defense of company founders, some family business counselors think fewer sons and daughters are interested in taking over the family enterprise.
Gerald Slavin, a Massachusetts executive who founded a group comprised solely of bossses' sons (the group is called SOB, "sons of bosses"), says that "the big problem with small business fathers is they want perfect carbon copies of themselves, rather than imperfect originals. There is a widespread feeling that since they've done things one way for 30 years, that is the only way. But there are a lot of ways to skin a cat."
"The real problem with succession is that so few kids today are like their parents," Abbott says. "The kids are just as good, even better educated, but they are different. The father is beginning to slow down just as the son reaches 25 or 30 and is raring to go. If the father resents change and keeps sitting on the son's drive and creativity, the son gets angry and usually goes someplace else."
Even if a founder does organize his estate planning and his family is interested in taking over, a relatively new issue pops up: Who should be the new top boss?
The answer used to be easy: the oldest son.
But primogeniture isn't as accepted as it once was. There are two reasons for this: women's lib, in which daughters contend (more often than not with considerable merit) that they have equal rights to family business succession, and equal talents. And then there is increasing recognition by small business founders that lines of succession should be based on merit, not age or sex.
As a result, a growing number of small business founders have come up with different ways to pass on their enterprises. In one case, a founder turns over the company to two or more children, or family members, to run the firm jointly as an "executive committee." The children take turns serving as president or chief executive officer.
Other founders, when getting ready to step aside, split the firm into separate divisions or companies, with each child at the head of one. Or, before retiring, the founder may let each child run a division to test his or her managerial abilities. When the founder does finally retire, the child with the best record takes over.
If the company can't be split into pieces, some founders - the more successful and prosperous ones, obviously - expand into new products or lines of business for their children to head or manage.
On the matter of succession, Danco tells business fathers, "Understand that the hairs on your chest are numbered and that your primary goal is not to generate more money and sales than anybody else. Your primary goal should be to perpetuate your business."
To offspring, Danco says, "Understand your father's drive, recognize his accomplishments and help him keep his dreams alive."