Statistics show that nine out of ten small businesses are family owned and operated; no big surprise there. After all, isn’t a start-up virtually by definition a family business? Indeed, what small business can be founded without some involvement, if not a lot of sacrifice, from the family members?
But when the founders ultimately decide to take their leave, orderly transfer of management and ownership to next generations breaks down significantly. In fact, less than one third of small businesses are transferred to family, and that number includes those that work and those that don’t.
In a past career as a business consultant, often working with families who work together in their businesses, I discovered at least two important small business succession planning truths:
1. The only thing harder than founding and growing a small business successfully is transitioning management and ownership successfully from the founder to the next generation of family.
2. The percentage of succession success increases with any combination of these three elements: higher management sophistication; high degree of respect among the parties; counsel from a family-business transition professional.
One family business transition I’ve observed, merely as an interested party, is the company founded by my friend, Tim Berry, a member of my Brain Trust and founder of Palo Alto Software, the makers of Business Plan Pro. All of his five children have worked in the company to some degree over the years, and earlier this decade he turned over the management reigns (not sure about any ownership transfer) to a middle child, daughter Sabrina.
From what I can tell, this transition is making all parties happy. With regard to my second point above, I’m not sure how much professional assistance they’ve sought, but I do know that Tim and Sabrina clearly fit the other two criteria of sophistication and mutual respect.
Recently, Tim joined me on my small business radio program, The Small Business Advocate Show, as we talked about some of the key elements of succession planning. He’s been the world’s top business planning guru for a long time, but he has become a family business transition expert in the last few years. Take a few minutes to listen to his words of wisdom. And, as always, be sure to leave your thoughts.