Exit Right®: A Guided Tour of Succession Planning for Families-in-Business-Together

Exit Right® A Guided Tour of Succession Planning for Families-in-Business-Together:
Introduction - chapter from the book

Mark Voeller, Linda Fairburn and Wayne Thompson.
ISBN 0-9687928-1-2

Summary - A Tool for Business Owning Families

Exit Right is written for business owners, not academics. This is a quick and easy read, a "20,000 foot view" of the process designed to help business owners distinguish the forest from the trees and address the personal and family needs that their strategic and financial planning must satisfy. It provides a practical step-by-step process for developing a plan that truly serves both the emotional and financial needs of the owner and his or her family as well as the long-term health of the business. The result? The result is an effective succession plan that serves the owner, the family and the business.

Introduction -Getting Started

You own and operate your own business. You are one of those people who enjoy the challenge of being your own boss, the master of your own destiny.

Now you are about to take on one of the greatest challenges to face any business owner - the challenge of preparing and choosing new leadership for the business and planning for the transfer of its ownership when you are gone.

In short, the challenge of succession planning.

Facing the future

Maybe you have reached an age where the word "retirement" has magically ceased being an abstract concept and become something that could actually apply to you - someday.

Maybe you have just had a new addition to your family and the notion of adding "& Son" or "& Daughter" to the name of the business has crossed your mind.

Maybe the notion of retirement has no appeal to you, but you're concerned about your financial security in your retirement years.

Maybe you're concerned about the success of family members and the continuity of your business legacy.
Maybe the death of a friend or family member - or simply driving past the remains of a horrendous traffic accident - has left you wondering what would happen to your business and your family if you were suddenly gone.

Maybe your kids are reaching an age where they are deciding what they want to do with their lives and the possibility of a career in your business has come up.

Maybe your kids are already working with you and questions have arisen about the roles they will play in the future.

Maybe you have been developing a strategic plan for your company and realized that you couldn't plan for the future of the business without a sense of what you and your family wanted in the long term.

Maybe you have just seen your lawyer or financial advisor or insurance agent - any of them could have raised questions like "When do you want to retire?" or "Do you want to sell the business or keep it in the family?" or "How shall we treat the company in your estate plan?" or "Does your spouse want to operate the business when you're gone?" or "What would happen to the business if you died tomorrow?"


You can come to succession planning from any number of directions. However you enter it, it's a process that every business owner - particularly if the family is involved in the business - has to deal with sooner or later. And better sooner than later. The world is full of businessmen and women who unfortunately cannot escape the stress of day-to-day operations because they neglected to prepare a qualified, experienced successor or failed to put the financial structures in place that would fund their retirement.

Unfortunately, succession planning is a process that many business owners find difficult to contemplate. We understand - succession planning involves facing the realities of aging and turning over control, neither of which are very high on most people's lists of favorite topics.

Beyond that, succession planning can seem overwhelmingly complex. It necessitates assessing the competencies of all involved parties. It involves personal issues, family issues and business management issues as well as legal, financial, and taxation issues - all of which touch upon each other in a variety of ways. Where to start? How to proceed? Lacking clear answers to questions like these, it's easy to ignore succession planning in favor of more immediate business problems that you may feel more equipped to address.

Your willingness to confront the inevitable passing of time is in your hands. We can't help you with that except to say that it happens to everyone and effective planning can mean the difference between a smooth transition and chaos for your business and your family. Everyone grows old, but effective planning can allow you to maintain control of your destiny in your "golden" years. The choice is yours.

What we can do is help you get a handle on that "overwhelmingly complex" process by providing you with an overview of the major issues and some suggestions about how you can go about exploring them.

"Seeing the elephant"

The purpose of this book is not to provide an exhaustive treatment of succession planning, but rather to boil the process down to its essence, giving you a manageable framework for your thinking.

You've probably heard the fable of the blind men and the elephant. One man feels the elephant's leg and decides that he is touching a telephone pole. Another feels the elephant's trunk and decides that he is holding a piece of rope. A third feels the elephant's ears and is sure that he is dealing with a banana tree.

In short, each identifies the whole based on his experience of one of the elephant's parts. And of course none of them guesses that he is dealing with an elephant.

Succession planning means many things to many people. To some, it is an estate planning or financial planning task. To others, it is just a part of the strategic planning process. To still others, it's about ensuring management and executive positions are filled by qualified people - a training and development task.

In our minds, succession planning is all of these things and much more. When we refer to "succession planning," we mean a process that includes strategic planning, financial planning, estate planning and the preparation of successors - all within the context of a family and within the context of a business.

In our experience, the most effective succession plans are the ones that have been developed using an integrated, holistic approach. Each part has been undertaken with the whole in mind. Our purpose in writing this book is to help you stand back as far as possible and "see the elephant" rather than delving into the detail of each of its parts.

After all, we all know what a camel is...

The process

This book contains seven chapters, each devoted to one of the key issues that you'll have to address in your succession planning:

  • In Chapter One, Your Second Dream, you will explore your vision for your future and what financially it will take to realize your dream. Your answers to these questions could have a major impact on all the other decisions you will make.
  • In Chapter Two, All in the Family?, you will explore your family members' personal visions and visions for themselves in the business. These explorations will suggest who wants to work in the business, own the business and how family/emotional issues might be handled.
  • In Chapter Three, Aligning the Business, you will explore your company's strategic plan and the steps the business must take to support your personal dreams and those of your family.
  • In Chapter Four, Preparing Your Successors, you will consider how you might go about preparing your successors for their future roles in the family business - as executives or as owners.
  • In Chapter Five, The New Leader, you will explore the issues related to choosing who will succeed you in the leadership position.
  • In Chapter Six, The New Owners, you will consider the business and emotional considerations surrounding the transfer of the company's ownership.
  • And finally, in Chapter Seven, Building Your Legacy, you will explore how estate planning issues can impact the entire succession planning process.

In each chapter we identify several "key questions" you'll need to answer. In many cases, we discuss "underlying issues" you'll need to address as you proceed. At the end of each topic, we present you with a series of questions to guide your exploration of the issue and some suggested action steps you can take to move your process along.
In using the word "process," we may appear to be implying a prescribed order for your explorations. In fact, just as any of a number of situations can have brought you to succession planning, so you can enter the process at any chapter along the way. Rather than a linear series of steps, these chapters might be better seen as points on a circle, each one connected to all of the others.

At the same time, there is a logic in the order in which we present these seven issues. We believe the true starting point should be your needs and those of your spouse. Only when you have a clear idea of what you want does it make sense to broaden the discussion out to include the desires of the rest of your family. Only when the family has developed a clear vision for its future in the business does it make sense to develop a strategic plan for the business to support the family's goals. And so on.

That being said, start wherever you're at with an understanding that your answer to the questions in any one chapter may require some rethinking of your answers to the questions in all of the others. Understand too that your answers may change over time. While completing a plan will be an extremely valuable activity for both yourself and your business, the flexibility to allow the plan to evolve will be even more valuable.
Before we begin, a brief word on three topics that should inform all of your explorations:

  • Systems thinking,
  • Life cycles, and
  • Outside help.

System thinking

You will be doing yourself a favor if you can approach the succession planning process from a "systems" perspective.

Systems thinking is a way of viewing the world that assumes that every event is complexly interdependent with other events. Changing one part of a system will change the entire system. One minor change in one system can trigger dramatic changes in any other systems of which it is smaller part, or with which it comes into contact.

The ripple effect

Much of the challenge in developing effective succession plans springs from the fact that a family business is a system comprising two major subsystems - a family system and a business system. And of course, each of these systems is made up of subsystems - right down to the individual level. A change in any one of the subsystems can have an effect on all of the other subsystems and, therefore, on the system as a whole

Think of a pebble dropped into a pool of water. The pebble creates ripples that spread out to touch everything in the pool. Now imagine just a few pebbles dropped into two overlapping pools and you can see how powerfully and dramatically even small changes can affect the whole.

The business system, the family system and the individual family members are all in a constant state of change and development. A change in one system has ramifications for all other systems. Each system is constantly developing new coping strategies to accommodate changes in the other systems. As you embark on the succession planning process, you must keep in mind that decisions you make along the way will ripple through both the family and the business.

Fundamental differences

Family businesses are further complicated by the fact that the major subsystems - family and business - are fundamentally different.

Think for a moment about the values of a typical family. In most cases they would include such things as unconditional love for one another and the preservation of the family and its unique traditions. Put another way, the family is essentially an emotion-based system whose primary objective is to nurture and foster the well being of the clan.

In a typical business system, unconditional love is just about the last thing that you'd expect to be highly valued. Businesses, by their very nature, are goal and task-oriented and about making money. They necessarily value measurable qualities like competence, productivity and team performance.

The table below provides a brief summary of the major differences.

Family System
 Business System
Emotion-based system
 Task-based system
Mission: Nurture offspring into competent adults
 Mission: produce profitable goods/services
Equality Rules
 Competency rules
Acceptance is unconditional
 Acceptance is based on performance
Relationships are permanent
 Relationships are temporary and contractual
Power: generational/birth order
 Power: based on authority and influence

At a very basic level, these are two different types of system, each with widely divergent written or unwritten goals and operating rules. What makes family businesses so challenging is that they must find a way for these two differing systems to co-exist under a single roof. Family business members not only must work together, they must also struggle together to keep their family's interactions harmonious.

  • Sibling rivalries can be a pain in the neck for a family. But when those siblings are also involved in a family business, their rivalry can have serious business consequences - which in turn can affect the family's livelihood. From a business perspective, the rivalry must be judged rather differently than it would be if family harmony were the only thing at stake.
  • The increasing eccentricity of an aging parent can be fondly accepted by the rest of the family. But when that aging parent also controls a business upon which the family relies for its economic survival, those eccentricities must be judged in a different light.
  • A married person's philandering is nobody's business but his or her spouse's. But when the philanderer is part of a family business and is "fishing off the company dock" or funding his or her adventures with the company expense account, it becomes the family's business.

People have been trying for decades to build walls between these two systems - without success. These systems are joined together as a much more complex system for as long as the family chooses to stay in business together - a fact that complicates relationships and decision making for everyone involved. Devising solutions that strike an appropriate balance between business and family values is one of the great challenges of succession planning.

And if that wasn't scary enough...

Up to this point, we have been referring to the two systems that make up a family business system. Actually, there are three - the third system being the ownership group that can include both family members and non-family members. In either case, these individuals may or may not be actively involved in managing the business.

The diagram below depicts the interaction of these three systems to create seven different sets of circumstances for the individuals involved.

Tagiuri & Davis, 1982

  1. Family member who neither works in the business nor is a shareholder
  2. Non-family member who works in the business and is not a shareholder
  3. Non-family shareholder who does not work in the business
  4. Family member who works in the business
  5. Shareholder who works in the business
  6. Family member who is a shareholder but doesn't work in the business
  7. Family member who owns shares and works in the business

Individuals situated in different segments on this diagram will have totally different experiences and expectations of the system as a whole. Different locations on this diagram will serve different needs and aspirations and are best occupied by people with different talents.

Life cycles

Another concept useful to understanding the succession planning process is life cycles - both business and human.

Businesses typically follow a recognizable cycle that begins with start-up, moves on to growth, stabilizes at mature and eventually goes into either decline or renewal. The trick for long-term business success is to recognize which stage the business is in and find ways to "renew" it in the "mature" stage in order to avoid a fall into "decline."

Similarly, a family has a life cycle that follows the maturation of all its members and the "launching" of its young adults. The family life cycle can get extremely complex with multiple marriages and sets of children - often years apart in age. Finally, each member of the family is going through his or her own individual life cycle.

In a family business, all of these life cycles combine to create the unique circumstances you face in your succession planning. A sixty-two year old entrepreneur with college age children who is running a two year old start-up has a dramatically different set of interactions and circumstances than a sixty-two year old in a mature business with forty year old offspring anxious to assume the mantle of leadership.

Getting in sync

While family business leaders must follow the cycle of their own lives, they must also be aware of where the business and the rest of the family are in their life cycles. What happens all too often is that they wait too long to begin to relinquish control. The business needs the energy of the next generation. The next generation needs the wisdom and leadership of the senior generation. If you wait until old age or ill health is your operating reality, you may find that you don't have the steam to effectively play your role in the succession process, or that the handover has come too late for both the business and the next generation.

As entrepreneurs love to say, "timing may not be everything, but everything is about timing." Ideally, the senior generation is anticipating retirement while well-educated and experienced offspring are ready to re-energize a still healthy enterprise. Unfortunately, that is often not the case. Instead, in addition to the tensions of a generational shift, the business itself is forced to cope with the renewal challenge at the same time. This renewal process can be frightening to the senior generation whose retirement security is still dependent upon the successful operation of their enterprise.

Effective long-term planning can help you minimize the problems associated with personal and business life cycles that are not in synch.

Organizational change

A second challenge relating to life cycles is the organizational change that frequently must take place as the business is passed to the next generation.

Many first generation businesses are very simple in structure - the founder owns all the shares and runs the company as president or CEO. If the founder has more than one child and they all come to play a role in the ownership and operation of the business, the handoff to the next generation may require some radical organizational change to accommodate their involvement.

Moving from a single owner/leader to multiple owners and multiple leaders means a new level of complexity in the business - it's a radical paradigm shift from a monarchy to a democracy. A wrong move could mean permanent family conflict or a dysfunctional company. The choices are either to sell the business, or to give careful consideration to the roles your successors will play, and to the organizational structures required to accommodate them.

The good news is that if you are in that single owner/operator situation, the challenge is less complex than if you founded a business with a sibling, or if you and your siblings are second generation owner/operators planning to transfer the business to an even larger third generation. As the family system expands in the business, the problems of keeping everyone committed and invested in the same shared vision for the business - and happy - become increasingly more complicated.

Who ya gonna call?

The task of succession planning involves responsibly addressing the complexity of emotional beings who are bound together by family membership and wealth. All the while, they are running an enterprise together in a rapidly changing marketplace, dealing with issues of management and productivity, and planning for management transition and ownership transfer. Ultimately it could involve complex financial analysis, creating buy-sell agreements, conflict resolution, leadership development, creation of trusts, management assessment, and second generation shareholder agreements - to name just a few of the very specialized tasks that routinely form part of the succession planning process.

In short, there is a ton of specialized expertise that could be required - and like most people you will probably be seeking the aid of outside consultants and advisors. Having an overview of the succession planning process will make you a more sophisticated consumer of their services.

Types of consultants

There are two types of consultants you can turn to: expert consultants and process consultants.
Expert consultants are people like lawyers, accountants, investment planners, management consultants and behavioral science consultants like industrial organizational psychologists, therapists and organization development practitioners. Each has a specialized field of knowledge. You go to them expecting them to solve a particular type of problem for you.

The expertise that professional consultants and advisors bring from their primary discipline is critical knowledge. But this alone is not sufficient. No single profession has all of the knowledge, training, education or techniques for fully addressing the total family business system. Each of the tasks requiring specialized expertise in the succession planning process is part of a larger interdependent whole.

Professional consultants with a single expertise may be limited by the discipline in which they gained their breadth and depth of both knowledge and experience. For instance, they may view the family enterprise only from a business perspective, focusing on financial and legal documents to the exclusion of the family's powerful emotional influence. Alternatively, they might view the enterprise only from a family's emotional perspective ignoring business issues. In dealing with family businesses, experts with this kind of tunnel vision can create as many problems as they solve.

The process consultant, or facilitator, is one who assists the family in seeing the bigger picture and contributes specialized expertise to an integrated solution that moves the family and its business toward their own defined goals in a coordinated manner. While the expert advisor typical focuses on what documents to create, the process consultant focuses on how plans are implemented, how people are informed and how people are included.

The family business advisor

Increasingly, we are seeing a new breed of specialist called the family business advisor.

Typically, this is a person who begins with one of the specialized skill sets mentioned above, develops a particular interest in family business and, recognizing the complexity of the family business system, develops the knowledge and skills required to be an effective process consultant to family enterprises.

Typically, these specialists adopt a systems approach to family business problems, understand the interaction of individual, family and business life cycles, and have developed a minimum scope of knowledge from each of the disciplines that could contribute to family business solutions. At the very least they have a strong understanding of the skill sets and tools that their colleagues from other disciplines bring to the table.

A family business advisor is not a one-stop shopping solution to your succession planning needs. Along the way, you will need to consult with a variety of experts for help that requires specialized expertise. However, if one of your expert advisors possesses the broader perspective and process skills of the family business advisor, he or she will be able to help you draw all the pieces of the process together into a harmonious whole, ensuring that you, your family and the business are equally well served.

Exit Right® A Guided Tour of Succession Planning for Families-in-Business-Together
Canadian best-selling business book by Mark Voeller, Linda Fairburn and Wayne Thompson. Business ISBN 0-9687928-1-2. Buy the book at www.makethingshappen.net.