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Ask Dave

Transitioning The Business For Posterity

Brad says his dad started a plastics company 25 years ago with his brother. He'd like to start learning how to transition this business to the next generation.

QUESTION: Brad in Iowa says his dad started a plastics company 25 years ago with his brother. Brad started working there five years ago. He’d like to start learning how to transition this business to the next generation. Dave advises Brad that the number- one thing they need to make sure they have is communication.

ANSWER: The number-one key to family business successfully transitioning to the next generation is tons and tons and tons of open communication. I’ve studied family businesses that have successfully transitioned. They often do it, but it has everything to do with tons of open communication—two-way communication, by the way. You’ve got to be willing to hear that you aren’t getting the business anytime soon, and they’ve got to be willing to hear they’re going to die someday. I think you call a meeting with the two of them and say you’re trying to plan your long-term career and would like to run this business and own this business someday when they aren’t here. Ask if that’s their vision and if they want you to. If they don’t want you to, you don’t want to invest the next 20 years of your life there.

You need to go ahead and get on with your life because you’ve got some guys here who aren’t going to deal with their realities. The first transition from the founder of the company—the first generational transition—is the toughest because founders are hard heads. I know; I am one. The guy who can start something from his bootstraps in his living room on a card table is also a guy who’s a control freak. I have had to force my intellect to shift my spirit and my emotions away from that to being our transition . I’m 50 years old, and my kids are in their 20s. We are planning a 15- to 20-year transition process. We’re already making the initial baby steps that don’t affect anything for the next five years, but we’re starting to train them to be leaders, owners, brands, and the generation that you’re in in my family—we’re very intentional about it, and everybody’s talking about it all the way along. Some are comfortable; some aren’t comfortable. You’ve got to do your job today with excellence to ever hope to be an owner, and for that matter to continue to get to work here whether you’re family or not. You’ve got to perform. Those kinds of things are laid out there. You don’t get a pass on stupidity because you’re family. You’ve still got to get your work done. As a matter of fact, you’ve got to work twice as hard if you’re family to be respected by the rest of the team, because they figure automatically you’re a slacker.

Those kinds of things are the things you have to sit down and start talking about immediately. What I would do if I were you is I would call a meeting with the two of them and say, “I don’t want anything today except your promise that we are going to enter into a learning period to learn about family business operations and learn about transitions over a period of decades. I want your assurance that that’s the direction we’re going so long as I perform. If I don’t perform, I understand I lose my rights.” We need to begin to talk about how family becomes the CEO, or are you going to inherit this as an absentee owner? You may end up owning the stock but working somewhere else. Then you may want to come back in if you end up owning the stock. But you can call it out and say we’re going to talk about it.

The second thing is if they’re willing to talk about it, say, “All I’m asking is that we begin to talk about this and you guys begin to make some decisions so that we can tell what’s good long term.” And then we need to start studying what business people call “best practices.” Start reading about family business transition. Find articles and books. There’s Family Business Magazine. There are websites. There are family business conventions. You can get a degree in family business from Kennesaw University in Atlanta. It’s out there. You can study families that have done this. The book God and Guinness is a great book to read. It talks about the Guinness beer family and how they started that in the 1700s, and it was transitioned to family members all the way up into the ’70s before it was sold to corporate. But they have to care about that. If they go, “Oh, no, we’re not going to work on this. We’re just going to die someday, and they’re going to toss you the keys,” you just tell them you’re not willing to go on that track. They’re going to have to give you some assurance subject to your performance that we’re going to begin to study this and then begin to lay out and implement a transition plan that is gradual and steady. It’s based on your competency and their willingness to release. They’ve already released the day-to-day control. That’s a big deal. That makes this easier if they’re willing to start talking about it. They may be thinking something completely different than you’re thinking. It’s good to start talking about it.