Small Business: Family succession - Deb Shepherd

Dr Deb Shepherd, a senior lecturer in management and international business at the University of Auckland.

Small business editor Caitlin Sykes this week interviews a handful of small business owners about how they manage family succession.

Dr Deb Shepherd is a senior lecturer in management and international business at the University of Auckland whose research interests include family businesses and SME leadership.

She also works directly with a number of family-run SMEs through her work with the Icehouse's Owner Manager Programme, as a consultant and in governance roles.

What are some of the trends you're seeing in terms of the number and type of smaller New Zealand businesses that are undertaking family succession?

Today there are definitely more people thinking about transitioning out of their businesses than we've seen previously. The people most interested in 'exit and succession' over the last 10 years have been accountants, lawyers, business advisors and consultants, and bankers. Business owners themselves haven't had the same urgency. We see many business owners who are happy working into their seventies. Now, however, baby boomers are in their seventies and so they're considering more seriously business transition. We deliberately use the term transition because it conveys a less fixed and finite 'event' and instead suggests something that happens over time. This is very much what we see in family businesses - that for most intergenerational succession is not a single moment in time.

The other trend we're seeing is a greater number of business owners willing to entertain the idea of ongoing family ownership and encouraging their family members to consider being involved in the family business. Ten to 15 years ago fewer owners considered family succession, instead feeling that perhaps they didn't want to burden the next generation with the business or that the next generation needed to track their own path in life. Some business owners didn't want their children to be seen as receiving a 'soft option' in life. Ironically, for many next generation family members, taking over the family business is anything but a soft option. Given how positive family business succession can be for the success of the businesses themselves, as well as the wider economy, this changing trend is a good thing.

In your experience, what factors have you seen make that transition between family members in a business successful?

Businesses that transition successfully across family generations are those where family members communicate openly and honestly, and where they start what can be potentially tricky conversations early before there's a burning platform from which decisions need to be made quickly. Family dynamics vary enormously between families but those that have kept open lines of communication, are willing to have difficult conversations, and have relationships underpinned by trust and respect are able to work through issues as they arise. In family businesses people carry out multiple roles, so recognising and understanding how these different - and sometimes conflicting - roles can be sensibly managed in a way that's appropriate to each family is important.

And keeping all members of the family informed of decisions that are being made is critical. Even if the family business is going through a transition to only one next-generation family member, it's important both parents are involved in the decision making and all of the siblings are informed. Things seem to go wrong when family members are excluded from the decision making table or aren't adequately informed.

What are some of the common pitfalls you see families falling into when undertaking this process?

Not having conversations early enough. Sometimes the current-generation family members wait until they're exhausted or fed up as business owners before discussing transition options with their family members, who by that stage, have made other career or vocational decisions. This puts people under considerable pressure and can lead to suboptimal decisions for either or both parties and of course the business itself.

Another common pitfall is not setting up the next generation adequately for success. If the incoming-generation family member doesn't have the skills or ability, or hasn't had sufficient time and experience either within the business or in other businesses to successfully take over the family business, then it's likely the transition will fail. And this has a lot of implications for both the business and the family. When a previously successful business underperforms there are financial implications for all parties, including the outgoing generation who may be relying on the success of the business for their financial security. Then there's the sense of failure associated with the incoming generation feeling that the business failed on their watch.

The outgoing generation also needs to accept that the business may change and that the next-generation members are likely to question how the business is run, the services or products it offers, the markets it serves, who it employs and so on. Sometimes it can be hard for previous-generation members to accept change and to let go.

What's some key advice you'd have for a family that's starting on a succession journey?

• Have open conversations as early as possible and check assumptions. We've spoken to some current-generation owners who have been adamant none of their children would want to go into the family business - and vice versa - and yet these assumptions have never been tested.

• Be open to different ways forward, not just a transition that looks like the status quo. For example, there's a growing number of people considering what it means to be owners of family businesses and engaging professional managers to run them.

• Think through the various roles for all members of the family - especially if only one member of the family is transitioning into a specific role within the family business. Being part of the family membership, family business ownership and working in the business are all quite different, and a combination of roles is possible if there's clarity around roles and expectations.

• Seek advice and input from others. There are many family businesses who have managed transitions successfully. Ask what can be learnt from these examples as well as what can be learnt from examples that have not been as successful.

Coming up in Small Business: What do small business owners do when they have a baby? If you've got a story to tell about how you've handled your own parental leave as a business owner drop me a note at nzhsmallbusiness@gmail.com.