How To Have a Tough Conversation About Succession Planning When You’re next in Succession at Your Manufacturing Company

Challenges: Leadership, Process, Read

Posted by Nick Goellner

There are somewhere around 350,000 manufacturing companies in America, and 98% have less than 500 employees. Most of these small and midsize manufacturers (SMMs) are family-owned, and chances are, if you’re reading this article, you are an owner of one of these SMM’s or maybe you are next in line to take the helm. Succession


If you’re in either of these positions, what you need to know is nearly 70% of family businesses fail to make the transition from the first to the second generation, and unfortunately the statistics go downward from there. Hopefully this gets your attention.


As discussed in this week’s MakingChips podcast, succession can be a challenge in the family business for a number of reasons - especially when leadership transfer is "assumed" rather than prepared for, and when family business owners have explained the mechanics of the business but struggle to connect emotionally to their sons and daughters.


So, what can you do if you’re next in line for succession at your family’s business? How do you start that conversation if it hasn’t been started yet?

 

Timing is Everything

Think about when you were a kid and you wanted to talk about borrowing the family car for that special event. You were tactful about the timing of the conversation.


Ever heard the phrase, “a time and a place” for everything? Well, it’s not just the time, but the place matters too. In episode 183 Jim talked about his conversations with his father, getting out of the family machine shop and lubricating the conversation over a martini.


You don’t necessarily need to do it over a drink, but you should consider what setting is normal and natural in your family for discussions to take place, and go from there.


Take time to plan a thoughtful discussion, but be open to the possibility (or certainty) that the conversation will not follow the plan in your head. Know also, it won’t be a single conversation, but a series of give-and-take discussions. After new ideas are introduced, take a few days to dwell on what was said to allow emotions to settle.

 

Respect the Past and Focus on the Future

Every relationship has different dynamics. Be honest about the level of closeness and openness in the relationship, and build toward the future. You may need to start opening lines of communication before diving right into tough topics like retirement and succession.


The best tip I can give is, approach the conversation with humility and respect for what was done to make the conversation about succession even possible. In other words - respect that you are talking to a person who has successfully run the company up to this point.


There are a lot of things at odds when trying to build a bridge to the future: legacy versus new ideas; change versus constants; trade skill versus tech skill. A good starting place is to agree on non-negotiables first.


That stated, as you plan to pass the torch, you may also need to agree to disagree on some things, and that’s OK. Establish clear boundaries and then “stay in your lane”.


Second and third generation “entrepreneurs” with the same DNA as their “founding fathers” may need to consider “intrapreneurial” options -- taking direct responsibility for developing new ideas through assertive risk taking and innovation before they get that corner office -- if they want to take over the business without sacrificing their dreams.

 

Consider the Business Beyond the Family

It is so important to discuss and protect both family goals and business goals, and work toward alignment as the conversation develops over time.


Owning and operating a business are not one in the same. You can be an owner and have influence over company direction without directly controlling the business or running the day to day activities.There’s no shame in respectfully declining the enormous responsibility of operating a business.

You can find more Insight on Episode 144:


Be self aware regarding if you get it, want it, and have the capacity to take over ownership of the business. If you’re ill-equipped to lead, it will affect every single family involved in your business. Do you need more schooling, more experience working in the business, or even some experience working outside the business to get to where you need to be to take over?


Conversely, is the current owner ready for the next generation to take over? If they aren’t ready to transition with succession, you aren’t ready either.

 

Communication is the Key — Start Early and Plan WAY Ahead

Succession starts with open communication between you and your predecessors, hopefully long before any torch is being passed. However, as the time draws near, both of you will need professional council for the legal and technical aspects of business succession.


If other siblings or next-generation family members are involved, start a conversation with them as well, to build unity and consensus heading into the discussion. If you’re not careful, the succession power struggle can look an awful lot like the Game of Thrones saga. Whatever you do, don’t let the discussion blind what’s most important: family relationships.


It may have taken decades to build the business, but family roots can be traced back for centuries. Successful succession not only means the business thrives but also the deep roots and relationships it took to build it in the first place.

 

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