Today's blog is a special podcast replay featuring our co-founder, Renée Montoya Lado in conversation with Ellen Steinlauf. Please find the transcript following the episode replay.
Hi, Ellen, thank you.
Be glad to Ellen, you know, family-owned businesses are really extraordinary, extraordinary organizations. And part of what makes them extraordinary is because they start with a value base, and they start with something that they're good at. And then they have all of this passion, which then drives this business into a profitable business. And they work really hard. And then about 35 years later, they look up and they say, Gosh, I'm 55, or I'm 60. And I'm wondering, you know, what I should do now. And so what happens is, succession planning basically, is not a well thought out sort of, you know, 10 year five year process, because these people are busy. They're busy making their business making money in their business. And sometimes children come to work inside the business, sometimes they don't. And so what happens is owners kind of say, Okay, so I'm ready, kind of ready to transition a little bit. And then they start looking at their children. And let's say the children work in the business. Well, what if they have two children or five children in the business, or they have to in the business and three out of the business, suddenly, it's like, well, who's going to be my successor. And they start using the same passion and drive and intuitive judgment that has really created success for their company, except that when it comes to succession, it doesn't work out so well for them, because suddenly, it becomes a very subjective conversation about which child should I choose? And how should I choose? How can I choose between my children, and this kind of transition point in a business is quite critical, because it can mean the business is going to continue or not. And what we see countless times is owners looking around for a way to decide and they don't have a way to decide. So often, what happens is by default, they go back to birth order, or they go back to the male, the oldest male, or they go back to a number of, of kinds of family, kind of family rules, or family legends, and they begin to try to make a decision like that. And it can cause a lot of family conflict, family consternation. And suddenly, we see family business owners retreating from the succession conversation and say, Well, you know, I can probably work 15 more years, and really avoiding the whole issue, to the business's detriment, really.
Well, assessments actually provide data they provide quantitative data about a number of different things, they might provide quantitative data about personality attributes or temperaments or communication styles. They might provide data about different kinds of subject matter content skills, or management skills that that anyone might bring to a particular position. The best part of assessments is that is that they provide data which is basically rationalist they provide and inject rationality into what would normally be a very subjective conversation. And what we have noticed in our practice is that owners are so grateful to have some information about whether or not this particular child will fit better than another child. Or maybe they want to look at what the assessments say about these individual candidates, whether they're children or cousins, or brothers or whatever they are. And they want to look at them and say, you know, now I have an idea about what way to develop my children in order for them to be ready in five years when I'm going to be ready to retire. So Suddenly the conversation is not about who's my favorite or, you know who, who always gets things in this family? Or who's the black sheep, suddenly, the conversation is now about, well, let's look at what this data says. And then let's add in our own good sense, in our own good judgment. And it changes the whole complexion of the conversation. And it is certainly not conflict proof. But it really does contribute some rationality enough so that there isn't the kind of prolonged damage that often occurs when succession is done strictly, subjectively.
You know, I my hunch, Ellen, and based on our experiences that this succession conversation, the transition of business ownership, is a very, very tough one for family businesses to traverse. And so many of them don't, many of them will withdraw, many of them will say, Well, let me just close the doors is not worth the hassle it's creating in my family. And as you said, the it's very clearly documented that the probably 80 to 90% of family businesses don't really move beyond the first or second generation. And I really do think that the transition conversation and the subsequent succession planning not being done very effectively or very thoroughly contributes to that, to that lack of success.
Oh, yes, leadership competencies and skills are just so critical in any business. But in a family owned business, what we have discovered is that family businesses take on the character and the personality of the owner quite frequently, these owners bring with them a certain value system, they'd give bring a certain temperament, a certain communication style, a certain social style, and they create a business around those very strong attributes, they will often also bring different kinds of leadership or management or subject matter content expertise with them. What in our firm, it's quite important for us to do is to really take a print of what that owner has brought forward, both in terms of his or her attributes, their temperament, their subject matter content, their leadership abilities, their supervision skills, and really say, okay, what is this owner really good at? What is this owner really like, and then we, we create a baseline and then what we do is we assess candidates against that baseline, to see whether or not there's going to be a fit between the potential successor and the owner. And then in addition, we say to the owner, what do you think will be the challenges for the future for this business? So maybe it goes on for five, six generations? What do you think the skills and attributes and temperaments and styles your successors will need that you maybe don't have? So, then we take that data and we add it to the baseline to form a composite. So now we're actually looking at the candidate to see how well they will fit with what's been brought forward, as well as how well they'll be able to drive the business forward, multi generationally. And that seems to work very, very well.
Thank you, Ellen.