Generational handover of business: a demolition derby?

The generational handover in business represents the entrepreneur’s greatest challenge.

A system made up of family businesses

The EU economic system, especially in the Mediterranean area and Italy in specific, is made up of a myriad of medium and small enterprises, generally family-owned. According to various sources, they account for more than 70-75% of the total number of enterprises in our Country. The history of these enterprises usually has some points in common.

It starts with the brilliant idea of the founder, often a technician, very good at his trade but without much managerial training. After all, in the beginning this is not so much needed: if the idea is good, it works and the enterprise can grow, even quickly. There is no need for a perfect organisation: lots of willingness to work, a furious pace and a motivated team. Start-ups, we can say, were invented in Italy after the Second World War!

An endemic problem

this whole system of intertwining business and family represents an almost endless series of generational transitions. It is a moment that, like it or not, all entrepreneurs have to face, it is life. And the generational transition is the entrepreneur’s greatest challenge.

It is not only the entrepreneur’s personal challenge. In fact, one of the most common causes of business death is precisely the failure of the generational handover. Unfortunately, one of the weaknesses of human beings is to believe themselves immortal.

That is, to postpone without limit cautious reflection on the fact that, sooner or later, one will have to pull the oars in the boat, and hand over the rudder.

The writer knows this subject well: I was born a second-generation entrepreneur. Luckily for me, my parents were far-sighted and the succession in the company, like the succession in the family estate, went smoothly, without difficulties and above all without problems for the company and its employees due to family issues.

The company as a social asset

Indeed, it must be remembered that the business, although in many cases supported by the family patrimony, and therefore logically part of it, is also a community asset.

A business generates work, on which thousands of families may depend, and satisfies needs in ways that are sometimes difficult to replace. It also very often develops innovation that, if it first benefits the company itself and its shareholders, will sooner or later become common heritage. Historically, companies have generated major innovations, driven by the ambition, creativity and inventive genius of entrepreneurs and employees.

A business that closes, or loses its generative drive through failed succession, is a detriment not only to the entrepreneur and his family, but to the entire community.

The demolition derby of succession

Generational handover often ends up in what looks like a ‘demolition derby’. You know those crazy people who face each other on a big dirt field with demolition cars? The aim of the game is to demolish all the other cars, trying to keep your own running until the end. But you know, even if you ‘win’, how will you and your car come out on top?

Here, very often the generational transition in family businesses resembles this crazy sport. All against all, without communicating, without collaborating, without legitimising each other’s feelings and needs. Precisely at the stage when there is a need for maximum communication and a collaborative spirit.

Prevention for a good generational handover

When I was talking about my personal experience, I should have emphasised one fundamental aspect: the succession was prepared in good time. I had already been working in the company for more than ten years when my father and mother left the family business. Moreover, even as a boy I had spent time during the school holidays on construction sites with the technicians and working as an errand boy in the office when needed. Yes, even running to the café for coffee and croissants when I happened to spend the night at the office closing some big deals.

It was not a walk in the park, especially when my father threw me into the arena in my early twenties to manage the commercial side of a construction company, one of the worst environments for ethics and culture. After all, that was the reason why after nine years as president and CEO I sold the company. But as a young man I made my bones in it… some fractures can still be seen…

Outside of my personal history, a good generational handover has to be prepared in advance. It is the responsibility of the entrepreneur, usually a founder, to assess early on whether and which heirs in the family have the vocation to succeed in the top roles of the company. And, once this is done, start ‘passing on knowledge’.

The worst case: reality rejected

The most painful step that sometimes occurs is to discover that none of the natural heirs has the stigmata of the entrepreneur. This eventuality is often experienced by the entrepreneur as a personal failure, or as a betrayal by the heir(s).

This makes the situation unacceptable, which means it is rejected, denied. The psychological aspects of this rejection of reality are varied and usually go very deep to poison the wells of family relationships.

Depending on the various personalities involved, the outcomes can be different. Sometimes one or more heirs, but usually one, find themselves ‘forced’ to be entrepreneurs against their will. They become suffering, unhappy and usually unable to develop the business, when they do not sink it altogether. Sometimes the family breaks up, in a chain of endless conflicts, grudges and misunderstandings.

In any case, not accepting reality is the worst thing an entrepreneur can do, for the business and for his family.

Creating a desirable reality

Accepting reality, even if we do not like it, is the best way to build an acceptable, even desirable future.

Finding out early on that one’s heirs do not have the stigmata of the entrepreneur or the business executive allows one to adjust one’s expectations and business needs before having to retire. Or to ‘be retired’ from life. In the meantime, there is the possibility of equipping some heirs, who, perhaps because they are still immature or inadequately trained, can then become a solid and useful figure for the company.

Or one can prepare a suitable patrimonial succession, leaving the company in the hands of a reliable, competent management, which will guarantee the next generations an important income. At the same time, this solution will protect the company and its employees from possible closure due to the heirs’ incapacity.

Sure, perhaps the founder will have to resign himself to the disappointment of not having generated a new (or new) captain of industry. But, let’s be honest: we cannot think that the whole generation of courageous entrepreneurs that Italy had after the Second World War would have duplicated itself without fail. Moreover, in a context that is very different today from then, in which the difficulty of doing business is multiplied a thousandfold.

Conflicts to be transformed

Since we are on the terrain of the CASE® Method, I cannot fail to mention that the optimal generational handover is the result of an excellent transformation of conflicts between Goals, Priorities and Needs of the generations involved. For this transformation, it will always be appropriate for the entrepreneur’s family to seek competent and serious external help.

I am not saying this to sell my services, it is a matter of credibility and legitimacy on the part of all family members at stake in the succession. What is needed is a third figure in relation to the people involved, someone who really knows how to place himself as outside the game, above the parties.

Good communication, which is the basis of the CASE® Method, is the cornerstone of a good generational transition. It makes it possible to legitimise and understand each person’s needs, respecting their nature and deep-seated emotions. From here, the talents and aspirations of each person can be harnessed, including the company itself, as it is also an asset of the community.

To do this requires relational, communication, anthropological and social skills, as well as a smattering of conflict psychology. These skills are rarely part of the internal baggage of the company or family. Another reason to seek competent external help.

Skills or ‘soul’?

Once the conflicts have been transformed and all the actors have been put on a solid collaborative foundation, one can take stock of the skills needed to ensure an effective generational handover. Not before. It is pointless, in fact, to think about what would be needed in a hypothesis that is not guaranteed, i.e. that of an ideal succession but, in practice, not feasible because the actors involved do not collaborate, do not participate.

The new generation will have to be trained in managerial skills, certainly. But above all, it will be necessary to transmit from the entrepreneur the deep ‘knowledge’, that heritage that he/she has developed, often autonomously, in the course of experience. It is the soul of the enterprise that must be passed on. This does not seem to be a romantic discourse, devoid of practical foundation.

No one becomes an entrepreneur purely for logical-rational reasons, as if it were a way of making money, obtaining power, a relevant social position, or anything else. Anyone who does it only for these reasons would be a fool, and above all would show that he has no idea what it means to be an entrepreneur. In order for the heirs of an entrepreneur to worthily take his place, and continue his vision – updated to the contemporary world, of course – they will have to pass on to him the spirit with which the enterprise was created and conducted. While those among the heirs who may not be suited, or may not feel they want to be part of it, will have to embrace this reality and be welcomed by the founder who hands over the  rudder.

Where to start?

Well, so far we have put too much meat on the fire: the generational transition is a complex topic, but at least the basics had to be included in this article.

If you are thinking of availing yourself of my help, the first fundamental step is to get to know each other and frame the specific topic that arises in your concrete reality.

Therefore, if you found this article interesting, I offer you a free 30′ first call to understand how I can help you. Simply email me at: info@federicofioretto.biz