The transition doesn't always go according to plan
An entrepreneur begins succession planning well in advance, and to that end, his son begins vocational training at the company at the age of 16. This is followed by training to become a master craftsman and the assumption of responsibilities in production. For the father, this sets the succession process in motion. Suddenly, however, the entrepreneur falls seriously ill, and his preparations come to an abrupt end. At first glance, there seems to be only one choice: to navigate this difficult situation, the son must take over management of the company immediately.
Thrown in at the deep end, the son has never had the opportunity to independently consider whether this role is truly his lifelong dream. Now that he is confronted with the full extent of the responsibility, he quickly realizes that running the company does not align with his vision for his life. Other options must be considered. Ultimately, in consultation with the family, the successor decides to sell the company. The family’s original succession plan has failed. The reasons for this are complex. But perhaps the outcome would have been different if the son had had the opportunity and the time to reflect on his personal aspirations and analyze the task ahead for himself.
This example shows that optimal planning is not always possible. To ensure a successful and sustainable transition, the decision to make the change should be made consciously, in a timely manner, and jointly. The successor should have enough time to grapple with the task at hand. His personal willingness and a solid education are, of course, also prerequisites. But what happens if, in addition to taking over the family business, other options appeal to the younger generation?
The next generation is open-minded. There are no taboos, and the world offers them many opportunities. This way of thinking raises the question of why anyone should commit to a single role for a lifetime. How important is the family business to you, quite apart from the emotional motivations that drive you to want to follow in your ancestors’ footsteps? Is the business attractive, and are you personally up to the task? Below, we’ll examine some questions that need to be answered to ensure a smooth transition.
Is the successor ready and qualified to take on responsibility for the family business?
The willingness and enthusiasm to lead a business are prerequisites for succession. Even if the successor possesses high-level professional qualifications combined with sound business and management knowledge, they must feel confident that they can lead the business into the future with their knowledge and expertise—and that this role fits into their life plan.
To this end, an open discussion should first be held with one’s own family. The decision should also be consciously supported by one’s partner. After all, a 50- to 60-hour workweek or forgoing vacation time is not uncommon, at least in the early stages. This also increases physical and mental strain, which can lead to tension in relationships. It’s also important to recognize that this task is not a “sprint” but a “marathon” with many obstacles. A stable personal life is therefore of crucial importance.
A personal analysis of strengths and weaknesses can help you choose the right path. In some cases, it may also be helpful to bring in an external mediator or coach.
Here are a few questions the successor should be able to answer positively:
Do I have a vision for the company, and do I want to make it a reality?
Can I set goals for myself and pursue and achieve them even without pressure?
Do I possess leadership qualities and negotiation skills?
Am I physically fit enough to handle a 50- to 60-hour workweek?
Can I keep a cool head even in stressful situations?
Am I assertive? Even in a team-oriented environment, decisions must be made.
Am I willing to take responsibility for others and make decisions that won’t please everyone?
After completing this self-assessment, the next step is to put the company through a “stress test.”
Is the company prepared for the future, or what changes might be necessary to ensure that?
To answer the question of whether a company can remain successful in the coming years, a deep understanding of the current situation is first necessary, because planning for the future builds on the past. This process of assessing the company’s future viability should be viewed in the same light as a sale of the company to a third party.
Unfortunately, in many intra-family transfers, companies fail to conduct a strategy and risk analysis. Nor is a due diligence review performed, even though these tools are crucial for assessing a company’s future viability.
Has a strategy and risk analysis been conducted, and are the results positive?
For the successor, the economic sustainability of the business model is of particular importance. Is the company flexible and innovative? Has it, for example, completed its transformation into the digital age? Might a change in organizational culture and an adjustment to the operating model be necessary?
The analysis of the company’s current situation should include an examination of the market and competitive landscape.
This raises the following questions:
Is the company’s existing capacity for innovation sufficient to develop products with increasingly shorter innovation cycles?
What is the market size? Is the company realizing its full potential in the market?
What is the company’s relative market strength?
Can market share be further expanded?
Is the necessary technology available, and does the company have the appropriate staff?
Are there sufficient financial resources to implement the company’s plans?
Fundamentally, it is becoming increasingly important to respond promptly to new trends and to adapt one’s strategy quickly. Events are becoming more unpredictable. Trends are becoming shorter-lived, and new technologies are rapidly gaining relevance. Markets are in a state of constant change.
Conclusion: Assessing a company’s future viability goes beyond simply examining the original KPIs. The company’s relative independence and robustness must be evaluated. How quickly can the company respond to changes, and to what extent is it dependent on individual markets, customers, or suppliers?
Creating a Business Plan
A business plan should be a summary of the future business idea. This can involve either a company or a product. Based on this business idea, all goals, strategies, and activities associated with the company are documented. The result of this plan should be a realistic portrayal of the company and the market. This business plan should also include a SWOT analysis.
The business plan is a valuable tool for the successor in assessing the company’s long-term viability and can serve as a starting point for current decisions and future planning. The business plan is also useful externally, for example, with banks, investors, or other partners.
Environmental and Market Analysis
The successor should be aware that, in a competitive environment, a company must take on a certain amount of risk if it wants to grow. In addition, the timeframe for family business goals must be adapted to the pace of development in the respective markets. In a rapidly changing environment, long-term plans can become obsolete, and in a slow-moving market, projects require more time to succeed. Since the pace of change in the environment varies, it is important to assess whether management practices have already been established that anticipate and adapt to market changes. This could include, for example, the business successor working with employees to create an information structure that is supplemented and coordinated by both sides.
Market Orientation
The better the understanding and knowledge of the market, the more effective newly developed products will be. Market orientation fosters a deep understanding of customers and a detailed understanding of the market. A proactive market orientation identifies potential needs by working closely with key customers. Focusing on potential market needs increases the company’s flexibility, and understanding new market entrants helps develop innovative products.
A successor should also examine how the market shares of their products are trending. Are they stable? Are they outperforming the market or underperforming? This can also provide insight into the company’s responsiveness in the market.
SWOT Analysis as a Tool for Assessing the Company’s Future Viability
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT analysis is a technique for evaluating these four aspects of a company and thus forms the basis for a successful future strategy. The SWOT analysis examines both internal and external factors. The goal is to gather and analyze as much information as possible.
The SWOT analysis can help the acquirer question risky assumptions and uncover dangerous vulnerabilities related to the company’s performance. The analysis provides new insights into where the company currently stands compared to its competitors and helps develop the right strategy for every situation. Many business owners are aware of their company’s strengths. But only when these are considered in relation to weaknesses and threats do they realize just how unreliable those strengths actually are. The same applies to the company’s weaknesses. The analysis may reveal opportunities that were previously overlooked.
When preparing the SWOT analysis, the successor should base their information on a broad foundation. To this end, it is advisable to assemble a team consisting of individuals with different roles and from various levels of the company.
Strengths
Strengths are things the company does particularly well or that positively distinguish it from its competitors. Strengths are an integral part of a company. What advantages does the organization have over other organizations? These could include employee motivation, access to specific materials, or a robust set of manufacturing processes. What values drive the company? What unique or cost-effective resources can the company draw upon that others cannot?
The successor should shift their perspective and ask themselves what competitors might view as the company’s strengths.
An aspect is only a strength if it provides a clear advantage. For example, if all competitors offer high-quality products, then a high-quality production process is not a strength but a necessity.
Weaknesses
Weaknesses, like strengths, are inherent characteristics of an organization. Here, a successor should focus on their employees, resources, systems, and procedures. They should consider what to improve and which practices to avoid.
Here, too, a change in perspective is important.
Opportunities
Opportunities typically arise from situations outside the company, which is why it is important to monitor market developments and identify future trends. Opportunities can stem from developments in the market and in the technology used. Political measures can also have immediate effects. For example, the COVID-19 pandemic has shown that companies with a high degree of flexibility were able to seize opportunities quickly. Changes in social patterns, demographic profiles, and lifestyles can also open up interesting opportunities.
Risks
Threats include anything from outside the company that could have a negative impact, such as supply chain issues, changing market demands, or staff shortages. It is important for the successor to anticipate threats and take steps to counter them.
Obstacles encountered when bringing a product to market and selling it must be taken into account. Quality standards and specifications are subject to constant change. New technologies are a pervasive threat, but also an opportunity.
Conclusion: A SWOT analysis is only valuable if all information is included. It is therefore important for successors to be realistic and to acknowledge even unpleasant truths.
Corporate Knowledge and Knowledge Transfer
Knowledge is considered a key resource that distinguishes one company from others. The know-how available within a company depends on the knowledge and skills of individuals. These constitute the company’s intellectual capital or organizational memory. Knowledge resources can enhance a company’s ability to create and implement innovations.
The successor should therefore ask:
Is the existing know-how up to date, and has it been consistently maintained?
Have there been regular training and continuing education programs?
Has there been—and is there currently—an exchange of information among employees?
Did the corporate culture facilitate the synthesis and reconfiguration of existing skills?
Final Considerations
From the perspective of potential successors, both the path to the business transfer and the transfer itself pose a major challenge. Whether the successor possesses a strong entrepreneurial self-confidence and feels capable of successfully leading the family business, or is plagued by self-doubt, a rational analysis of his life goals and a careful assessment of the company’s long-term viability should be an indispensable part of his planning. Only if they accurately assess their own abilities and motivation, as well as the company’s economic conditions and opportunities—and if they also demonstrate an awareness of innovation, diversity, and constructive communication—will they successfully follow in their predecessors’ footsteps. Bringing in external investors and managers can also make the company more sustainable.
In general, succession planning consulting can help the successor become familiar with the company’s internal processes and contribute to understanding and embracing the existing corporate culture. This supports the successor in discovering new opportunities within existing business activities and leveraging them to generate competitive advantages.
