“Planning is bringing the future into the present so that you can do something about it now.”
– Alan Lakein

Have you noticed how frequently businesses come and go? You buy a product or service from a good local company for years. Then you hear that the company has gone out of business. Someone else starts up a company and takes over the business, but after a few years the cycle repeats itself.

We see this phenomenon in all industries. It isn’t that there’s no business. Even in these difficult economic times, individuals and organizations need essential products and services.

So why do these companies fail? As surprising as it may sound, the problem often stems from poor succession planning. Many founders of family-owned businesses and other closely held businesses simply pass the reins down to their children without making sure the next generation is ready to manage the business and keep it thriving and growing. Most businesses fail following the transition from the founding leadership to the next generation.

Here’s an example of what I mean. We’re working with a company that sells landscaping products. The company was founded by a husband and wife who’ve built up a nice $10 million business over the years. They sell great products and they’re known for providing exceptional service. Their future prospects are excellent. There’s ample opportunity for growth in the region, and the founders have good reason to believe they can expand the business nationally.

The founders plan to retire in about 10 years and they want to turn over management responsibilities to one or both of their sons. However, they haven’t thought about three key issues:

1. Do their sons have the capabilities and skills necessary to manage the company as it is today? It requires vastly different talents and skills to run a company than to work in a company.
2. Are the skills needed to grow the business from a regional supplier into a national supplier the same skills that have grown the business to its current level? If not, do their sons have the additional skills necessary to fulfill this growth goal?
3. What are the potential negative impacts of keeping the business in the family if the business gets in trouble? Or if it is wildly successful?

Fortunately, the founders recognized that they needed outside expertise to evaluate their sons’ leadership capacity. After meeting with and conducting formal assessments of both sons, I’ve concluded that one has the capabilities to manage the company, but no interest. Having watched his parents work so hard for such a long time, he is most interested in a teaching career. The other son assumes it is his birthright to take over the family business, but he lacks key leadership capabilities and skills. He dropped out of community college and is not known to be very interested in learning about business in general and the family business in particular. He just figures it should be his and things will work out.

My next step will be to meet with the company founders to review my findings and discuss their options. If they feel strongly about keeping the business in the family, they will either have to convince the more capable son to take the job, or they will have to make a significant investment to prepare their other son to lead (a very unlikely proposition). Bringing in a strong manager from outside may be the only way to ensure long-term survival of the company, even though the founders are reluctant to do so.

Because the founders took action 10 years before their planned retirement date, they have time, although not a lot of time, to evaluate their options and work out the best solution for all involved. This will ensure that their landscaping supply company not only survives the transition to the next-generation management, but continues to grow and expand across the country.

Are you planning to retire within the next 10 years? Have you thought about the capabilities and skills needed not only to maintain your business, but to grow it after you retire? If not, make it a priority to develop a strategic succession plan.