Most family businesses don’t make it from the third to the fourth generation.

Why?

Here are two common reasons, offered by speaker Vince Rath of Optimum Retail Solutions during the American Gem Society Conclave last week:

Often, the successor is unclear. How do you decide which of your three children is going to be the one to lead the company?

The timeline is undefined. The senior generation may be wondering what they’re going to do if they leave.

In order to begin preparing your next generation for succession, it’s smart to refrain from swooping in and solving every problem.

Instead, become a coach and counselor to teach them how to make decisions. Define the problem, then slow down and say, 'What would you like to do?' Make them think. After they’ve thought, if they can’t come up with an answer, provide some options. Let them work through intended and unintended consequences of those choices.

If you don’t begin to share authority, staff may go around your successor to get answers from you because they’ve been conditioned to do that. Do clarify the chain of command by building a traditional organizational chart.

Be honest with your staff, including your relatives. But be kind and respectful and professional as well as honest. Elevate all communication to a professional level.

What is the next generation responsible for? Give them a job and set clear expectations. Don’t make excuses for them.

Make sure the next generation has the soft skills that will ensure their success, too.

“They don’t have to be sent off to get an MBA but they have to be getting soft skills in some fashion,” Rath says. Soft skills include such things as decision-making, communication, leadership, initiative, critical observation and integrity.

When the relative in question has made the decision to stay in the business, begin talking about when the transition may occur, or what situations or events will trigger the succession.

If they haven’t yet made the decision to commit to the business, conduct developmental activity without letting them know they’re being cultivated. That way, they won’t feel like they are letting the family down if they decide to do something else. Professional development may naturally set the stage for a commitment to the family business.

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