Daddy Issues: 5 Keys to a Successful Exit from the Family Business

By Jim Moody

More than any other factor, a father’s willingness to retire at the right time determines the success of a family business in the next generation.

Most people think it’s the heir’s ability to lead, and certainly that’s a big component. But in my experience, it’s the father (or other related person) who plays the most important role. The heir can be completely ready, but if dad won’t leave, everything goes bad.

There are a couple of reasons for this. First, we typically become less effective as we age. We become risk-averse. We don’t want to learn new things, particularly when they involve technology (and what doesn’t involve technology?). We are less passionate about the business. We don’t want to invest money into things that might take years to come to fruition. Staying deep into this period of diminished effectiveness has an opportunity cost for the business.

Second, there is a season of life that is the sweet spot for taking over a business. Between the ages of 35-45, the heirs generally have enough experience, wisdom and emotional intelligence accumulated to be effective in leading the business. By the time we are 50 or so, we peak and begin to become less effective. (Harsh, yes. But you know it’s true). If dad stays deep into his 70’s, the heir has likely aged through this sweet spot and has fewer years in the “fire in the belly” season. The business loses the opportunity to take the benefit of generational succession.

Here are some guidelines for fathers as they think about how to leave well:

Start planning early. It takes at least 10 years to do it well. Part of the reason for that is getting yourself emotionally prepared, and that just takes time. Set a date that you are going to retire (ideally not later than your 65th birthday), and begin working toward that goal from the financial, business, and emotional perspectives.

Create a Life Outside the Business. If you haven’t already, begin creating a life for yourself outside of the business. One of the reasons people stay too long is because they have no identity outside of being president of the business. If I’m not that, then what am I? It’s so much easier to move TO something than FROM something. Create something you are excited to move toward. Again, this takes time.

Transition Gradually. Begin seriously transitioning the business about 5 years before your stated retirement date. Think of it as an exchange zone in a relay race. At the beginning of the transition, you have complete control of the business. Start releasing things you like to do the least. Over time, you are doing less and less. It gives you time to work on your new life while also giving the heir the chance to do some things with your guidance. By your retirement date, the heir has taken over everything. This is a far better approach than going cold turkey.

Leave Completely. If you have an office in the building, you are going to be the de facto head of the business. If people don’t like what the heir is doing, they are going to come to you to complain. Your presence, even if you have the best of intentions, sends the signal that the heir is not ready. It doesn’t mean you can’t be a resource for the heir. Just do it privately. Stay away for at least 6 months. If you come back to socialize after that time, come dressed like you are on vacation. I know it sounds silly, but it sends a subtle but important signal that you are not there for work.

Support New Leadership. Be open to the fact that the heir will manage the business differently than you did. Mistakes will be made, but lessons will be learned from those mistakes. Never, ever be critical of the new leadership except in mentoring the heir privately. Speak positively about changes, even if you don’t agree with them.

These tips don’t guarantee success. Various other factors can affect succession, some of which are external and beyond control. And to be fair, I know of successions that didn’t follow these guidelines and still succeeded -- they just had a lot of unnecessary drama and pain.

If you’d like help in planning your succession to give your business and heir the best chance of succeeding while setting yourself up for happiness and fulfillment in retirement, Misura Group can help. 

Evolve Strategically,

Jim Moody

Contact Jim Moody at jmoody@misuragroup.com.