Your Happy Family will Suffer if you Fail to plan for Business Succession

"Whenever we talk about the future, we look at it in terms of generations rather than quarters.” Michael van der Post, Compaxo

Many entrepreneurs are so focused on managing their business and creating value that they overlook its continuity after them, risking the loss of everything they've built with their sweat and precious time. Succession planning is a critical strategy to preserve the value of your business. Even prominent figures like Dhirubhai Ambani failed to plan for succession, leading to a well-documented split and its aftermath.

Why Do People Fail to Plan for Succession?

There are numerous reasons why succession planning is often neglected:

1. Assumption It's Too Early: Believing there’s plenty of time left.
2. Assumption of Longevity: Thinking death or incapacitation is a distant possibility.
3. Fear of Losing Control: Concern over relinquishing power to the next generation.
4. Lack of Confidence: Doubts about the next generation’s ability to manage the business.
5. No Obvious Successor: Not having a clear candidate to take over.
6. Time Constraints: Being too busy to consider future planning.
7. Optimism Bias: Thinking, “If Amitabh Bachchan can work beyond 80, so can I.”
8. Sensitivity: Avoiding the delicate topic altogether.

Consequences of Failing to Plan for Succession

If you die or become incapacitated without a succession plan:

1. Leaderless Business: There will be no one to manage the business.
2. Value Loss: The business could lose key employees, customers, and its competitive edge.
3. Litigation Among Heirs: Leading to spoiled family relationships.
4. Business Split: Making it non-competitive.
5. Forced Sale: Potentially at a discounted price.

Key Components of Timely Succession Planning

1. Identifying a Successor: Choose a well-thought-out candidate.
2. Grooming the Successor: Allow time for grooming the successor.
3. Clarity Among Stakeholders: Ensure family members and key employees understand the plan.
4. Fair Division: Balance ownership and management roles based on competence and family needs.
5. Family Constitution: Establish a document that provides clarity and a platform for family members to express their views and participate in business affairs.

Lessons from Prominent Business Houses

Large business families like the Ambanis, Wadias, Singhanias, and firms like Amarchand Mangaldas, Kirloskar Group, Baba Kalyani, Apollo Tyre Group, and the Hindujas have all struggled with succession issues, leading to litigation and public disputes. Not every family business can afford such conflicts, which can severely impact their quality of life and business value due to failed succession planning.

A meticulous, shrewd, and successful entrepreneur fails the family when they neglect to plan for the next generation. It's already late—think of succession planning today. Discuss it with your confidants, trusted professionals, and those who have already undergone the process.

"A leader's lasting value is measured by succession." John C. Maxwell

SUCCESSion planning is a necessary ingredient of a SUCCESSful business.

Share your views / experience for the benefit of others.

PS: In the next post I will cover why it is important for everyone to make a WILL to avoid disputes, litigation, and pain of procedures.