MarchFifteen is a firm made up of industrial psychologists and myself, a business/executive coach with experience in organizational development. We frequently work with family enterprises on the human resource side of the transition process — and offer this brief article as a model for other advisors and consultants to consider.
To begin the human resource planning for a family business in transition, we start with core questions for entrepreneurs to consider. This is the Phase 1: Plan to Plan: part of the process. For example:
- What is your timeframe for the next large transition in your business?
- What is the expected outcome you intend, or would like to have?
- What is your culture like now?
- What are the scenarios you envision over time? These will be in black and white at this time.
These are basic questions that allow us to get to know the clients and their needs better as time goes on.
Next, along with the owner(s) we look at where the business is going, and fill in the possible “people scenarios.” This is the Phase 2: Environmental Assessment part of the process. Questions asked in this stage include:
- What is your plan?
- What are your major business processes?
- How can we fill in the blanks for your scenarios from Phase 1?
The next two phases – Phase 3: Readiness Assessment and Phase 4: Implementation — allow us to look at the “people budget.” We ask:
- Are there enough human resources of the right type for the next chapter of the business and will we be changing any of these characters around? At this point we do an assessment of talent that is helpful to both owners and potential successors.
- What is the timing and approach? Responses to these questions will let us know how we can let other important people –staff, clients and partners — know of changes as soon as possible, in a respectful, timely and professional way.
To demonstrate this process in action, here are two case studies.
Case Study 1
A mother and daughter are in the business, plus two partners. All four are in charge of the three discreet parts of the business worth $40M with 50 employees. Each partner is assigned to the first two businesses, which are now ready to be spun off and to be purchased by those partners. The mother and daughter are still jointly involved in the third businesses.
Over time, the final part of the business involving the mother and daughter needs to be transferred to and run by the daughter, who is in her thirties. We ask in Phase 1: Plan to Plan, how quickly do you want this to happen? In Phase 2: Environmental Assessment, we ask how quickly the customer will readily accept the daughter as the owner and leader of the business? In Phase 3: Readiness Assessment, we assess and see where the daughter needs professional development. Perhaps we will involve a mentor or coach for the daughter at this time to accelerate her development process. And in Phase 4: Implementation, we help with the announcement and timing of the official change of leadership in this business.
Business continuity is essential and needs to be planned for and carefully handled to keep the business vibrant and viable as the daughter takes the helm. This will be planned and rolled out within the next six months and then finalized within the next year for complete transfer to the daughter via a share purchase over time from the mother, who may or may not stay on in some advisory capacity. This will be worked out as we go through the process assessing the mother’s next chapter and her wishes.
Case Study 2
The founding partners of a $20M engineering firm have reached a point in life, because of health and personal reasons, that they want to determine what the future leadership of their business will be five years down the road, or sooner. They have looked internally, within their own respective families, and no members have shown interest, as they have followed their own successful career paths.
They have other choices, however, one of which is to sell externally, and the second equally viable choice, is to sell internally to three potential candidates inside the business. This information is what is contained in Phase 1: Plan to Plan of our process.
The next step, Phase 2: Environmental Assessment gives us more information about how the business functions in order to make these quick black and white scenarios take on more detail and colour as we meet and discuss further with the founders. In Phase 3: Readiness Assessment, we have done management skills and successor assessments for each of the three internal candidates. Our findings are that all candidates care about the business and are in the right place — the first successor will be ready in one year, the second will be ready in two to three years, and the third is still a question – she is technically capable, but it is too soon to tell if she will be motivated to take the ownership challenge.
In Phase 4: Implementation, the owners will sell 5-10% of the business to the candidate who is ready in one year, and offer 2-3% to the two other candidates as a start. This will set the stage for ownership transfer over the next three to four years, depending on how each possible successor meets his/her goals.
It is important to recognize that in each situation, including these two case studies, the stakes and the dynamics are different and complex. These transactions require the advisor to offer encouragement and use ingenuity and creativity at every step of the way. The assessment and development of talent in the family enterprise is critical to helping organizations build and develop their teams as they move toward the next chapter within the family business. The process described above provides a framework to assist in the assessment and development of talent and to provide continuity in the family business through the transition.
About the contributor:
Maria Milanetti is a partner at MarchFifteen Consulting Inc. and has a background and training in the fields of organizational transition and strategic planning. She was raised in a “family business” family. Maria will present “Human Resources and Communications during Business Transition” at the FFI Annual Global conference in October. Maria can be reached at firstname.lastname@example.org.