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Want the next-gen to manage the family business? Read this first

Getting the next generation into the family business used to be easy. They joined within a couple of years of graduating. A rotation across departments followed. Taking on more responsibility, till they got the coveted corner office. That’s one way to do it.  This article looks at an alternate way to get the next generation into the management of the family business.

What could go wrong with the next-gen joining directly after graduating?  Let’s look at the worst-case scenario.

A next-gen joins straight after graduation.  At first, he likes it and does stints in 3 departments.  7 years later he realizes he isn’t enjoying the work.  Unfortunately, there are no exit options.  He lacks strong sector or domain experience.  Potential employers discount the value of ‘inherited experience’.  Left with no option he is forced to stay in the family business.  The result – bitterness which transfers to family life.  What started as a great way to continue the family’s management of the business, ends in disenchantment.

So how do we guard against the worst-case?  There’s no sure way.  But there are 4 things to consider before getting the next-gen in

One- communicate, communicate, communicate

It’s important to listen to the next-gen.  Often, they understand the current world, especially around technology, better.  If you treat them like children and they don’t feel appreciated, they have a strong reason for not joining.  Or worse, join and resent not being taken seriously.  So, communication is key.  And that includes lots of listening!

Two- understand reasons for joining

Don’t make it a tradition to join the business.  There should be passion and a full understanding of what the next gen is getting into. Emotions are obviously involved in the decision. But, don’t make it the primary reason.

Three- Education.

Often the next-gen is cajoled into joining courses in-sync with the family business.  For example, a stream of engineering related to the business.  Followed by a post-graduation in a field which is even more closely related to the business.  This reduces the options available to them, till they’re only qualified to work in the family business! The next-gen deserve education counselling just as much as any other young person.

Four- Work Experience.

Some family businesses mandate at least 5 years of experience in another entity and at least one promotion during that period.  Why? It gives the next-gen exposure to a different business.  It gives them confidence in being successful in a different business.  Employees look at the next-gen as a professional rather than an inheritor. The disadvantage is that they might like the outside world so much, that they don’t come back!  Well, if that makes them happy, that’s possibly something worth considering!

The next-gen has joined.  Now what?

One- clear role

Don’t manufacture a position.  Put them in a role with the potential to make a difference and provide time and space to make that difference.  Rotation across departments is a great option for a holistic view and understanding of strengths and interests.

Two- clear reporting structure

It’s important that everyone is clear on the next-gens role and responsibility.  Employees look at them differently as inheritors. With a clear reporting structure, they know the next-gen is as accountable as any of them.  And that increases acceptance.

Three- appraise performance.

As with other employees, appraise performance.  It helps to understand where they’re right and where they need to improve skills or performance.  These discussions are difficult.  “Will telling my son in office that his performance wasn’t great, make things uncomfortable on the dinner table?”  They might.  But it’s better than sub-par performance and a loss of employee respect.

Four- clear compensation.

Be clear on compensation levels.  Adding performance bonuses helps in motivation to perform at the highest level and shows the ability to own the area of responsibility.

Five- know when to let go! 

There are numerous examples of founders not letting go.  That’s understandable.  They’ve created a business with sweat and tears. Many times, it’s a case of the child thinking “If my parent would just let go….” and the parent thinking “If my child would just take hold….”.  It’s important that a patriarch lets go at some point.

To end, it’s great to have the next generation running the family business.  Some of the best-performing companies in India and internationally are owner-managed.  You just can’t beat the passion you get from an owner-manager.  It’s just that a lot of thought needs to go into the transition.  Succession plans aren’t made in a day.  It’s a process, something which you need to start thinking about early.

What’s your experience with bringing in the Next Gen? Have you used a different approach that has worked? What have been the challeneges you faced? Comment below or write to / call me on or +91-9322737127

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