Succession planning is essential for family business survival, especially for those where leaders are nearing retirement. According to the Family Business Center, 70 percent of family businesses would like to pass their business on to the next generation, but only 30 percent will be successful.
In Part 2 of a webinar series on family businesses, NetSuite’s Ranga Bodla sat down with Dean-Paul Hart, second generation President of Compac Industries, and Matt Grant, second generation Owner and Vice President of Sailrite, to find out how family businesses should approach transferring power from one generation to the next.
People are key to the family business
Most family businesses consider all employees, blood relatives or not, to be family. Hart considers Compac employees extended family members.
“We love family. Not just our own but all the families that work here. The 32 employees at Compac are really 32 other family members we support,” he said, noting that Compac’s feeling of family is fundamental to the company’s continued success. “We wouldn’t be where we are today if we didn’t have such great people to count on.”
Valuing employees is important at all companies, but even more so within family-owned businesses. This is essential to keep in mind as family businesses start thinking about succession planning. At Sailrite, Grant explained there are at least a dozen people that are integral to the day-to-day business. As he advises the next generation of leadership, there is a major focus on effective management.
“Don’t try to micromanage those people by learning their jobs and take over what they’re doing,” he said. “You need to fold them into the business and transition them into the next generation as well.”
It is important for family business owners to relinquish control in some areas and delegate to more proficient employees. Compac puts a large focus on identifying the strengths of employees to pinpoint any gaps in the business and make sure employees handle what they excel at. Hart recently hired his two nephews - one to manage ecommerce and one to manage social media, neither of which are Hart’s strengths. Both Compac and Sailrite insist employees, relatives or otherwise, are the keys to their success.
Start succession planning early
Relatives should be immersed in the business long before leadership is in sight. Hart joined the family business halfway through his undergraduate degree and worked every position at the company—running and fixing machines, filing paperwork, accounting—to learn the business from the ground up. Grant and his wife Hallie started working at Sailrite straight out of college. With mentorship from Matt’s parents, they learned each product line and department, and eventually took over the business themselves.
However, as the family business grows, it’s impractical for third or fourth generations to learn all aspects of the business. Older generations must provide guidance about business operations and strategy with a major focus on mentorship. At Compac, Hart documents and celebrates today’s successes and failures, so the next generation can improve upon them. Equipping family members with proper training is critical.
“Handing down leadership is what’s going to sustain Compac Industries for many years to come,” Hart said.
For Sailrite, succession planning has been top of mind recently. With a non-owner brother, two sons and a nephew involved in the day-to-day business, the Grants need to figure out how to incorporate everyone. Before the kids came into the business, the Grants were thinking “what is our out-strategy?” Now they’re thinking “what is our succession strategy?” Matt plans to seek counsel and education to better understand the succession process.
“We have maybe 10 years to prepare for it, but honestly I think it’s going to take that long to prepare and do it properly,” he said.
Technology is essential for long-term survival
With the internet and pressure from disruptors like Amazon, family businesses must evolve their business models and incorporate modern technology to stay competitive.
Both Compac and Sailrite credit their investment in NetSuite as an integral part of their long-term business and succession strategies.
Compac uses NetSuite for financials, accounting, warehouse and inventory management. Based on NetSuite best practice recommendations, the company adjusted business processes that had been in place for over 35 years, sparking better business visibility and eliminating manual efforts on the backend. Compac employees feel more empowered with better internal communication and the ability to work anywhere, anytime via the cloud.
Technology was an essential part of the leadership transition at Sailrite, which runs NetSuite for financials, accounting, inventory, ecommerce and Bronto email marketing. Sailrite uses Bronto to continually engage customers, build brand loyalty and increase customer retention. This unique custom content strategy sets the brand apart and drives future purchases.
“We wouldn’t be the company we are today if we didn’t have tools like [NetSuite and Bronto]. Before NetSuite, I thought we would look at a new ERP every 3 – 5 years since technology moves so quickly and I always assumed something better was out there. In 12 years, there hasn’t been a next best thing.” Grant said.
Learn more about how to successfully transition your family business to the next generation,
Source of the blog: Netsuite blog