Succeeding Succession: Key Tactics for Second-Generation Family Business Leadership

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We are about to witness “The Great Wealth Transfer” in which, over the next two decades, upwards of US$80 trillion will transfer intergenerationally. As a family company who also helps and services advisors of HNW/UHNW individuals with their succession planning needs, I know all too well the struggles of protecting, maintaining, and growing generational wealth. Most of the families who have amassed generational wealth have done so through family or closely held businesses and will face the challenges of succession and transfer of these to their heirs.

I am one of the fortunate people in this world that was given the opportunity to run a business founded by my parents. As a second-generation business leader, I benefited from the fact that our founders, early on, understood the importance of a planned and strategic transfer of power. In the early years of working with my dad, I recall a meeting with a client where both of us were present, and although an important decision was up to me, the client only focused their attention on my dad. After the meeting, my dad was quick to point out that his presence would become a distraction and ultimately undermine my authority in situations and so moving forward he would only attend meetings where I thought it would benefit the situation: a truly enlightened founder. Not all of us are so lucky to have the support of the first-generation, which is a vital part of any successful transfer of responsibility.

Despite a strategic and clean transition, it has not been entirely easy as a second-generation leader. While our company was founded 22 years ago, and I took over in 2017, our company today looks vastly different than even a year before I took the reins. To position our business to grow and be sustainable, we needed to pivot our strategy and operations. It was clear that we could not survive maintaining the status quo; we needed to change. While founders have their challenges and the percentage of failure is high, second-generation leaders face very different challenges which have the added responsibility of legacy, pressure from the family, and a duty to grow. Often, many feel these leaders did not earn their position given the familial ties, so they do not receive recognition, accolades, credit for their accomplishments and ability to lead. It is a thankless job—if a second-generation leader fails, it is their fault, if a second-generation leader succeeds, it is because of the first-generation’s work. It is no surprise that many family companies do not last through the second-generation despite the hard work from everyone involved.

Change within a family business is difficult as you must uphold legacy and respect for the founders’ vision, navigate family dynamics, deal with informal business structures, and of course manage the unknowns around trusting those outside the family. For all those embarking on this journey, recognize it is difficult and it is not for the faint of heart. In order to succeed in today’s environment, you must stay true to the values of the family while innovating, you must balance family talent while implementing outside professional talent, you must stay conservative to maintain what has been built while taking large risks to push the company forward, and you must force change as the market shifts even when everyone is telling you that you should not deviate from the founder’s strategy. Second-generation leaders must adopt an entrepreneurial mindset to succeed today.

As we experience “The Great Wealth Transfer,” many people in our community are, or soon will be, in my exact position. Here are a few key points to consider as you take on this huge responsibility:

Understand the responsibility of stewardship.

As a famous watch company states in their ads “…?you merely look after it for the next generations.” As we benefit from the foundation that is created before us, we have a great responsibility to leave the company in better shape for future generations. Keep in mind, stewardship is not accomplished through passive or conservative management, it is realized through active thoughtful leadership. In today’s society, steward leadership, which goes beyond family business management and into becoming good corporate citizens, should be adopted as we all have the responsibility to create a collective better future.

Be confident that the values imparted to you are aligned, then make your own decisions.

As second-generation leaders take control, it is important to remember that the responsibility of leadership has transitioned. Now is the time for the second-generation leader to act, utilizing the values and the foundation that have been passed on. While it is important to seek advice, guidance and recommendations, it is the role of the second-generation leader to commit and take action. Be confident that everything has prepared you for your position and your decision-making abilities. A first-generation founder must allow the second-generation leader to lead and cut their own path while accepting and shouldering the responsibility and the accountability to do so.

Adopt an entrepreneurial mindset.

Very few in this world are born entrepreneurs. Most find entrepreneurship out of necessity and undergo failure after failure before finding success. As a second-generation leader, much of the groundwork has already been laid, but it does not mean you are not an entrepreneur or shouldn’t adopt an entrepreneurial mindset. In fact, a business owner and/or founder may not be an entrepreneur as it is a mindset more than a title. Entrepreneurial leadership, as Babson defines it, is both a skill set and a mindset that can be taught, enabling leaders to act, solve problems and create value. One of the major contributing factors of why second-generation leaders fail is because they and the founders do not consider them as entrepreneurs. This may lead to a state of stasis or stagnation before an ultimate decline.

Today, leaders must take an iterative approach to business, much like technology start-ups have adopted over the last two-plus decades in their agile approach to development and business. Founders, when advising second-generation leaders, tend to forget the uncertainty they faced and the bold risks they took (and perhaps a little luck) when building the business. These founders’ success was highly due to their passion and mission for what they believed and their unwavering dedication to seeing it through. A second-generation leader must embrace the entrepreneurial mindset to grow the legacy while creating their own. As Babson alumni, we are fortunate that Babson has given us a methodology of Entrepreneurial Thought & Action? (ET&A). This takes a modern approach to entrepreneurship which adopts a continuous iterative mindset to any venture regardless of if it is a startup, a Fortune 500 company, or a multi-generational family business.

Professionalize.

Most family businesses are businesses run by family versus family-run-enterprises. The difference being professionalization. It can come in many forms but the most immediate and obvious one would be to bring in outside talent into the management team and Board. However, developing systems across the organization’s departments is by far the most important part of professionalizing a firm. Many times, the founder’s passion and drive are enough to drive a company’s success in the beginning, but it is the second-generation leader who has to develop and implement systems for the next stages of growth and sustainability.

Pursue knowledge endlessly.

No one does everything right and we can always learn from competitors, other industries, our friends, our family, and our team. Ask for mentors, hire advisors, engage executive coaches. At the same time, the best way to learn is to do: take risks, make mistakes, learn from them, and then do it again.

As second-generation leaders that will be part of “The?Great Wealth Transfer,” we have a huge responsibility to shape the remainder of the 21st century. While we do need to maintain what was given to us, we must allow ourselves to think like founders, take risks like entrepreneurs, and drive our companies to new heights. Thankfully my time at Babson has created a strong foundation in business and entrepreneurship and with the support of the worldwide Babson community, that foundation can become a lifetime opportunity of knowledge sharing and learning. As we approach 2024’s Babson Connect, I look forward to an amazing opportunity to grow personally and professionally with you.

Justin Man

Chief Executive Officer