Getting Started

Can your children run your business?

The issue of succession in family businesses is becoming ever more complex. How can you ensure that the legacy of your venture is secure?

Can your children run your business?

In the past, once an entrepreneur had built a business, they could be confident that their children, nieces or nephews would be willing and able to take the reins. But times have changed. Start-ups often experience explosive growth and big-money buy-outs after just a few years. We’re having fewer children, and later in life. So what does this mean for those who want to see their venture thrive for generations to come?

Ajay Bhalla, Professor of Global Innovation and Family Business in the Faculty of Management at Cass Business School, believes that entrepreneurs working in technology or manufacturing face different issues from those in other spheres, particularly when it comes to succession.

“In sectors such as agriculture, hotels and real estate, where there are a lot of family businesses, there is an expectation that the next generation will join the business,” he says. “But in the case of tech start-ups, the focus is on exit rather than on handing over.”

Future proofing a family business

For the CEO of a successful family business, there’s an emotional investment in the continuing success of the enterprise. “It’s vital, as with any business, to keep innovating and to keep investing and growing,” says Fiona Graham, Communications Director at the Institute for Family Business. “Succession is often on people’s minds – they are aware that at some point they will want to retire.”

Although her two children are not yet in their teens, succession planning is already on the mind of Tamara Roberts, CEO of Ridgeview Estate Wines, the award-winning vineyard started by her parents in the 1990s. Roberts runs the business side of the winery, her brother Simon is the winemaker, and both their spouses are also involved in the business.

“I’ve got two children, and so has my brother,” Roberts explains. “And looking at that next move is really quite critical. My brother, myself, my mum, and our other halves have already talked through what we would like to happen – how we see our children being involved, if they’re involved at all. And how to keep it a family business, without control being given to one party who might decide to sell the business on outside of the family in 40 years’ time.”

It’s becoming increasingly common for entrepreneurs to build their businesses before starting a family, necessitating a transition period between one generation and the next, says Bhalla. “In terms of grooming the family successor – you might be 55 and your child is 15. Or you might have a child who is 25 years old, finished a university degree, but does not want to work with the family business yet.”

External talent

In this instance, many businesses choose to recruit managers from outside. This can feel like a daunting step, but it’s not irrevocable, Graham believes. “You should have the best person running your business, whether that’s a family member or not. And if you decide at 20 that you don’t want to work in the business, at 30 or 40 you will have gained skills from outside that you can bring in.”

Transition is an issue that Roberts has already considered, and she believes it would bring considerable benefits to the business. “I’d like to see a significant family interest in the business, but I’d also like to see it professionally run. That doesn’t necessarily exclude family members, but it certainly doesn’t mean they automatically get the right to run the business. The most important thing for the family is that the business is successful,” she says.

Bhalla cites the examples of Swire Group and Merck Pharmaceuticals, both of which remain in family ownership but have put professional CEOs in charge. “The challenge for entrepreneurs is what legacy they want to leave behind,” he says.

One form that legacy can take, particularly in the case of tech giants like Microsoft and Facebook, is philanthropy. “People have a lot of pride in the family name, the family identity, and want to pass that on. Philanthropic initiatives are part of that plan. For people like Mark Zuckerberg, Bill Gates and Laurene Powell Jobs [widow of Apple’s Steve Jobs], the legacy of the founder is the causes they believe in,” Bhalla says.

 

That’s a long way off for Roberts and her family, but by starting the conversation about succession early, she believes she will smooth the path to handing over to the next generation. “It’s a very sensitive, personal area,” she says. “You have to start those conversations as soon as you can, because otherwise they’d become almost impossible. I’m sure there’ll be lots of bumps along the way, but that’s part of the fun too.”


The opinions expressed by third parties are their own are not necessarily shared by St. James’s Place Wealth Management.