Succession is Passing on Enterprise Capital

What Does It Look Like to You?

Usually, succession planning is done with the assumption that the family intends to pass a singular business to the next generation. But, in an article published in Family Business magazine (Summer, 2011, pp. 60-62), Greg McCann and Rich Morris encourage a different construct. Proposed is the thought that, instead of passing The Business down, the capital can be passed along. By capital, they mean:

  • Values
  • Knowledge
  • Professional Team
  • Financial Assets &
  • Family Legacy

Their perception is based on macro trends in the business world regarding innovation and the implications for privately-held (family-owned specifically) businesses in particular. Trends that are referenced include globalization, technology, and diversification. Combined, these trends necessitate greater innovation than ever before to stay competitive. “Traditionally, family enterprise has been thought of as three generations operating one business. In today’s marketplace, it’s wise to think about three business concepts for each generation to come.” (McCann & Morris)

What do they mean about three business concepts for each generation? The Family Firm Institute, in a study funded by FFI member Joe Goodman on family business longevity, found the following:

  • 10.6% of the families studied controlled only one business.
  • 21.3% of the families controlled five or more businesses.
  • Over the history of the participating families, they had owned an average of 6.1 firms.
  • The families added an average of 2.7 firms through M&A.
  • Over the history of the families’ business activity, their main industry shifted an average of 2.1 times.
  • Over the families’ history, they spun off an average of 1.5 companies.

If privately owned businesses can take note of these facts, different strategic plans will be developed. More focus on the entrepreneurial spirit of the founder, awareness of market shifts, adaptability, and resource stewardship will yield strong results that help make smooth succession a more realistic goal.

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