Building a business and a heritage
Succession planning is top-of-mind even for Elite Entrepreneurs who are just starting out, but as companies mature handover priorities shift dramatically.
Growing older is a reality for all of us, even super-human Elite Entrepreneurs, and succession thoughts are as prevalent among millennial company owners as baby-boomer tycoons.
Yet as entrepreneurs’ businesses mature, their exit plans change markedly, data from the 2019 BNP Paribas Entrepreneur Report shows.
The report, which surveyed 2,763 business owners in 23 countries in collaboration with Scorpio Partnership, charts the five key stages of a business’s lifecycle – Creation, Growth, Development, Consolidation and Transfer - and the evolving opportunities and challenges these phases present.
Entrepreneurs whose businesses are in the Growth stage are on average aged just 37 and this youthfulness is shown in their expectations regarding the long-term fate of their companies. Over 60% foresee handing it over to a family member, while 29% predict management will take the helm and just 9% envisage selling to a third party.
Yet entrepreneurs with businesses in the fifth and final stage, Transfer, have distinctly different plans. Aged 61 on average, these veteran magnates see selling to an external buyer as the most likely exit route, with 41% predicting such an outcome. Only 37% believe a family member will take over and 22% foresee management assuming control.
For those who are readying their departure, the two biggest concerns are implementing a plan to preserve their wealth and choosing the right time to sell.
What seems clear is that in the early stages of their companies, entrepreneurs are enamoured with the thought of handing over their business to younger relatives, but as they get older and their businesses mature, this prospect seems less practical.
HOW TO PREPARE A SUCCESSOR?
Company owners are insistent that their successors obtain practical experience in running the business and immerse themselves in its culture before they can be considered ready to take the step up.
Those were exactly the concerns of Cindy Galardi Culpepper, Galardi Group chief executive and chairman, when she was preparing her 29-year-old son to become president of the family-owned restaurant group.
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“He started working at the company aged 13 as a fry cook in the restaurants. Over the years, he worked in different positions – his father would put him in marketing one summer, then next summer he worked with a broker to understand finances and investing. He was made president partly because he had worked in every department and knew the company inside out.”
Cindy Galardi Culpepper
Galardi Group chief executive and chairman
She herself experienced the difficulties of stepping into a loved one’s place when her husband John, the company’s founder, died in 2013, leaving her to assume control of a firm generating around $290 million in annual revenue.
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“When I took over, I encountered a lot of resistance – and rightly so. I’d been the wife of the founder for 27 years, but people only knew me from social gatherings, so they didn’t have any confidence in me,” says Mrs Galardi Culpepper. “In hindsight, I should have come in quietly to observe and then built up the trust I expected from the get-go.”
Cindy Galardi Culpepper
Galardi Group chief executive and chairman
Establishing a family business dynasty is still alluring for BNP respondents who took part in the survey and whose combined net worth totals more than $16 billion, with 51% saying they plan is to transfer ownership to a relative. Why? To safeguard the company’s financial worth, to perpetuate its core values and because of their confidence in the next generation’s abilities.
Yet for all that faith, business owners are apprehensive about relinquishing control, with 53% warning that their designated successor is unready to take the helm, while 13% have still to find someone suitable for the job.
PLANNING IS KEY
To allay these fears, long-term planning is essential, as Martine Reynaers, chief executive of Belgium’s multinational Reynaers Aluminium group, can attest.
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“I am second generation but sadly my father died very young, so I was never able to work with him. By the time I joined the company, we already had an outside management team and of course I learned a lot from them. Today, we maintain that mix of family and external directors on our board.”
Younger family members are already involved with the firm’s governance structure.
“It has been great to see them so interested in the business. We have joined a family business network, an active association that allows them to network and learn from other ‘Next Gen’ peers. We are inspired by younger family members to make a legacy and to safeguard the company spirit for future generations.”
Martine Reynaers
Chief executive of Belgium’s multinational Reynaers Aluminium group
Download the full report for a complete analysis.
For a quick overview, see our infographic.
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