February 13, 2018
By Danielle Walsh
We have all heard statistics stating 67 per cent of family businesses won’t make it to the second generation and 88 per cent won’t make it to the third. (For more, see the fourth edition of Family Business by Ernesto J. Poza and Mary S. Daugherty, published by South Western Cengage Learning in 2014.) One of the contributing factors to these dismal numbers lies in the fact the next generation’s inability to manage or lead the business.
Should I go back to school? Dad, will you tell someone to mentor me or can you do it? Who is going to teach me sales and finance? These are questions I often hear from next-generation successors who are aware they don’t have the skills to lead. More importantly, they want to acquire these skills but aren’t sure how to go about it or what type of training or education will help them the most.
Family business owners often think their children should be able to gain managerial and leadership skills from simply being around them and the business for years—as if through osmosis! However, this is not the case. Potential successors and current leaders of the family business alike need to be committed to the grooming of the next generation.
In an article entitled “Next in line?” from the October 2016 issue of Jewellery Business, I explained how to develop an effective grooming plan. However, it did not cover the types of learning activities that can be part of the grooming plan. There are a number of options, including:
Is one method better than the others? I believe a mix of all of these options is typically best.
To illustrate my point, I will use Sophie, a next-generation successor who has a degree in commerce (with no specialization) and wants to make it into management and eventually ownership at her parents’ jewellery store. She worked for two to three years in an office, where she was part of the human resources (HR) team. As I walk through the various learning activities, I will examine what might be best for Sophie.
This should be the preferred method of training. It allows the next generation to become familiar with the processes, employees, and managers and helps them learn the ins and outs of the business they may want to lead one day. Given the fact most family businesses require a university/college diploma and outside work experience, the most important and common missing link is really internal knowledge and gaining the respect of employees by starting at the bottom.
Far too often, however, in-house training is not formalized and gets delayed due to other internal considerations. Family businesses need to make the next generation’s learning and grooming a priority, as it will impact the future viability of the business. Historically, those that do have a better chance of surviving in the long run. Learning from the bottom up and rotational programs will help the successor better understand how the business works and earn the respect of the nonfamily employees and managers.
Once Sophie joined the family business, she should have started her rotational program. Let’s say her parents (the current owners) identified the five most important areas of the business as:
Ideally, Sophie would start her career in the family business by doing six months of work in each of these five divisions. This would help her understand how each division works while shadowing senior employees and deciding where she would like to focus her time in the future.
However, in many small to medium businesses, this is not an option. In Sophie’s case, the business cannot afford to lose her from the sales floor. This means her rotational program may be adjusted to one day a week off the sales floor, or two to three hours two to three times a week. The important part is to ensure Sophie, her supervisor, and her mentor in the division are all aware of the timing and expectations. This process will also help her and the current owners understand what her strengths and weaknesses are.
University degree or college diploma
Most of the family businesses I work with require a university degree or college diploma in order to make it into management. However, going back to school to get an additional degree after acquiring a first one may not be of great value, and can be extremely time-consuming and expensive.
This type of learning tends to be more theoretical in nature, but does allow the successor to learn critical thinking, teamwork, and organizational skills. Given these benefits typically make such education a base requirement for management, it is unlikely to be included in a grooming plan, as the successor would have already completed it.
If, however, a family member joins the business with no intention of moving into management, then changes his or her mind, going back to school and obtaining a degree would be a required part of the grooming plan. It could also be in the plan if the university degree already obtained is completely unrelated to the business and there is a degree or diploma that is relevant.
Sophie already has her degree, so would be unlikely to want to go back to university. However, it could be very useful for her to take classes in gemmology or design if she is interested. If her parents think this is crucial to the business, the sooner they talk about it with Sophie, the better. This is not something that should be sprung on a member of the next generation at the last minute, but might be a great opportunity once she is done her rotational program (i.e. after 2.5 years).
Many universities, colleges, and organizations now offer corporate training covering a broad range of topics, such as leadership, management, financial/accounting skills, project management, sales, marketing, communication, facilitation techniques, and change management. These courses tend to be a few days in length, cost-effective, and practical in nature. Further, there are a number of government programs that can help support the cost of this training, such as the Canada-Ontario Job Grant for those in Ontario. This is a great way to bridge a weakness in your grooming plan or introduce a skill or competency no one internally can help teach.
Sophie’s parents have always ordered the inventory based on their personal preferences. When it comes time for her rotation in inventory management, she realizes learning from her parents is not great for their relationship—but also that there have to be benchmarks or guidelines she can use. In this case, taking a corporate training program specifically in inventory management for jewellery stores would be of high value. She could then work with her parents to implement some of the items she learned to improve their purchasing decisions.
Mentorship can play an important part in grooming plans. It is best if the mentor is not a family member, as it can be difficult to be honest about what skills are lacking or need to be focused on.
Is the mentor meant to help you with one skill, monitor the entire grooming plan, or be there for support? Is the mentor internal to the business or external? These items will all depend on where the successor is in the grooming process and the type of help required. A mentor who is internal to the business can be useful, as the successor will have access to that person regularly—but this would also be part of the mentor’s role in the organization, meaning the level of commitment required of him or her may be greater than with a mentor volunteering from outside of the business.
It is typically best to have an individual outside of the organization and family to help oversee the entire grooming plan and hold the successor accountable, as well as to deal with any issues that may arise, such as the rotational program not being implemented. If there is a particular skill the successor is lacking, such as sales, the successor should be encouraged to find a mentor specifically for that skill. This mentor could be internal or external. Simply put, most grooming plans require one person to oversee and keep the successor accountable, mentors for specific skills that need to be learned, and support from current owners, parents, and managers.
Other than her parents, there aren’t many senior managers who would be suitable mentors for Sophie. This means she needs to look outside the business for a mentor to support her in her grooming process and help her achieve her goals. This could be a more experienced businesswoman or a family business practitioner who will also help her navigate the family dynamics. Sophie may use the family business practitioner to help her oversee the entire grooming plan, but may also obtain help with inventory management from an individual outside her organization who has this experience.
Customization is key
Every successor is going to need a different grooming plan with different learning activities. The key is to ensure the plan or process is formalized—especially the in-house training! By putting together a customized plan with a variety of learning activities for each next-generation successor, you can help ensure your family business has a better chance of surviving from one generation to the next.
Danielle Walsh is founder of Walsh Family Business Advisory Services, a consulting company specializing in helping family-owned and operated businesses navigate the rough waters of management and ownership succession. She is a certified public accountant (CPA), chartered accountant (CA), and holds certificates in family business advising and family wealth advising from the Family Firm Institute (FFI). Walsh is also president of the Ottawa chapter of the Family Enterprise Exchange. She developed her philosophy and desire to help family businesses from her father, Grant Walsh, who has worked as a family business practitioner for the last 25 years. Walsh also currently teaches the first family business course offered at the undergraduate level at Carleton University in Ottawa. She can be reached via e-mail at firstname.lastname@example.org.
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