Let’s talk business;
You won’t live forever.
You’re acting like you might.
But you won’t.
Your company could.
Your legacy should.
So, let’s talk business– about your legacy.
“Most founders never expected or envisioned that their initial efforts would develop into the big and successful enterprises that exist today. In fact, some of today’s biggest firms were started by men or women who simply wanted to be their own bosses. Very few of these contractors started out with clearly defined long-range plans to become nationwide or multinational construction companies in a predetermined number of years.
“Since many sizeable construction companies were started by relatively young people, it’s not unusual to find 30- and 40-year-old companies still being managed by the founder…
“The values and business methodology of a founder are the real reasons successful companies overcome the low survival rate for construction start-ups and are able to grow and prosper…”
“As a company grows, it often changes how it operates but the founder’s values and approach are usually interwoven into the fiber of the organization.
“However, when the successors take over, the values change too much and the formula for the company’s success is lost…”
(Managing The Profitable Construction Business, Thomas C. Schleifer Ph.D., Kenneth T. Sullivan, Ph.D. , John M. Murdough, CPA, Wiley, 2014)
The Harvard Business Reviewpublished a study on family held businesses and how their survival over generations is affected by how they handled the issue of succession. Here are some of the findings:
- The mean age of family control in family-held companies is 60.2 years.
- 3% of family business owners expect to retire within the next five years, creating a significant transition of ownership in the US.
- Nearly half of family business owners (43%) have no succession plan in place.
- Even though nearly 70% of family businesses would like to pass their business on to the next generation, only 30% will actually be successful at transitioning to the next generation.
- With 30% of all family-owned businesses making the transition into the second generation, only 12% will still be viable into the third generation, and only 3% will be operating at the fourth-generation level and beyond.
While this study included all types of family businesses, our experience indicates that these findings definitely pertain to closely held construction companies and may even be a little more negative in the construction industry.
Digging a little deeper, the Harvard study revealed that:
- What truly drives many family businesses is the sense of connection and identity the owners and their family members feel with the business.
- Of primary importance among family firm wealth holders is transferring not only their financial wealth but also their values surrounding their wealth to subsequent generations.
- Family business leaders focus on the next generation, not the next quarter. They tend to embrace strategies that put customers and employees first and emphasize social responsibility.
- Family businesses develop leaders in unlikely places. More than 40% of the companies in the Harvard Business Review study included members of the next generation on their boards and committees in order to nurture their business and management skills
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It is clear that the intent and desire to “keep it in the family” is deeply embedded in the psyche of most construction company founders. However, it is also apparent that too few take the necessary steps to establish successful succession and preserve their legacy.
“Most of the failed construction businesses could have survived if they had developed a proactive, appropriate plan for the transition including a healthy, objective understanding of what made the company a success… (Schleifer et al.)
The above quote says it all. If you’re a company founder who wants to leave a successful contracting firm to the next generation, consider the following steps carefully:
- Conduct a careful self-analysisof what has made your company successful.
- Initiate a formal succession planyears before you plan to retire.
- Establish a board of advisorsto guide the transition from your generation of leadership to the next.
- Identify specific individualsmost likely to “fill your shoes” and the shoes of your key managers.
- Make it your final responsibility to actively mentor your successor for as long as it takes to assure that he/she has absorbed the “success factors” that built your company and can continue the legacy for generations to come.
I will discuss these five steps in greater detail in future blogs throughout the year.