On-Demand: Family Business Webinar Series | Succession
November 10, 2022
By: Natalie McVeigh
Join Natalie McVeigh as she covers the key steps to designing, developing and implementing a truly workable and successful succession process that fits the unique aspects of your particular business. Using case studies, research and practical tools, Natalie demonstrates how to customize a process to meet your needs, including how to communicate your vision of the future to others.
Natalie McVeigh: Now the question is, you did all of that amazingly, can you leave? The hopeful answer is yes. Now, should you leave? That's another question. How you do that, we're going to go through some best practices.
Succession, we like to call it transition. It's a process, it's not a point in time. Transition could be exit. It could be passing it to the next generation. We'll go through more of that. But really, it's moving from power brokers to people builders. At the end of the day, we started a company because we were really good at what we were good at doing. And then we invited some people we loved, or trusted, or thought were fabulous to help us also work in this organization, and hopefully we've developed them to be more effective.
We'll talk about this Vic Preisser study. I'm not a big doom and gloom person, but what we know is that 70% of family businesses fail to transition successfully. 60% due to communication and trust, which is why we spent a lot of time talking about that before, 25% due to a lack of preparation from the next generation. That's a bilateral responsibility. That is me, as an heir, knows what I'm supposed to do. I know what the asset is, I've had enough time to learn it, et cetera. It also means that the leaving generation has given them that information. That's what I mean by the bilateral responsibility. So, it's not enough to tell me, and many people have told me, "Hey, my kids aren't ready." Awesome. Agreed. How do we support them in getting ready? So, you're a part of the challenge as well as the problem.
And then 15% fail from other issues. Some of that 15% is a lack of a common mission statement. That is a direction you're all choosing to go together. And then 5% is financial, tax, legal planning, divorce, all the things you think are the main reason that successions don't succeed. So, really, we want to make sure we're building that communication and trust in preparation of the next generation. That's what we've learned.
We want to talk about this in two ways, just like we've done through most of these sessions. There's the emotional side, and there's the structural side, which, that might be financial. Most owners don't prepare for exit. Or funded their retirements. They might not be taking an ownership distribution at this point. All they're taking is a salary. So, when I say, "Are you ready to exit?" They're thinking, "How could I afford to?" That makes sense. It is a common question for how we can exit and not strangle the business in the process, and vice versa. What we're going to talk about today is some interesting ways to think about this. The simplest is separating ownership transition from leadership succession. Maybe you're the chairman of the board, still a major owner and someone else is the president. They're getting a salary, you are getting a distribution. There's some other ways to think about that, but that's a very simple one.
Natalie McVeigh: We'll just briefly talk about why this happens in companies. There's this place in which most founder entrepreneurs started their business. They started their business and we like to call it winging it. You were just really good at what you do. You were doing it to the best of your ability and you have this entrepreneurial phase. There's not enough structures, not enough processes, not enough systems. And sometimes there's not enough people. You're doing the job of CFO, CEO, chief sales officer, you name it. Later you bring in more people. This is where we could talk about like professionalizing the family enterprise. I'm doing it in air quotes intentionally.
I don't think family enterprises are unprofessional. However, when you bring professionals into them, people want to know. People who are not your children want to know. They don't know the way you work or how best you work. Or they may have different demands on their time, they might need to leave early. So, you're really just explaining, enumerating what's actually going on. This is the durability phase. This is when you get scale. You've put your SOPs in. You've got a real sales pipeline, sales process.
And then as that founder entrepreneur, the person who made it so successful at the beginning, thinks about leaving this legacy building phase, a couple things can happen. The company can gain. It's in a future upswing. Or the company can drain, that's a downswing. Or it can maintain. The first part before exit is really deciding what you want this business to be. Because if you want someone who's going to gain, you're probably looking at another entrepreneur. You might be looking at someone a lot closer to who you are. If you want it to maintain, you're going to want a complimentary set of skills. I haven't met anyone yet who says they want the recipe for draining. But if you want the recipe for draining, it just means putting the most unqualified person in the role, which I don't think that's where we're going.
As you're exiting, you're also thinking about the cycle that you're in the business. How do you met that out? How do you move that? This is just a research study on successful transition. Because you might have said, "Hey ..." Actually, someone from LMC called me recently to have their conversation with me about what's going on in their family, specifically after the conflict webinar we did. They said, "We've actually talked about succession a few times. We've started and it's fizzled out." There's research for that.
There's a couple things, is succession for a founder entrepreneur means, "I'm not relevant anymore." Even though you're not saying that, you are. Means, "I'm not valuable anymore. It means this thing that I have spent my life building, I'm going to have to ... spent my life building and spent my life having all their time." We sometimes call it the third child. In the United States, we have about 2.5 kids, on average. That third child is the company. That's where I was instead of your ball game or your ballet recital. So, "That is no longer where I can spend my time." That's some of the challenges on the ownership side. There's also the challenges on, "Are people ready? Et cetera." So, there's the readiness of the system. Are the heirs ready? Is the person ready to leave that? That takes a while. That takes months, in fact. Could be seven months, eight months, nine months, 12 months that you spend in this area of just getting ready.
I can tell you when people call me, if they don't sign an engagement within two days to start doing this family work, it's usually six months to a year and a half later. So, that's the readiness of the system. Sometimes your family's not ready, even though they know they need to do this. That's that emotional and structural side. And then there's usually an initiating trigger event. Something happens where we know we have a problem. We have to think about this differently. Maybe we have to hire a professional. That usually is three months to six months, where something happened. Someone decides to sell some shares. Someone says they're going to retire. A family member who's been in the company says, "You know what? I'm going to take a job outside of our company. They pay better." Or, "I would like a pathway to progression."
And then there's usually three months to six months of what we call resting. Where we're ready, we had this event, and we went full hog into this, where we were just ready to go down this road. But it got uncomfortable, it got a little strange, too many changes. So, we decide to not do a lot. And then you have this fourth step here, which is called exploration, which can take 10 months, where you're figuring out different options. Maybe you are putting in governance. Maybe you are developing your leadership team. Maybe you are exploring conflict. Step six is commitment. Five is commitment and closure. Takes a couple months to really say okay. And then there's one step here that fell off. It's called implementation. It's a couple more months to get the job done. So, you're really looking at an 18 to a 32 month commitment of succession happening from inception to end.
If you're saying, "Hey, we've thought about this and it hasn't worked," here's why, it's not the simplest thing to talk about. Everyone in the succession conversation has a different stakeholder viewpoint. We talked about that three circle model. We don't have it in this slideshow. But I have a different opinion if I'm in the middle, that role A, of what succession means. Maybe I'm not ready to fully step out of each circle. Or me as a family employee, just in that employee circle, might have an opinion, where I really want to be an owner, I really want to be in management. So, what we get out of succession and why we started is very different.
There's also this knowledge transfer. It doesn't happen overnight. We'll have some research on how long it actually takes, but there's some things we might not be good at, unconscious incompetence. I don't even know the things I'm not good at yet. Ask me to go bake a cake after this, I am not good at that. I know that because I've tried once. But there's probably something else you could ask me to do, that as I start doing it, I'm not good at, and I don't even know yet because I don't even know how to be good at it. A lot of us in the succession pathway are on unconscious incompetence.
A lot of people tell me all the time, I could do what you do. I can talk good. I wish that were the only thing I had to do for my job. And then people go get coach trained and they're like, "Oh, there's a little more than just talking involved." As a successor, it's really easy to point fingers at mom or dad, or uncle or aunt in the role, saying, "I could do that." But if you started doing it, you would start engaging with your unconscious competence, and later become conscious incompetence.
When I started learning Italian, when I lived in Italy, I started being acutely aware of how I sounded like a five year old as I was speaking that language, even though I was in my teens. That's the conscious incompetence, where you're actually saying, "Okay, I know I'm not good at it. I'm trying to get better." And then you get the conscious competence, where you know you're good at it, but you're thinking about it the whole way. Rollerblading, anyone remember rollerblading? Rollerblading was kind of strange. Most people who had been skating before would fall on their face because they were used to the brakes being on the front instead of the back. That's that conscious competence. Every time you were about to stop, you would literally freeze in your body and be like, "Oh, let me do this right."
Unconscious incompetence is the stuff that you're super good at and you don't even know. This is what we're trying to accomplish in succession. We're trying to bring people who are unconsciously incompetent to this unconscious competence. Now, what's hardest about this pathway is when I'm unconsciously competent, I don't even know how. I actually was at a conference recently and someone asked me how I can remember all these facts and figures that I spout out. I literally have no idea. It's just how my brain works. I'm a really bad teacher at the things I'm really good at. So, trying to help distill the things that the successor's good at to the person who doesn't even know what they're not good at yet, and give enough time to practice to get these competencies out, is one of the hardest parts of succession. Because what you want to do is make sure it works and that you're balancing all the different needs.
This is also one of the challenges for succession, is that founder entrepreneur, who's an A, the very middle part of all three circles, has for many years been balancing the family needs and the enterprise needs. Now, you might say not well. Maybe you haven't been paid enough or you didn't get a big enough dividend, or mom or dad talked down to you. Got it, good. But somehow, it balanced. And now you have other people from different roles in the family, different roles in the company trying to play this seesaw game of, "What are the family needs? What are the enterprise needs? And how do you not let one serve the other master?"
Family advising, when we started working with families about 30 years ago, the field of family advising. We used to say, "Is it a business family or is it a family family?" There was this whole dichotomy of, which one is it? The research has showed in the last 30 years that that's bonkers. It's actually doing both. You don't want the business to be so big, it atrophies the family. Or the family to be so useful, that it drains the business. You are trying to do that balancing beam. Of all the unconscious competence skills, this is the hardest one. And I agree, probably your mom could have done it better, or your uncle could have done it better. And yet, even if it went a little one way or the other, there probably wasn't someone completely falling off this seesaw.
This is one of the factors you want to say. In a family company, they say that ... In regular companies it's, 40% is culture. In family companies it's something closer to 70%. You might have the person, John or Jane Doe, with the most qualified resume that can't do this. If they can't do this, they're not the right person. It's also why co-leadership structures are so interesting to family companies now. There's some really big public companies that are doing them as well.
We have you think about doing a strategic plan at first. We have a very simple one called the Three P Process, which is possible, potential, probable. That really helps you track the next 18 months. But if you don't have a strategic plan, you don't know who can lead the company next. We saw in the durability phase, you have founder entrepreneur who brought you to this point, but what do the next three to five years look like, with these concrete skills that you're mapping it against? That's going to set up the position. Who's the person who can understand the business potential, the business strategy and the owner's commitment? Asking these questions. Really diving deep in to say, "Okay, we know where we're going in the next three to five years, and we now know the person who can lead us there in the next three to five years." They may not be the same person.
Let's talk about ownership succession. Because I was just talking about company succession, who's going to be the CEO? Now we're saying, if the CEO and the owner is the same person, and you're having these events happen at the same time, what do you need to know? I personally, if I'm going to exit, need to know the income. What I want for the rest of my life. You're going to want to plan for a hundred year life. Yes, the average age used to be 75, but it's not anymore. And then you want to really know what you're doing on your departure date. We often call this the, "What you're going to put in your box." Ideally, your departure date is the date you actually get the heck out of the building.
So, what's going in your box and where are you putting your box? Are you putting it in your house? Are you putting it on your boat? Are you putting it in a different WeWork site that you actually lease because you like the idea of going somewhere to work? And who should be the person who makes the decisions about the company from the ownership level? We'll talk a little bit about the ownership and management difference. They may not happen at the same time, and they may not happen at the same time because of this income requirement. If I'm deciding to retire at 65, let's say, and I've been working since I was 25, that's 40 years of my life. But I'm retiring at 65 and I'm probably going to live till 90, that's, what, another 25 years of life. I'm really bad at math in my head. So, if you know the real answer and I got the decade wrong, apologies. Do you really not need income for the next 25 years? And more than do not need income, are you not interested in doing the thing that you've spent your life doing?
There are a couple of shocking statistics here I want to share. Again, I'm not a fear monger, that's not my interest, because there are many more stories that say you can do it well. There are a couple I do want to share because I think it's important for you to know. There are two highest rates of divorce in the United States. One is the first five years of marriage. It's tough. My traditions, your traditions, we decide which ones we keep and which ones we jettison. The second highest rate of divorce in the United States is when a founder entrepreneur leaves their business. That's either by sale or by retirement. It's the first two years after that. Because they married their business.
Another way to think about the business instead of the third child is sometimes we call it the mistress. So, they picked their employees, they had their rules, they didn't have to be a different version of themselves. We've talked about how at home you behave differently than you do in the office. The other shocking statistic is that, often, within the first two to five years after leaving a business, founder entrepreneurs, men specifically, male founder entrepreneurs tend to have cardiac events. And those cardiac events, in many cases, can be fatal.
There's a lot of science in mind-body medicine that talks about how what we do and who we are really combined. So, we want this to work. As much as we talk a lot about getting the next generation in, we want to make sure the current generation, as they leave, one, gets paid for all their hard work. Because they built these businesses, they sacrificed. Many times not taking salaries. Two, we want to make sure that their wisdom and their elder generations is used, which is why I mentioned a board. Maybe they're on the board, helping give advisory decisions. Even if it's an advisory board. It doesn't have to be a formal fiduciary board. Maybe they're brought in as a strategic thought partner. Or maybe they get to do the thing they've always loved. We've had some clients that end up doing art later. It was always their passion, but they couldn't make any money about it.
There's an incredible book, I think by Arthur Brooks, called Strengths to Strengths. There's another one called The Making of a Modern Elder by Chip Conley. These are two wonderful books, if you are on the elder generation side, to check out, to look at, to make sure there's meaning for you later. We're also finding more collaborative leadership styles, where you can either stay in as an owner, or find a way to allow for leadership to happen while you're still there. This isn't just a, "Get out," but we don't want to be like Prince Charles becoming king when it's barely useful for anyone involved.
We also wanted to talk about some goals that aren't financial. Because believe it or not, it's not all the money. I have some clients that they did a great job of saving and putting it away. Not only they have more than enough for themselves, they have more than enough for their kids and grandkids when they die. They live pretty thriftily. Let me know if you're there by typing in the Q&A, what other goals, that don't have to do with money and the date that they're leaving, some owners might have? That would be really helpful to consider as we do this transition. Also in the Q&A, you can ask questions. This is your time. It doesn't have to be all I'm prattling on about.
Here's one, family harmony. I haven't met a client yet who doesn't worry about making the successor choice. Either creating friction or tension in the family. "How can I tell my daughter she's the right one to do it when she's younger than my son and he's been here longer?" Pretty common questions. "How can I tell my three children it's none of them, it's my best friend, Fred?". Now, they may be the owners. "When I'm ready to give my shares away, they can have that. I really want them to have that, but it's not going to be them. How do we still come together at Thanksgiving?"
One of the other is the owner's legacy. "If I'm ready to hand over those keys, if I'm ready to give it to you, are you going to drive it off a cliff somewhere? This thing I built my whole life, will it outlive me? Will my values still be played out the way I thought they would?"
Acknowledging employees. Often, succession, if it's not done from an intra-family succession, and you're actually talking about sale, which is one of the options, you're going to want to make sure your employees get some sort of enumeration out of that. If you do choose your child, who your employees have seen since they were in knee socks, how do you make sure they feel valued, whether it's numerically or in roles that also elevate? Do you actually want to keep all your ... I know many of you use the title president, you don't use the C-suite. You have vice president of operation, vice president of finance. How do you make sure non-family employees feel like they have a role in that C-suite? Or why would they stay?
Minimizing taxes. If you do do an ownership transition, how are you not going to pay the amount on that, that might be above market rate? Maintaining culture. The Business Exit Planning Institute says 75% of business owners regret the sale of their company. Believe it or not, it's never about price. It's always about this piece. That the thing they built, the way that they built it changed, it changed, and it still sits there. And sometimes that company has my name on it. It's the Natalie McVeigh Lumber Company. I see that the Natalie McVeigh Lumber Company used to care about employees, but now it just cares about profit.
Oh, we've got a question. "If I have a plan to retire in four years, and have a family member who will step into the president role, what should my involvement be once I retire? And what involvement do you see working best, some or none?"
Let's talk about this. Joan Smith thinks that this is a concern. Bob Smith doesn't think this is a concern. Bob Smith decides to leave, day one, walk out, everything's going to be perfect. He picks the date four days from today. It doesn't usually work when Bob Smith does that. The funny thing is, founder entrepreneurs do amazing, incredible things. I'm going to start a business. You go do and it's profitable. Exiting your business needs a plan. So, Joe Smith should pick a real date. Shouldn't be four years away or five years away. Most people pick five years away. In fact, The Business Planning Exit Institute has an article that talks about that. It's been studied. Almost every client says five years from now. What we encourage you is pick a real date, and it can't be today. If you were thinking it's going to be November 2nd, 2027, it should at least be November 1st, 2027. It should not be today's date. That's the first step. Pick a real date, publicize it, share it.
If you have a family member who will step into the role, you're going to want to start explaining to other family members, if there are any, that that will happen. "Why? What's the rationale?" That, "I'm actually training them up between now and then." The four years, the five years, whatever it is. What should the involvement be when you retire? Whatever it is, it should be planned. Some people do the ... they come in for monthly budget meetings because that's what they're most interested in. Maybe they retain some of their ownership. Or the people who are buying them out are doing it with profits from the company. There are really creative ways you can finance a buyout, if we're also talking about ownership transition. So, maybe you come in once a month for financials, maybe you come in quarterly for financials. Maybe you are a strategic advisor of X business development and you come in relative to those meetings. Or, you are a board member, whether it's a fiduciary board or an advisory board, and you come in only for those meetings.
I'm genuinely agnostic on which one of these you choose, but whatever you choose should be the thing you follow forever. So, I'm coming in for my monthly finance meeting. Doesn't mean I get to swing around the corner and just check on how the marketing team is doing. That's none of my business. I didn't tell you all this in one of the other webinars. I should have at the very first one. I encourage all family members and non-family key employees to write a box on their notebook. Every page of their notebook, a box. You sign NMB or NMDB, none of my business and none of my damn business.
What is none of your business as a family employee? Anything that really has to do with ownership. This is going to be hard for most people stepping out of the company. What used to be your business, that box would've taken up every piece and every size of your notebook paper as the founder entrepreneur, chief leader. As your role gets smaller, your "none of my business" ... sorry, the reverse says there wasn't a "none of my business" box, sorry, when you were the person in charge. But when your role gets smaller, your "none of my business" box gets bigger. Why I encourage people to write it down is you actually write that in there. Because our brain thinks of writing as an action. So, if I hear from the marketing team, as I'm walking into my meeting, something I shouldn't have heard, I have to write it into the "none of my business" box.
The short answer, that I made really long, is pick a way in which you engage with the business, you only engage in that way. It's planned. It's known. That could involve certain strategic mentor sessions, but there's a container on it. I don't think you should have an office in the building. Because what's going to happen is people are going to be used to going to you. So, even if you're on your best behavior, they're going to ask you a question. It's going to be real hard for you to put that in the "none of my business" box. So, you're tempting fate.
You've all heard about Milgram's marshmallow test, where they put some children in a room with a marshmallow. The children who didn't lick the marshmallow or eat it usually covered it. They didn't see the marshmallow. So, you want to take the marshmallow out of your room. You don't want to tempt people to talk to you and vice versa. Not that you aren't available. Not that you won't be at the annual holiday party. You should be. Strong family ownership being there, and that legacy is important. But you should be really clear on what you are and aren't doing. And if someone does catch you in the hallway, when you're just coming in for your designated meetings, and they say, "Hey, I really want to run this by you." You say, "Hey, it's so great to see you. I'm so excited." If they want to share, great. And then they tell you what it is, and you say, "You know what? Who's perfect for this, my son. I'd be happy to see how you two work this out." And then leave. You're really towing the line that there's been something changing.
Now, you can't ignore that you have that information. So, when you do have those meetings as a strategic advisor or as a board member, or someone who's doing financial oversight, you can say, "Okay, Deborah caught me in the hall and she said X. How did that end up?" But you should be curious. You shouldn't be coming from a layer of, "I know all."
There's also community involvement and philanthropy. A lot of these things go together in the company. These are things that owner entrepreneurs put in their companies. They want to see go past them. We call these value-based goals or, in all honesty, I call them emotional goals. For every economic decision there's an emotional component. So, this is the stuff that even though I get the right purchase price, or I leave at the right time, or I've set the perfect role for myself, isn't going to feel perfect as you leave. Transitions take time.
This is a model that talks about that unconscious competence that we have. It takes about 10 years to transfer what we call this tacit knowledge, because there's data and information that turns into knowledge that turns into wisdom. There's a way that it shows up for me. One of the things in my background's an MBA. I can look at a P&L and I can know something's not right there. Even though I make word errors in the way that I talk about numbers, I just know. And then it takes me a while to figure it out. But just by looking at it, I know. My guess is a lot of founder entrepreneurs do that, too. In fact, many just know in their head.
Great question. "In my experience, what skills are most challenging to transfer from generation to generation?" It's the skills that seem more like intuition. The thing that you just know without knowing. Often it's the softer skills. There actually is less empathy. We've studied that. Even before COVID, younger generations were having less and less empathy, relative to screens and texting. So, if you're really talking about the value of a deal, that human contact, that might be a little different.
This idea that entrepreneurs work 24/7. I had my own company for a while, before I sold it. I worked all the time. I honestly still do. Text me in the middle of the night and you'll find out. Some of those more qualitative skills are harder. I don't have the slide here, but I can send you a good HBR article on it, that talks about what we call commitment challenges. One set of skills that are really easy, technical considerations. Then they're what they kind of call those wicked problems. The things that require critical thinking skills, agility, and that heuristic knowledge. The stuff you just know in your gut. That is really hard to transfer. It's hard to transfer for two reasons. One, it takes a while to acquire. Just the time that it takes. And two, we tend to solve those things and never explain our thinking process.
So, if you have four years or five years to train people, if you remember nothing else from today, over explain your thinking. Over explain your thinking. The other thing you can do to raise up the next generation is to not come up with the answer. You can give them unfinished problems, where maybe you've done the first few things. If you think like a proof from geometry and algebra problem, you can do the first couple things and say, "Here's what I'm thinking." Even if you know the answer. Let them play with the thoughts and bring it forward to help train that. And then instead of answering for them, and say, "Oh, that could work. 'Yeah, it could work. And ...'" And then feed them a little bit more information as they're doing this. So, you're leveling the playing field, but they're able to have those real time problems they couldn't on their own.
That's the toughest part. It's not the technical stuff. Those are really easy to know. That's why people can job hop. Really technical skills, it takes on average three months to 12 months to teach someone technical skills. It's these adaptive challenges or wicked problems. That's where you get lost. It's why I want founder entrepreneurs to have some sort of advisory role for some level of time because you should be able to be there, see that, tell them that something doesn't smell right, and fix it. These are the different types of succession. There's family succession, if you have a family council. Relationship succession with your vendors. You name it. Value succession for the company. That could be something employees keep, maybe, or family members. There's the management succession. Who's the CEO, COO? Authority succession, ownership succession, and governance succession.
Ideally, these don't all happen at the same time. Ideally, you leaving your company doesn't mean all of this has to live with another person. I'm going to say it, I might be super unpopular, but people are not made of the same stuff they used to be. So, that one person could do all of this is pretty remarkable. One person being expected to do this in the future and have work-life balance and all the other things that certain generations are interested in is not possible. Nor is it prudent.
Let's just think about management succession and ownership succession. I just changed the CEO. The CEO is just learning the ropes. First, making financial decisions, and there's a capital expenditure happening. We need to move office buildings, or we need to acquire a new smaller lumber company. We don't need to, but they came on the market. It's a pretty sweet deal. You want someone who is an owner thinking like an owner. Because one of the major things owners do is guarantee the debts of the company. You want an owner to sit there and say, "Ooh, this is a really good opportunity, but what's going to happen to our EBITDA? How are we going to do X, Y, and Z?" Where the person who's the manager should just be saying, "Hey, I'm thinking of increased efficiency that's going to lead to increased profits. So what if we have a little debt?" It's really nice to have that balancing act by setting up these separate events.
We talked about this a little bit in the last session, where we talked about identifying key competencies relative to the position. But we also want to set up a succession planning support system. Who needs to know? How do we need to announce it? What are the roles in which we're doing that? That's why we had the "building your bench" conversation before, because succession happens at all levels in the company. Every single role has a succession. It just gets complicated when it's one of those major roles having a succession point. So, you want to understand what the competencies are, how you're transferring them, who and when.
You want to continually assess candidates. It's not always easy to say, "Yay, it's you. You're the one person that embodies that." But how we can make sure we do that is your own performance development plan or your individual development plan, either an IDP or a PDP. And change that assumption. Because when I'm really clear and we talk ... That's why we talked about strategic planning at the beginning. "If I'm really clear on what the strategic plan is, that should help me inform the position, which should help me inform the professional development plans. And if it's not, if the thing I thought, the thing I did 30 years ago to learn this industry, isn't getting you there, then I need to change my assumptions, too. It's not enough for you to repeat the pattern I did because we're living in a different world." We're trying to do this to close that gap on that 10 year timeline.
Because although I heard someone comment here that they have four years, most of us, when we are really ready, emotionally ready for this, we don't have those big timelines. And sometimes nature comes in there and changes our timeline for us. So, you really want to develop these practical performance metrics, these competencies. There's some lists of competencies we can send you. There's also some assessments that are normed on certain leadership positions, that can tell you whether you have the competencies there objectively versus what we think. Just so you know, you have a favorite child. You absolutely do. Science has proven this. It's either the child most like you, because you really like your yourself, or it's the child least like you, because they've developed some skills that for the life of you, you haven't figured out. We are inherently biased when we're thinking about our children and describing how the talent is. So, we want to make sure the future and the fit inform the person we're picking versus our perceptions that can really cloud us and say what they want.
For founder entrepreneurs, we saw, you have a lot of flexibility. You are the best at that entrepreneurial stage. If your company has a lot of structures and you pick your more entrepreneurial child to run it, they might rail against those structures. They may undo those structures. Your biggest partners in succession are often your non-family employees there. You don't want to create chaos for them.
This gets us into that bench. Ideally, you're not going with Mr and Mrs. Outside hire. Now, there's a caveat to that. There actually are family business interim CEOs. There's several companies that do this. They're guys or gals who really only want to work with a family company in the C-suite for five years, maybe 10. And they want to do it in a way that not only leads the company, but mentors the next generation.
There's some interesting research from The CEO Next Door that says, "On average, it takes 24 years to create a CEO." So, the person who said they have for years left before they're exiting, unless the person's been in the company for the last 20 years, they've got some time. They're probably a little green. Now, that doesn't mean they can't do it, they absolutely could. But if you're saying, "I don't know yet that I have a family member ready to succeed me, and it's important to me that a family member is a leader in the company all the time," then what you could do is hire an interim outside CEO, that's job is to mentor the next generation. You could also just promote an employee from within who's not a family member, knowing that ownership will stay in the family.
The counter research to the research about failure shows a lot of ways family succeed. One of them is by allowing non-family members to lead the company, but probably not be in ownership. Which is why I talked about splitting those two things up. It's important for you to know what success means. If you think about that idea of family harmony we talked about earlier, success might really rely under family harmony, as well as the business functioning. So, not forgetting all the factors that are genuinely involved in your decision-making, and weighting them equally or at different weights. Maybe harmony is more interesting to you than the other.
Now, we're going to talk a little bit about what you do for the next generation. This first part, we were really talking about you. What do you need to do? How do you need to step into this? How do you need to communicate? But how do we decide about the things that they're going to carry, and about the things that we're going to let go of? Is it their job to make sure you have fulfilling pieces in the future, that you're remembered right? Or is it their job to really take the baton and go the next leg?
In family companies, we have this saying, and it says, "Every family is the first generation." So, how do you take the pieces that are for you, separate them from the future of the company, and make sure that the company is prepared, that there's a role change, a legitimate change, just not on paper, that there's a shift, there's a directional shift, and you coach, mentor, educate and enjoy in the future?
You know a coach because they ask questions. You know a mentor because they say things like, "In my experience, I did X." And you know an educator because they're constantly talking about what someone else knew that's applicable to you. These are the three ways you're going to want to start behaving today. But in the future, they're the three ways, the only ways you can behave in the future. The more you rescue, the more you create learned helplessness, the more you never actually know what the next generation is capable of.
This is that research I was talking about that counters the previous research that we were talking about. There's an interesting graph here that I didn't include, I apologize, that says, "What does every hundred year family do?" We saw the research that said 70% of families don't make it to the third generation, but five generation families in our industry we call legacy families. They're, on average, a hundred years. That's how long it has to take ... it used to take to get to five generations. It may be different now with people waiting later to have children.
But what it said they did is five things. They have a family council. That's the body that helps pay attention to the family, what their needs are, what their values are. Are they in the business? They have a next generation education sessions that helps people understand entrance into the business. You name it. They have an outside CEO. Almost all of them by the fifth generation. They have an independent board that is a real true fiduciary board with more non-family members than family members, that are also not in the business. They have an exit policy that allows you to get out if you want to. More often than not, people stay owners as long as they can. And they have a family constitution, which is a list of the governance documents, whether it's a social media policy. You name it.
They also do these things. They're intentional. Things happen by default or by design. They design what they want to have happen. They balance multiple goals. That's the family side, the business side. They're resilient. They change their governance practices. They're incredibly transparent. They're collaborative, where we can find ways that we all get in a room and discuss things. Collaboration takes a lot of time and effort. And they're learning families, where everyone learns together. And behaves in a way that we would consider stewardship, which is knowing that I'm only going to hold the baton for someone else for a short period of time. That helps us decide how we raise the next generation. We're raising them to hold the space for what can happen next.
Let's talk a little bit more about what this looks like in a concrete way. There's something we like to call a transition map, where you sit down and discuss what you are actually doing in your job on the day to day, on the weekly, on the monthly, and the random ... happen once a year, every third year. I'm working with his family. They're so great. They're actually one of you, an LMC. I was talking to the newly appointed CEO. It's a very unique situation that he's actually just a younger brother. It's a very big family. So, he's not the next generation per se, but there's enough of a age gap and this gentleman can do it for about 10 years. That sets the gap that we need for the rest of the family to be ready, because they haven't been in longer than 10 years.
He was doing a lot of these things, and I asked him, "Hey, why are you doing this, that and the other?" And he said, "Well, I'm the chief firefighter. I have always been the person, whether I was the CFO," and he was at one point in time, or what was called the vice president of finance. He was also the vice president of operations at one point in time. He's done a lot of things. He was in the business for, I don't know, 40 years about. He said, "Well, I'm still the chief firefighter. They call me when these things are happening." I said, "Joe, why are you still being the chief firefighter?" And he says, "Well, it wouldn't happen otherwise." I said, "So, in all the years ..." We did an 18 month succession process, too. I said, "In all the years you've been doing this, over those 18 months when we asked you those questions and we're going through this process, why did none of this come up?" He's like, "Well, you asked me what happens every fifth year, every ... pretty regular intervals and every time I solve a problem it's brand new."
And then I pushed on him a little. I said, "Well, how true is that really? How true is it that every problem is always brand new?" He said, "Okay, there are probably categories of problems, if I had to think about it." So, we went through and actually set up his categories of problems. Because what we got to when I was asking questions is, he said, "Yeah, I fully believe the last time ..." Weirdly enough, it was a really simple issue, but they hired a new cleaning team and they'd turned off some lights. So, some functions weren't working for over half a day, which put them behind. When I talked to him about this, he said, "It took me a half a day. That was a long time, but no one else would've ever found it if I wasn't in town." After he had said that, he realized, "Okay, we have a problem. If really our plant could be down for half of a day, or longer, if I'm not around, there's an issue."
That's part of the succession we're working on. We're working on the succession of all of this stuff that lands at one person, and heaven forbid that one person actually has to leave us untimely and we don't get to make a decision about that. That is what happens. Succession is either a planned process or a painful process. If you haven't helped shepherd people, I usually get calls like that. Where they say, "Okay, can you come in and help be management team for days? 'I can't, but I can help you find a person who can.'" That isn't what we want for any of you.
So, the first part is really being honest about the things that you do, that you have done over the years. Mapping that out and finding out if they should still be that same job. I'm not sure the chief firefighter should be the chief executive, so where should that go? Sometimes the answer, when we do this mapping is, "Yeah, we're not scaled appropriately. We do need one or two other positions in the company, and we have to figure that out." And then that money is fungible, that comes from somewhere, which may impact distribution, may impact compensation. But really appropriately assessing the challenge, assessing the role is the way that we succeed.
We have time for questions before we end. I know there are a couple that were in here. Any other thoughts? We can send you the job flow analysis, which is what I was just talking about. Do just send me an email if you want it and we'll do that. A couple people have done that after these webinars. These are all really simple tools. These are things that you know you're doing. The problem is you're so good at doing it that you might not be the best at communicating it. So, if you take the tools, work on it yourself, that's great. If you'd like someone to facilitate that, that is also something we're happy to talk about. Because we need you all to get this to everyone.
I'll say this at the end as I'm waiting for questions to come in. There's a reason we serve family companies. There's a reason I'm passionate about family companies. They're 80% of the global GDP. And in many of my clients, especially in rural areas, that you are the community. You are the place that everyone works at. So, if you do not succeed, communities fail. It's incredibly important the work that you do. You did it in some ways by accident in most cases. You were just passionate about something and created a company by that. But now you've created a community, and the impact that you have is endless. We don't want it to end. It doesn't have to. There's as much, if not more, research nowadays for successful family companies and what they do, than those who don't.
Oh, what's my email address? It is email@example.com. That was one of the questions that came in. If you really can't remember it, because some people can't, or they spell Eisner wrong, there's a place on my bio on our website that you can just shoot a question to. Think about a dozen LMC people have done that. Where they're like, "Hey, this resource you mentioned, I'd like to have." If I don't see any questions, we'll give you the gift of five minutes of time back.