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Succession Planning for Entrepreneurial Family Businesses
Dr. Sunil Shukla, Chief Faculty and Chairperson (PGPs), EDI
May 13, 2015
It is believed that few family businesses survive to the third and fewer to the fourth generation. Percentage of family firms that successfully transition across generations decreases from generation to generation. Some sell to the outsiders, some sell to the employees while the remaining fail. One doesn’t have to reinvent the wheel to know the causes for such unsuccessful transitions. The major contributors to the failure are known commonly: no succession plan, feuding among family members and probably no estate or family legacy plan. Though on the face these appear to be common, but are difficult to deal with. Of all these, succession planning is the most critical task to securing the future of family firms. The failure to plan and manage succession well is the greatest threat to the survival of family business. It is also a chance to preserve a lasting institution that reflects family’s ideals and goals even after the current leader. Further, it is an important part that cannot be reached without the succession planning process. One has to understand that succession is a life long process of planning and management. If not planned and managed well in advance, this alone is sufficient to bring life cycle of a business to an end. There might be situations when the current leader may have to be suddenly withdrawn from business due to long illness, accident, unexpected death or incapability. Remember a situation when no one is groomed to take over management responsibilities and the second key person does not have sufficient shares in the firm. The business suffers from risk of being wiped out. Hence, the need for succession. The firm needs to find a successor, to remove doubts and apprehensions in the minds of key people besides ensuring continuity and leading towards growth. Even if the business is not passed down to the next generation succession has to be done to ensure that the business survives.

The entrepreneur has to understand and accept that planning for succession is necessity for survival. He/she has to first determine whether succession is to be done within the family or outside. In case of small businesses, probably it would make better sense to have one person with general management skills and few others for special skills. Whatever is the case, advance action in selecting and grooming management successor(s) is necessary. Once successor is identified, the succession plan has to be developed keeping in view the specifics of the firm, implemented and monitored carefully with scope for necessary changes. Also the succession plan has to be coordinated with personal tax planning and distribution of estate, among several pre-requisites for ensuring the continuity of family firms successfully.

Dr. Sunil Shukla is a behavioral scientist, engaged in entrepreneurship teaching, training, research and consulting is Professor and Chairperson (PGPs) at Entrepreneurship Development Institute of India, Ahmedabad, which pioneered the Family Business Succession Programme way back in 1990. The Institute offers full-time two-year ‘Post Graduate Diploma in Management-Business Entrepreneurship (PGDM-BE), with specialization in ‘Family Business Management’.

PGDM-BE has been adjudged ‘Outstanding Entrepreneurship Program Abroad’ for the year 2014 by prestigious United States Association for Small Business and Entrepreneurship (www.usasbe.org), the largest independent, professional, academic organization in the world dedicated to the discipline of entrepreneurship..

Dr. Shukla can be reached at sunilshukla@ediindia.org