Family businesses in Africa are facing a significant challenge in ensuring their survival beyond the first generation. According to data from the Family Business Institute, cited by Strathmore University Business School, only 30 to 40 percent of family businesses make it to the second generation, 12 to 13 percent reach the third, and just 3.0 percent survive beyond the fourth. This statistic highlights the importance of succession planning in family firms.
The lack of succession planning is not due to a lack of talent among the children, but rather the failure to prepare the ground for the transition. Succession is not a moment, but a project that takes years to develop. It requires a long-term approach, starting long before the founder is seriously thinking about leaving. However, the subject of succession often remains taboo in many families, with founders hesitant to discuss their own succession.
The silence surrounding succession planning can have significant costs, including delayed decision-making by executives and cautious financing by banks. The children of founders may also fall into one of two traps: being pushed into a role they did not choose or being kept out of a business they could have run well. This can lead to a lack of commitment and a failure to develop the necessary skills to take over the business.
One key distinction can make a significant difference in succession planning: owning a business and running it are two different jobs. A child can inherit shares and not necessarily have to take on an executive role. This allows those without an entrepreneurial mindset to be free from carrying the torch and enables the business to find the best person to lead it, whether within the family or outside.
The founder also plays a critical role in succession planning, and their delay in planning is often driven by personal concerns. Handing over control can be a difficult process, touching on issues of identity and legacy. However, a well-planned succession can give the founder a new role, such as chairman of the board or mentor, allowing them to remain involved while also giving the business a chance to grow.
Succession planning is not just about picking a successor, but also about preparing the organization for the transition. This includes bringing the successor into decision-making processes gradually and giving them time to build relationships with longtime executives. It also requires a willingness to adjust plans as needed and to accept that things may not go exactly as planned.
Ultimately, businesses that make it through a handover intact are those that have turned succession planning into an open conversation within the family, often with the help of an outside advisor. By starting the conversation early and taking it seriously, family businesses can ensure their survival and success beyond the first generation.
Key points
- Only 3% of family businesses in Africa survive beyond the fourth generation.
- Succession planning is a long-term process that requires a willingness to have open and honest conversations within the family.
- A well-planned succession can give the founder a new role and allow the business to continue growing and thriving.
