How to successfully move a family business to the next generation
By planning in advance and heeding these lessons, a family business can move successfully to the next generation.
Succession planning is a critical challenge for any business. For privately-held, family-run businesses, it’s a process that has unique and often daunting challenges.
The Family Business Alliance says that about 30% of family businesses are passed on to the second generation successfully. Just 12% are passed onto the third generation, and only 3% make it to the fourth generation.
In the insurance industry, there are many family-run agencies, brokers, MGAs, and program administrators. I count myself among them — I’m part of the third generation of my family leading a national program administrator founded by my grandfather in 1950.
Here are six lessons we’ve learned to create a successful transition between generations.
Lesson one: Go slow, be meticulous and work hard
For a family business, succession planning should be a slow and meticulous process that allows ample time for the upcoming generation to learn the business and develop relationships with other stakeholders. Clients, carriers, partners, and colleagues all should be comfortable working with the new generation and trust and understand their decisions. In short, the new generation needs to become part of the fabric of the business.
This includes learning all aspects of the business. Moving up through different levels of the company is a perfect way to do this. For example, my first job was filing, and the importance of focused work and putting in the hours was instilled in me early on. The top spot shouldn’t just be handed to the new generation; it should be earned.
Lesson two: Focus on relationships
One of the advantages of bringing the new generation into leadership roles slowly is the opportunity to nurture relationships. The relationships that the first or second generations have built over the years are invaluable, especially in a relationship-driven business like insurance. These relationships are not just with clients, but also with carriers, vendors, partners and employees. It’s these relationships that make a business successful.
Lesson three: Tap the strengths of the new generation
While the next generation has to put in the time and hours to learn all aspects of the business, they also bring new skills that can be tapped to strengthen the company and keep current with a changing customer base. Underwriting is a perfect example. As carriers today become more data-driven, the next generation may be much more accustomed to — and skilled at — the analytics on which today’s carriers rely. Combining traditional underwriting discipline with modern analytics can improve results.
These skills also apply to sales and marketing, where online tactics such as digital marketing and social media are increasingly used. The new generation may have more familiarity with or training in these technologies, which means they can seamlessly adopt them to build new business and retain a client base.
Lesson four: Know your brand
As the new generation uses new technology and online tools, it’s important to remember that for a family-run business, the family is the brand your clients connect with. We’ve always stressed that we are family run and clients and partners can easily get a Brownyard on the phone. Generation after generation, it’s part of our identity, and we can never lose sight of that.
In fact, I think each new generation has to be even more diligent in managing the company in a way that will maintain the standards the previous generation created and clients, partners and employees have come to expect.
Lesson five: Anticipate the challenges
When you take a broad view of a company over time, you can anticipate challenges a previous generation has managed but you have not. For example, our business has had the good fortune to work with the same financially strong, reliable carrier for just under 20 years. Finding a new market is not a challenge we have yet to face.
It is important for all to recognize ongoing challenges. For a program administrator, one of these challenges is expanding its programs and generating additional revenue streams. The second generation of Brownyard has done just this, and the third generation has to be ready to do the same.
Lesson six: Get help to mix business and family
A family business that spans generations has to take into account a family that is much broader than just those directly involved in the day-to-day operations. This can be particularly challenging when discussing finances. A sound solution is to contract with a third-party mediator to work out the financial details of a generational change.
By planning far in advance and heeding these lessons, a family business can move successfully to the second, third, and maybe the fourth, generation. Having an established plan has benefits not just for the family but for the employees, clients, and partners who help the business thrive.
Tory Brownyard, CPCU (TBrownyard@brownyard.com) is president of Brownyard Group, an insurance program administrator with specialty programs for select industry groups. In addition to his responsibilities as president, he currently spearheads the Brownguard security guard insurance program and is a highly-regarded subject matter expert in the field of security insurance.
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