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Les McKeown's Predictable Success Blog

  • July 2, 2008
  • minute read

Transitioning from a Family Run Business to a Professionally Managed Company 

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Having started and run over 40 businesses (including a couple of failures), I know from personal experience that successfully making this transition is difficult and challenging.

Done right, however, the reward (in terms of unleashed business growth) is far greater than the challenge. 

There are four key issues that typically occur when family run businesses make (or try to make) the transition to being a professionally managed organization:

1. Acknowledging personal limitations

While some founder/owners move seamlessly from the founder/owner management model to the ‘CEO plus management team’ model, most struggle with this transition.

This is understandable – it requires a different style of management (specifically, trusting process, rather than trusting your gut). Many founder/owners cannot make this transition, finding themselves repeatedly bypassing their own systems and overriding decisions made based on process.

When an owner does this repeatedly, someone needs to be brave enough to suggest that external management may be necessary to take the business to the next level. Many founder owners are reluctant to consider any such thing.

Those that do do, however, are far from out of the woods…

2. Letting go of the baby

When an owner of an organization of any size *does* step back to let someone else take control, it is often very difficult for them to let go.

Most will reserve substantial power to themselves by appointing themselves chairman, by creating a special position for themselves, or simply by hovering around, micromanaging the new manager and second-guessing his or her decisions.

The bottom line is this: If the founder/owner remains involved in the business in any capacity, they will in the majority of cases eventually try to wrestle back control.

This is, after all, their baby (even if all grown up), and it’s hard to see someone else act like they are the parent!

"When an owner of an organization of any size *does* step back to let someone else take control, it is often very difficult for them to let go." - Les McKeown, Founder and CEO, Predictable Success

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3. Changing the risk profile

Alongside point 2 above, and sometimes a cause of it, is the fear on the part of the founder/owner that the organization will lose its entrepreneurial edge.

This ‘edge’ is brought by the family member(s) who oversaw the birth and growth of the business.

Because they could (and often did) ‘bet the house’ to get the business where it is now, the ‘sidelined’ founder/owner’ feels building frustration at what she sees as bureaucratic systems and processes brought in by a professional management team.

4. Yearning for the past

If the changing risk profile doesn’t frustrate the founder/owner into ‘jumping back in’, the next challenge is accepting a change in the culture of the organization.

From birth through to this stage in it’s existence, the organizational culture has been heavily influenced – if nor dictated by – by the family owner.

As the owners begin to step back, it can start to feel that the organization is changing, in their view, almost certainly for the worse.

A key sign of this is talk in the corridors of “how it used to be” and “the good old days”.

This is usually accompanied by the exit of a number of employees, particularly those who have been around from the early days, and who are very loyal to the family.

In a panic, the founder/owner can be tempted to step back in to return the business to ‘what it used to be’ – forgetting that the whole point of the transition was to make it something it didn’t ‘use to be’!

Given that these are frequent responses by founder/owners when transitioning to professional management, there are a number of measures they can take can do to smooth the process:

1. Define the role of the founder/owners

If the founder/owner is going to continue to be involved in the organization after appointing an external manager, it should be in an advisory position – not one that will give them direct functional control.

This position (whatever it is called) should allow the founder/owner to continue to inject their entrepreneurial spirit and maintain a strong culture – the two biggest strengths they can bring to the newly managed business.

Placing the founder/owner in such a position will also help minimize the exit of disaffected key employees.

A great example of doing this is to watch the transition process between Bill Gates (essentially the founder/owner of Microsoft) and Steve Ballmer (essentially the ‘professional manager’).

One thing Gates did really well was to clearly define his new role(s) as he handed over power to Ballmer, and he made sure he stayed within those boundaries, allowing Ballmer to bring his own style and culture to the business.

2. Communicate clearly

The key to any change within an organization is communication, and the transition to professional management is no different – in fact, it is even more important here than at any other time in the organization’s development.

Employees should be made aware of what is happening, and why it is happening at each stage of the process, and there must be a mechanism whereby they can voice their concerns.

A ‘town hall’ meeting with both the founder/owner group and the professional management team is a great example – such a forum affirms to employees their position and value within the company, helps to align the employees with the goals of the management change and minimizes gossip and confusion.

3. Stick to your guns

For the transition to professional management to succeed, it is crucial to stick with the process once begun. When things get tough (the risk profile changes, or the culture seems to be dissolving) it is very easy to want to simply return to the old days.

The founder/owner, or the board of directors, or the shareholders, can lose their nerve and bring the founder/owner back in, leaving the business ‘stuck’ in a no-mans-land of past glories and present-day ineffectiveness.

Examples of this would be Steve Jobs at Apple and Jerry Yang at Yahoo. Sometimes this can prove to be effective (Steve Jobs) but more often than not leads to greater confusion and inefficiency.

Two further examples are the return of Howard Shultz at Starbucks and Jerry Yang at Yahoo! – both great founder/owners who lost their nerve in professionalizing their businesses, and returned, with less than stellar results.  

The process needs to be completed, no matter how hard or painful it is.

If founder/owners and the new management team stick to their guns, communicate clearly, and retain the advice of the founders (without them having operational responsibility), they will make huge strides to transition successfully from a family owned to a professionally run business. 

What About You? Have You Made the transition From A Family  Owned To a professionally Run Business? If So, What Was Your Biggest Challenge? 

Let Me Know In The Comments Below!


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