Only 10% of companies survive the generational transition

  • One of the most difficult times that companies have to face is generational change.
  • Different factors come into play, starting with personal relationships.
  • The best way to overcome the moment is to prepare for it in advance.

The generational change represents one of the most important issues facing small and family businesses.

According to a recent Interreg Europe analysis carried out in the European Union, entitled “Strengthening the competitiveness and sustainability of European SMEs through succession processes and models1“, which can be translated to: “Improving the competitiveness and sustainability of European SMEs through succession processes and models“, in Europe only 30% of companies are able to survive the second generation.

Only that 10% are able to pass the transition to the third generation. But let’s see in detail what risks companies have to face.

A generational transition that is difficult to manage

The transition of generations, for the majority of European companies, is a very delicate and challenging moment the very survival of the company is at risk.

In Europe only 30% of family businesses manage to survive the transition to the second generation. An even lower percentage when you look at the second pass: only 10% manage to survive.

It is important to emphasize that succession is of different types and may involve different subjects. It may also concern, for example, those non-family directors.

This particular situation turns out to be very common in the Italian business web, which consists of a very high proportion of family SMEs. In the next five years, generational turnover will involve at least one in five family businesses.

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Generational transition of the company: the critical issues

Without a doubt, the succession of generations constitutes a unique moment in the life of the company, but also a critical one. There are many problems that can arise.

Some directly involve the family and consist of personal relationships and financial needs. Others, however, are closely related to the company, such as corporate structure, roles and powers.

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Inefficient and ineffective management of generational transition can also have dramatic consequences. But what are the critical issues that must be addressed in the transition of generations?

This operation is long and complex. On the one hand, sure, the Family businesses enjoy certain advantages, consisting of tremendous organizational flexibility, cohesion and family tradition. Unfortunately, it is also true that the merger between family and business sets certain limits:

  • there is no clear distinction between family relationships and corporate roles: Family problems often appear in the company and vice versa.
  • rejection of new ideas: when the new generation starts to have new ideas and wants to introduce new approaches to the business, which may not be in line with what the founder has done so far, conflicts can arise.
  • adequate training of the successor: when the heir is not properly prepared, he will be burdened by the transition of generations and all the impromptu decisions that follow.

The importance of business planning

As we saw earlier, most family businesses are unlikely to survive the transition of generations. This business is demanding and complex, but above all it affects many people: entrepreneurs, family, employees and stakeholders. It must be addressed with the involvement of the entire corporate structure.

To be able to guarantee business continuity is always necessary adopt an accurate and effective strategy. We need to focus the resources of the company and strengthen the innovation carried out by the new generations.

Therefore, it is necessary to foresee the transition of generations in advance and then to plan the transfer of the company step by step with all the strategies to be adopted to remain competitive in the market. To do this, it is also advisable to rely on a specialist consultant.

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How to cope with the transition of generations

A question that becomes more reasonable than ever, nowadays, this is how generational change should be dealt with. In most cases, change is synonymous with vitality and evolution: as such it should always be welcomed in a positive way.

Those who should notice this should be first of all the older generations. These should consider the transition of generations as an important and important moment for the company to continue to live, even if in a completely different way from the way it happened until that moment.

To ensure a smoother and smoother handover, it would be ideal for new recruits to start working in the company long before they should have taken control of it.

This would give them greater security. But not only that: they could gain greater knowledge of production processes and contribute to their improvement in an optimal way. And above all with more power to workers.

This slow passage would allow the business to be managed more calmly, leaving nothing to improvisation. The important thing, then, is to understand which of the heirs might be interested in continuing in the footsteps of their predecessors.

And above all what could be her role within the company and make it grow. In this way they will have the opportunity to improve their skills, facilitating the transition of generations.

Education for the transition of generations

Definitely one of the aspects that should not be ignored it’s that of training. Not just corporate leadership and the family in charge. But also of all the company’s employees: all staff must be adequately trained and ready to take on leadership roles at various levels within the company.

This should be provided for not only when specific circumstances arise, but as a permanent philosophy of the company.

In other words it must be foreseen continuous training within the company. Not just for words hard skills and technical skills. But for everyone skills and management skills.

In this way the human tissue present in the company will always be ready to carry out its work in the best possible way, at all times and even when it is necessary to face generational change.

In addition, the full participation of people within the company is always recommended. To do this there must be a good quality of communication.

The company must be diligent and ensure that its employees are always adequately informed about the cultural, organizational and market changes that are taking place. Especially when there are generational changes. There crystal clear and transparent communication of what is happening, serves to better prepare employees.

Generational Change – Frequently Asked Questions

How many companies survive the generational transition unscathed?

Only 10% of family businesses survive the second generation transition. Discover the data in detail here.

Is it possible to change the low percentage of companies that survive the generational transition?

The only way to make the transition of generations easier is to prepare the successor. In addition to planning the operation over time.

What are the biggest problems of family businesses?

While on the one hand they have an easy structure, on the other hand there is not always a clear separation between family and business. Problems can arise especially during the transition of generations.

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