If you are 2-3 years out from the sale of a family business, autumn leaves hold a lesson for you.

Take a “Color Tour”

It’s mid-October, and we’re in peak season for color tours. I don’t remember hearing that term while growing up in Illinois. But I heard it soon after moving to Saginaw for my first full-time pastorate. Every year about this time, people enjoy driving up to northern Michigan – Grayling is a popular destination – to take in the beautiful reds, golds, and oranges of the leaves along the way. For people of faith, color tours inspire reverence. Elizabeth Barrett Browning wrote:

Earth’s crammed with heaven,

And every common bush afire with God,

But only he who sees takes off his shoes;

The rest sit round and pluck blackberries.

This same principle applies to family businesses facing transition – some see opportunity for legacy, others just want their payout.

Sale of the Family Business: An Ending – and a Beginning?  

Change is the only constant in life. Pretty autumn leaves eventually fall to the ground and enrich the loamy soil of the forest, nourishing new life. For generative families, that’s a metaphor for the role played by their “legacy business.” When a family business is sold something beautiful ends. But in families that follow three crucial steps, proceeds from the sale nourish new life.

Step One: Convene the Family to Answer: ‘Why Stay Together?’

Foresighted leaders of business-owning families see the original family business for what it will become: a legacy business that opens the door of opportunity to become a generative family. A liquidity event prompts these families to address a question: “Why stay together, now that we’ve sold the business?”

A group process that produces a compelling answer to that question can become the basis for a dynamic multigenerational family enterprise. “Over time a family may sell its initial legacy business and then choose to remain together to become a financial family entity. Or it may acquire and share ownership of multiple businesses. It may add property and a philanthropic foundation out of profits. Thus, a family with a single family business may evolve into what I call a family enterprise, containing a portfolio of jointly owned assets.” (Dennis T. Jaffe, Borrowed from Your Grandchildren: The Evolution of 100-Year Family Enterprises, Wiley: 2020, p. 5)

But this evolution is a viable option only for families adept enough to develop the trust and cooperation required. Without intentional planning, families often fracture over money, drift apart, or watch wealth dissipate by the third generation.

Step Two: Create Your Family Constitution and Governance Structure

Good stewards are committed to making the highest and best use of all available resources. For business-owning families after a liquidity event, that often means defining the purpose of family wealth and developing governance structures through a collaborative process guided by trusted advisors and expert facilitators.

An expert facilitator will help the family experience several benefits during this process. As we’ve written here in greater detail, we set clear agendas, help the family establish ground rules, mediate conflict, encourage broad participation, promote accountability, and keep the process on track and moving forward.

As outcomes from this process your family will begin to develop four qualities that Jaffe (p. 75) found are shared by 4^th generation family enterprises around the world:

1. Explicit values about policies for how you use your money and run your businesses (e.g., we invest in education; we don’t bail out failed ventures)
2. A rich history you celebrate together (e.g., annual retreats at which elders share founding stories)
3. Extensive family organization overseeing your decisions, finances, leadership, and control of the enterprise (e.g., family council, boards of directors, shareholder agreements, philanthropic foundation)
4. Activities devoted to growing human capital (e.g., regular family meetings, next-generation development activities, and philanthropic and community activities)

This is where expert facilitation becomes invaluable.  

Step Three: Invest in Continuous Family Development

Individual households and the broader extended family share responsibility to ensure that family members keep learning and growing together. To do this, they plan family meetings, reunions, and retreats. By the third generation, “From a group of related kin, the family must generate an active desire to be together and develop a common identity concerning who the family is collectively and what it is doing together.” (Jaffe, p. 310)

Identifying and fulfilling this sense of purpose is crucial to effective stewardship of the family enterprise. Elders play a crucial role by modeling lifelong learning, telling stories, and championing an active program of development for the rising generation.

You never arrive, but the joy is in the journey. Hardships and trials require the development of new strengths. “The ability to adapt, renew, and reinvent in response to challenge and adversity while sustaining a consistent culture and set of values is the essence of generativity.” (Jaffe, p. 9)

Isn’t this dynamic familiar to anyone who’s run a successful business? You celebrate success, but you keep innovating. Picture gray-haired senior adults interacting with toddlers and teenagers at an extended family gathering. Elders embody an esteemed legacy that has created unique opportunities for the family’s rising generation. And the rising generation will, in time, steward that legacy by faithfully adapting it to new family, business, and cultural realities. Success is an evolutionary process, a journey of resilience and reinvention.

A Reality Check

Some families will not take any of these steps after a sale, deciding instead to take their share and go separate ways. This is a legitimate and understandable decision. Others may take step one, or steps one and two, but then falter due to conflict over money, wealth dissipation, or a rising generation that becomes too entitled. Taking all three steps is not only difficult but improbable.

But with encouragement and support, some families can take all three steps. They define purpose, establish governance, and proactively develop human capital. A single successful family business provides impetus.

Conclusion

For those few families who succeed, the rewards are profound: a legacy business becomes the foundation of a multigenerational family enterprise, passing not just wealth but the founding generation’s dedication, creativity, and values to those who follow.

The forests are beautiful at this time of year! Next spring they’ll be teeming with growth.