Editor’s Note: Rarely do we write, or read, reports of a brewery owner opting to turn the business over to the next generation. Over the years, plenty of craft founders have discussed the idea — Dogfish Head’s Sam Calagione and Sierra Nevada’s Ken Grossman come to mind — but it’s not something that grabs headlines.
As the industry continues to evolve, however, we recognize that some brewery owners might be considering a generational transfer as their primary succession plan. So, to discuss the ins and outs of generational transfers we tapped Deborah Steinthal, the founder and managing director of Scion Advisors, a boutique strategy consulting firm serving private business owners in the food and alcoholic beverage industries.
Steinthal, who offered advice on the topic at our most recent Brewbound Session, has worked alongside more than 150 CEOs to generate close to $1 billion of incremental, profitable revenues for their companies. She’s an expert in the area of generational transfers and regularly pens articles on how family-owned breweries can beat the odds, improve the sustainability and value of their businesses, and decrease risk during transition.
Transitioning Your Brewery to the Next Generation
The health of the family-controlled craft brewing business is a fairly new area of study with much uncharted territory. Not unlike the U.S. wine industry a decade ago, the craft brewing sector is in the early stages of unprecedented change in management and ownership within family-owned breweries.
While beer distributors are more familiar with generational changes in ownership, craft producers have been slower in starting the process; among several dynamics, founders’ passion for their craft makes it hard to let go and the audience is a bit younger (many owners are still in their mid-40s).
Brewery owners who are nearing retirement and wanting to pull out of their day-to-day schedules might be asking themselves — “is my family business ready for a transition? If so, when and how do I start?”
When Founders Flounder
In reality, when the time comes for founders to pass their baby onto the next generation, with dreams of keeping it in the family and maintaining their vision and hard-earned enterprise, they flounder for a variety of reasons: They lack a plan and can’t get out of the way. They find that either the next generation doesn’t want to take over or that all the siblings want it. Or, that they want to change it or sell it.
This complex picture is what causes many peaceful, family-run operations to crumble, and legacies fade into failed endeavors. The American economy depends heavily on the continuity and success of family businesses.
It is alarming that such a vital force has such a poor survival rate. Statistically speaking, the odds of successful family business continuity are low — less than 75 percent do not transition to the 2nd generation. Less than one percent survive past the 3rd generation.
But it’s not all doom and gloom. There are a good number of family businesses that are thriving and growing, and resources abound for aiding those families through the process of transitioning to the next generation. With the proper tools, the keys to the kingdom can successfully be passed down to family members for years to come and generations to follow.
Research indicates that family business successes can essentially be traced to one factor: ‘preparedness is at the core of those that are beating the odds.’
Most generational transitions take up to a decade to successfully put in place, so if you think this is only a 2 – 5 year process, guess again. Four dynamics need to come together before a founding generation should actually let go and pass the keys to the kingdom to the kids:
- They need qualified kids to run the business
- The business needs to be financially viable
- The parents need financial stability
- Their identity, very tied to the business, needs to shift to a new life phase
When these dynamics align, three additional fundamentals should be observed.
Fundamental 1: Be prepared for the unforeseen. You should run your brewery as if you plan to sell it within 10 years. This philosophy focuses owners on improving performance by applying effective, common sense business practices that enable their businesses to be strong enough to sustain a major transition in ownership and leadership.
Fundamental 2: Define unambiguous family policies for family business participants. Family business continuity planning is a practice adopted by many successful family businesses and culminates in specific guidelines that address family participation in the business. It involves ongoing family dialogue around issues critical to a family’s future, and helps family members communicate, refine and understand their legacy and vision of the future.
Fundamental 3: Establish effective governance practices. The time to add outside perspective to your team is when you commit to succession. At best, the process of succession is a chaotic time, making it very hard for business insiders to focus clearly. Successful family businesses embrace advisory boards while progressively hiring outside directors.
While it is essential to strike a balance between the needs of your business and your family culture and values, you should also consider four critical steps in transitioning your business:
- Stop and take stock
- Define success
- Develop a reality-based plan
- Execute through people
Even if you have no immediate plans to transition your business to your kids, these tips will help you position your brewery so that you can take advantage of opportunities and respond to challenges that cause you to rethink your plans.
Take the time to consider whether your craft beer business is well-positioned and prepared for a transition to the next generation. Assemble and talk with a trusted team of advisors — it will pay off for your business, whether or not an exit is in your immediate future.