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How can business succession succeed? We asked around

Generational succession is a critical moment—particularly for owner-managed small and medium-sized companies. We asked around how to make business succession a success.

While many are already considering retirement, Jean Blondeau is still as passionate, creative, and energetic about his work as ever. After turning 70, however, he recognised it was time to hand over the reins. As the managing director of 5micron GmbH, he plans to step back from day-to-day operations and is seeking a suitable successor together with co-managing director Ute Franke. This is no simple feat, as the company is highly specialised; a provider of solutions and products focused on measurement and control systems within the Internet of Things (IoT). Candidates must possess both technical expertise and a solid understanding of business management.

“Initially, we thought about colleagues from our team,” Franke explains. “However, the level of commitment and responsibility that comes with being a managing director often deterred them, or it simply didn't fit into their personal life plans.” Attempts at “taking the temperature” among the network of partners and friendly businesses yielded little, other than “good conversations” and the realisation that many others faced similar succession challenges. Franke: “Consequently, we created a company profile and collaborated with a consultant to post a listing on the nexxtCHANGE platform, in addition to being featured on the succession platform of Industrie- und Handelskammer (IHK).” Now, all one can do is wait.

They have already conducted initial interviews with applicants, primarily from the software industry, but have yet to find the right match. “Some candidates, although enthusiastic about becoming 'first-time entrepreneurs', often haven't fully considered the realities of the role—especially regarding the commitment and engagement required or the daily work of a technical managing director,” says Franke. “Interestingly, most people who reached out to us want to become entrepreneurs, but without—and this is an original quote—having to endure ‘the challenging startup phase’ themselves.” Well.

Management are narrowing down candidates with shareholders and creating a shortlist, which will be discussed with the team. Their feedback will inform the decision.

Holger Wassermann, managing director at Mittelstandsbroker and professor at FOM University of Applied Sciences in Berlin, believes that seeking external assistance can enhance the chances of a successful succession process. Only in small transactions, typically under 500,000 euros in company value, might a transfer be managed independently—provided it is well-prepared.

A general truth: “Succession is a highly sensitive topic, particularly among SMEs, the German Mittelstand.” That’s where the problem begins: Those who shy away from openly addressing the sale or leadership transition, out of fear of losing customers, suppliers, or employees, will have a hard time finding potential candidates. “Conversely, potential candidates are typically aged 35 to 45 and are in managerial positions. They are also not likely to advertise their interest in changing roles,” Wassermann points out.

There is only one solution: “Engage a succession consultant with a relevant network.” While this may involve costs—typically performance-based upon successful placement—it is a worthwhile investment. “You only get one try. Those who exercise false economy run the risk of losing their entire assets.

Outgoing business leaders should recognise that they are generally novices in this area. This also applies to transitioning within the family. The expert recommends involving a tax advisor or lawyer specialising in inheritance and gift tax law to avoid financial pitfalls. And to getting psychological support: “This should serve to clarify the rules of the game, for example, the roles of the departing parents within the company.”

Retaining the collected company knowledge solely with the outgoing management is not a good idea, warns the consultant. This risks brain drain and the potential destruction of business value. It is therefore crucial to establish hierarchies and distribute knowledge across the organisation beforehand. Most importantly, the departing leader must genuinely be ready to let go. While it sounds easy enough, many transitions fail due to a leader's inability to relinquish control.

Not so with FOC – fibre optical components GmbH, which develops, manufactures, and distributes optical components for data transmission. After 30 years, founder and managing director Christian Kutza will gradually step back from daily operations, passing the leadership on to his wife, Paulina Christ, who currently manages sales. “Although it may sound trivial,” Kutza emphasises, “the person handing over must truly want to and create the conditions necessary to do so.”

With this couple, this means that Paulina Christ, who has been with the company for 17 years, is gradually acclimating to her new role: “For that, I have a mentor and partner at my side,” she says. But not only that: They have sought external assistance from the outset to ensure a robust and professional succession process. “Along with the conscious decision to wanting to step back, that's my most crucial piece of advice for a successful generational transition,” Kutza underscores.

Moreover, a good level of criticism, mutual acceptance, and openness are essential, Christ adds. Is it an advantage, then, to have the business continue within the family? “This can't be generalised,” says Christ. “Not every partnership or constellation is suited for it. But it works for us!” Husband Kutza nods in agreement and says: “It's an adventure and a rewarding experience when succession can be managed in the best interests of the company.”

Chris Löwer for Adlershof Journal

• 5micron.de
• Prof. Holger Wassermann
• FOC-fibre optical components GmbH