Based on the results of our interviews with 20 founders (owners/managers) and their successors in family SMEs in Slovenia, we believe that entrepreneurialism (entrepreneurial competences of successors) and knowledge transfer (especially tacit knowledge, from founders to successors) in different forms are very important and crucial for effective succession in family SMEs, thereby contributing to the long-term sustainability of the family firms.
In terms of factors contributing to the formation and building of entrepreneurial competences, we identified work experience outside a family firm, family context (e.g., familiness), and formal education (i.e., in entrepreneurship), thus following the research findings of 1.
In the interviews, we researched how to prepare a competent leader, which included dealing with the transfer of knowledge (tacit knowledge) from the founders to the successors. We followed different authors in defining ways to transfer knowledge across family generations: early exposure of children to a family business 2, 3, mentoring 4, 5, apprenticeship 6, learning-by-doing process 7, teamwork 8, 9, participation in decision making 10, and involvement in the strategic planning processes 11.
Most of our findings are not unique, but follow similar results of previously mentioned authors. For example, according to 12, 13, founders believe that children’s early exposure to the business is of particular importance in order to absorb tacit knowledge. Our interviewees confirmed that 95% of them were involved in a family firm since childhood, learning about the business through daily conversations at home as well. All (100%) founders and successors found that the successors’ early exposure to the family business environment was highly important for the development of their interest for the family firm.
According to 14, 15, children should become co-owners when they join a business while their parents are still active in a business. This finding also correlates with results of our research. Indeed, 45% of the founders had already transferred the ownership of the family firm entirely or partly to their successors. According to the same authors, successors should be found among family members as a business is considered stronger with family members involved. In our 20 cases, all founders found successors in their sons and daughters, but in 2 cases (10%) the founders had to delegate top managerial functions to a non-family member (due to the request of the bank) or to a son-in-law, as the founder did not want to expose his three daughters to the top managerial position. Gender is not an issue of succession in family firms according to 16, and in our 20 cases this was confirmed.
Yet certain findings differ. According to 17, less than 60% of founders in Slovenia plan succession. Our results show that 65% of founders already transferred management and/or ownership to their successors; it was entirely transferred in 15% of family SMEs. According to 18, 19, 20, family firms lack succession experiences. Our study revealed that the succession process is active in 60% of family SMEs, as in these firms management is already in the hands of successors or they have already become actively involved in management functions. In addition, 65% of family firms have female successors, following potential successors’ capabilities and not the rule that the oldest child takes over a business, thereby contradicting 21.
22 suggested that successors lack mentoring and proper training and feel uncertain about their capabilities to manage the firm, while our research results show that 85% of successors have been mentored informally or formally by their parent or a non-family member and are active in the family business. All (100%) successors and 95% of founders indicated that mentoring is very important to support the development of tacit knowledge by successors. Other forms of transferring knowledge (e.g., learning by doing) is very high on the priority ladder among founders and successors (100% found it important, 85% practice it), as it is a perfect way of learning the tricks of the trade 23. However, apprenticeship is not implemented as often as mentoring (50%); teamwork and participation in decision making and strategic planning processes are more common once successors become actively involved in a family firm (65%).
The authors argue that successors’ entrepreneurial competences are of crucial importance for the smooth and effective realization of succession and for the innovativeness and viability of a family business in the next family generation. The research revealed factors contributing to the development of entrepreneurial competences: Formal education, work experience outside a family firm, and familiness are all very important and contribute significantly to the effective succession in family firms.
In our cases, all successors (100%) believe that formal education—especially in the business field—is very important; they are very well educated (80% hold a higher professional or university degree) and are trained at the academic level and thus exposed to new ideas and trends in management and business 24.
Experiences from both of the academic institutions, EBF and GEA–FE, offering undergraduate and postgraduate programs in entrepreneurship show students’ growing interest in entrepreneurship at both levels. Part-time students especially expect know-how to upgrade their insights into the entrepreneurial world and to gain from pragmatic experience from different fields of activities and from different aspects that faculty shares with them. They also look for networking. Full-time students, many of them children from family business owners, appreciate theoretical background in their major business fields (e.g., marketing, finances, strategic planning, business planning) and want to combine theoretical platforms with project work.
External working experiences are very appreciated by the successors as they enable a more detached perspective over how to run and how to introduce changes and innovation in the business 25, but in our cases we ran into a problem of an economic situation that does not offer many opportunities and access to fresh knowledge in other firms. As a result, 60% of successors have no working experience in other firms, and most of the others have completed only short internships or obligatory training in other firms. All founders and successors (100%) found familiness to be highly important for sustainability of a family firm and agreed that familiness is a competitive advantage of the family firm 26.
Building on our research, we can propose several areas for further study. In combination with our quantitative data collection, we propose the quantitative measurement of the constructs of familiness, entrepreneurial competences, and the transfer of knowledge and their relationship with innovativeness as well. Future research should address the impact of social capital and social networks as facilitators of know-how mobility and sharing between firms and individuals, contributing to the promotion of innovation in family firms. The question of the relationship between the stated constructs and a family firm's performance should be addressed in future studies as well.
Our research findings have implications for practice as they provide useful cognitions for stakeholders involved in the succession process (i.e., family members) as well as professionals dealing with family firms’ succession issues and innovativeness. The evidences from the research indicate that importance of finding balance between the interests of a family on the one side and needs of a business on the other side. There is a danger of inefficient use of the entrepreneurial spirit, potential and family values, with available resources that should contribute to better business performance and/or satisfaction of a family. When doing forecasts for the future, family businesss’ owners/managers may discover that no opportunities exist for the development of the mature business. In such a case they should reconsider the family attitude towards inclusion of the outside shareholders and/or even decide on selling a part of the family business.
Based on the findings, family businesses are found to be more customer-oriented. They might even consider using their family business specific feature as the marketing opportunity. Family businesses tend to spend more resources on their innovation activities suggesting that they are well aware of the importance of innovations for the development and long-term survival of a family business. Although the majority of participants reported that they had already started with the transition processes, one can claim that the transition of family businesses to the next generation has thus far not been a common practice in both Slovenia and other transition economies. This indicates a possible gap in knowledge as well as experiences regarding succession that might cause serious problem in the near future. Therefore, adequate measures are necessary on the national level in order to provide support to family businesses when preparing the transfer of ownership and leadership to the next generation.
This also suggests that knowledge about the family businesses succession should be improved at all levels. Education and training have important role in raising awareness of the succession issues and in creating and disseminating knowledge to the family businesses owners/managers. This is of special importance in Slovenia due to the fact that family business succession is quite a new issue.
From the point of view of both academic institutions studied, which already offer within their specialized programs courses on family entrepreneurship, it is advisable to renew the existing programs and provide more courses focused on innovativeness and innovation management, especially sources of innovation with concepts of commercially viable innovation, strategy of innovation, marketing of innovation, and the financing and controlling of innovation, thereby partly filling the knowledge gap. Knowledge on innovation management is crucial and contributes to the increased competitiveness of family firms and successful succession of potential successors of family businesses in dynamic, changing business environments.
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