As the executive director of the Fairleigh Dickinson
University (FDU) Rothman Institute, a family business consultant, host of the Family Business World TV show and a FDU
professor teaching “Family Business Management” and researching family businesses,
I have more insight than most on the reasons why some family businesses succeed
and others fail. One of the most interesting things I have learned is that
there is a secret to increasing the probability that a family business succeeds
from one generation to another.
The research suggests that 85% of new family
businesses fail before transitioning to the next generation. Approximately 30%
of those businesses make it to the second generation. Only 13% of these
businesses make it to the third generation and tragically only 4% make it to
the fourth generation. An even smaller percentage make it to the fifth generation
and beyond. It is therefore an extraordinary accomplishment for a family
business to make it to the third generation. When I meet a family business that
has made it to the third generation, I go out of my way to celebrate them and
tell them how amazing it is that they have defied the odds. I also ask them
about their secrets of success.
Many people ask me why some businesses make it to the
third generation while most of the family businesses don’t even make it to the
second generation. I always thought that the reason was simply based on the viability
of the business model and the demand for the company’s products. I was
convinced that the well managed companies were passed to the next generation and
the poorly managed companies failed. However, I discovered that most
well-managed companies don’t stay in the family because the next generation was
not adequately prepared to take over the business. These well-managed family
businesses are therefore sold and are no longer part of the family.
On my TV Show Family
Business World (www.FamilyBusinessWorld.com)
I have interviewed the leaders of family businesses in virtually every industry.
I was surprised to discover that every business that survived two, three, four
or five generations did the same thing when introducing the next generation to
the business. They made sure that the incoming generation did menial labor for
the first few years that they worked in the business. Every next generation CEO
of the family businesses that I interviewed started out sweeping the floors,
taking out trash, doing boring paperwork or serving as a gopher for their mom
or dad. In most cases, they were paid less than the nonfamily employees. They
each hated it when they first started in the business.
What surprised me the most is that when the next
generation is forced to do menial labor they view the family business as an
asset to be treasured and kept in the family. Instead of turning them off to
the business, the menial labor surprisingly made them value the business much
more than the next generation leaders that started out in executive positions.
This may seem like common sense to some people. However, most family businesses
start the next generation out as senior leaders because they are too “important”
to sweep the floors. This unfortunately gives them a sense of entitlement that
makes them undervalue the business and take it for granted. These individuals
feel that owning the business is a birthright and take the opportunity to
carry on a family legacy for granted. The business therefore rarely makes it to
the next generation.
The secret of successful family business succession is
a surprisingly simple concept but often very hard to implement. The owners of a
family business often want to “protect” their children from the menial work
that their parents forced them to do. However, that menial work is exactly what
made the transition from one generation to the other successful. My advice to
family businesses owners is to get the broom and dustpan out and have your children
and grandchildren start sweeping the floors. Your succession planning will be
much easier if you do that!
Thanks for sharing. This indeed is insightful information and can be considered and applied to other business growth concepts like promotion of staff for example.
ReplyDeleteThank you for your words of wisdom. When you are exposed to all aspects of a business, you better appreciate and respect the people who poured themselves into creating a viable business.
ReplyDeleteI found that having Bible family time, taking family vacations to big cities and experiencing other cultures helps kids to want more and appreciate family.
ReplyDelete