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NEW YORK (MainStreet) — More than 66% of all family businesses don't succeed to the next generation, according to research from the Family Firm Institute (FFI). That’s because there’s no room for the unconditional love expected of family when a business is about turning a profit.
“The biggest mistake is not keeping a clear distinction between personal family business and company business especially when you have non-family members working there as well,” said Kevin Neff, business marketing consultant.
When you're dealing with family businesses, there's a definite dynamic.
The first generation of the business, you have a charismatic go-getter running things. This guy knows how to work, how to sell himself, and isn't averse to calculated risk. That's what it takes to build a business from the ground up.
The second generation? The large majority of the time, they are less about growing the business and more about protecting their lead. Mind you, I know a couple of family business owners who continue with the founder's entrepreneurial spirit. But for the most part, they are much more risk averse, feeling they have a great deal to lose. The psychology of the family comes into play, too, coming from having a parent who is larger than life. I remember dealing with one difficult client who was trying to throw his weight around in a meeting to put a rather weak initiative into motion. Everybody was trying to find diplomatic ways to point out that his idea wasn't good when his eighty-year-old father comes hobbling in. By the time the father had finished critiquing his son's flawed thinking, the fiftyish son was practically in tears. A very awkward situation for me to say the least. While that's an extreme example, it also sheds light on a lot of the dynamics that go on.
The third generation? They take business ownership for granted. To them, it's less a point of personal pride and more of a cash cow to be milked incessantly while they go off and do more fulfilling things. These are the guys who major in art history or spend large parts of their time fiddling around with boats. That's not to say that art history is a bad major or that fiddling around with boats isn't a good enterprise, but these people never have the initiative or energy to do anything particularly well. That would be work.
If I've seen it once, I've seen it a thousand times. I only know a handful of family business that make it to the third generation. And I only know one family business that has endured for multiple generations, a jewelry chain that has been in business since the 1850s. In that family, the kids are expected to work and learn the business, and there's been a clear-cut discipline in how control of the business changes hands from generation to generation.
I'm a business owner myself. But there's no way I'd just bring a son or daughter into the biz straight out of college. Instead, even if they wanted to work in my company, I'd insist that they go out into the world and gain their own experience and professional reputation. That way, if they come into the business, they come in with credibility and not be automatically be considered the product of nepotism.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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With my business, none of the 3 kids had the interest or aptitude for the work. They each chose different career paths which was fine with me. I looked at it as a way to make a living to support my family, and never had any intention of passing it on. The reason I think they don't succeed to the next generation is that people try to steer (or force) their kids into it, rather than let them decide for themselves what they want to do for a career.
Same with my company. I encouraged my kids to make money from other people and they're doing well in their separate careers. Yes, I hired them part time when they were younger which I think not only helped me, but gave them good experience in several areas, but I'm not sure I would want us all to work together. It's nice not having any family drama due to a family business.
That said, I sometimes wish I could hire them all because they have great skill sets now that I could use.
I do think it's unhealthy when a family expects their children to work in their business when they're adults, or when a child takes for granted that they will take over a family business.
Really good example of this was the movie Horrible Bosses ill quote from wiki, "Dale's accountant friend Kurt Buckman (Sudeikis) enjoys working for Jack Pellitt (Donald Sutherland) at a chemical company, but after Jack unexpectedly dies of a heart attack, the company is taken over by Jack's cocaine-addicted son Bobby (Farrell), whose apathy and incompetence threaten the future of the company"
I have actually seen this before in a small company I worked for. The owner died and the company was run into the ground by his kid who squandered all of his life savings in a few years. The sad part was the employees who put there life into the company working their tails off to move up one day but never got a thing.
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