Did you know that 30% of family businesses make it to their second generation, while only 12% still have the business going in the third generation? According to The Family Firm Institute, about 3% of all family businesses remain into and beyond the fourth generation.
Research further indicates that family company failures usually happen because of unfortunate lack of family business succession planning.
The businesses that survive through three, four, or more generations have three key things in common:
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Succession planning
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A proper set of values
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Clarified hiring and promotional practices
Succession Planning
Succession is an ongoing process, not a goal. Too many family businesses fail to see the difference.
Many factors can threat future success. Illnesses, death, and all sorts of unexpected emergencies could happen, and if you don’t have all the plans in place, the business will suffer consequences. Succession is an enormous responsibility, and if you don’t already know who will step into the leading positions once you and your managers retire, you should start prioritizing time to make this goal reachable.
In case you already know which members of the next generation might be fit to take over, it’s never too early to start nurturing their leadership and management skills. Succession planning is much more than just figuring out who the next CEO will be.
Some of the most successful family businesses require next-generation family members to build experience outside the family business. There are two reasons for doing this:
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The kids gain amazing experience working for other companies, and they bring new, fresh perspectives when they start working for the family company;
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When the kids pursue outside opportunities, they begin to fully appreciate all the options they have back home in the family business.
Proper Set of Values
Financial gain is an excellent goal to have, but it’s not all about money – especially when it comes to multigenerational family businesses. If you want your family business to be successful, you need to be committed to more than just financial gain. A set of values that go beyond money and finances is essential for a family to stay united in business. These values usually come in forms of missions or vision statements.
The important thing about having higher values is the fact they give you an opportunity to commit to something greater than yourself. Money isn’t greater than you, but a core set of family values is. Successful families identify strong, core values; they translate those values into action and use them to build a strong culture.
Clarified Hiring and Promotional Practices
There are many different ways in which family businesses approach hiring. Many believe that the business exists to serve the family and their doors are wide open for any family member who wants to work in the company. Others, however, treat family members the same way they would with any prospective employee.
Can you guess which ones are more successful?
Unqualified managers won’t make your business blossom just because they are your family members. There are numerous situations in which we see family businesses fail because unqualified people are kept in leading positions.
A successful multigenerational business is achievable, but only if you implement each of these three crucial elements. Family enterprise consulting may be of great help, after all, a professional consultant will know exactly what works and what doesn’t.
Elaine King, CFP is an expert on family enterprise consulting, creating strategies for wealth planning, family governance, and financial education programs
