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Multi-Generational Family Business Conundrums

Multi-Generational Family Business Conundrums –
Why Most Multi-Generational Family Businesses Fail And What You Can Do About It.

Multi-Generational Family Business Conundrums

Multi-Generational Family Businesses have a terrible chance of survival!

In this post, I’m going to run through a typical multi-generational family business and touch on what happens to it and why. I’ve seen this exact scenario in more than a couple family businesses.

The originator starts a business, has a family, and as the kids grow up, they work in the family business. The kids basically grow up believing that they will be working ‘with” dad or mom, and got through their formative years helping out in small ways and then after high school or college, they work full time in the business being led to believe that one day, “this will all be yours someday.”

Then, since they/you are so busy working IN the family business, they/you become too busy to realize that the kids will also have children one day and their children might very well follow in what is not a family tradition and the belief is the same – “This will all be yours someday.”
And the next generation, in turn, has the same proudly earned tradition that continues – but faulty at its’ foundation.

Now, we have 3 plus generations working in the business.
Sounds great, wonderful and romantic, but in real life, it’s a catastrophe in the making – with few exceptions.

Here’s Why:

The originator of the business might still be working, maybe not daily, but they are involved in decision making and taking a salary.

The Second Generation:
The second generation is taking orders from dad, and has never had the ability to make a decision on their own so they can learn from them. This generation ends up being incapable of ever making realistic and rational business decisions, because they don’t know how. (more on this in another blog).

There might be a couple brothers and/or sisters working in the business, yet none of them have been gleaned or trained to take over the helm when the time comes. (HUGE mistake, and a faulty foundation make this a catastrophe in the making).

The coming catastrophe is never seen, but is sometimes heard. In general, day to day discourse seems to get set aside due to time and busy days which turn into busy weeks, months and years. (If the business survives that long).

The Third Generation:
The third generation has little, if any chance of advancement, because the top spots in the company are taken by grandpa, or their parents, uncles or aunts. The business supports grandma and grandpa, dad, the aunts, uncles and the grand-kids. Even if they no longer work in there, the business still pays them for breathing in one way, shape or form.

This is the point that is raw and challenging at best. Some family may have opted out and left the business (usually, they are the ones best suited to take over if they stayed), because they see glimpses of the future with little recourse or skills to remain.

So the third generation end up being nothing more than low level employees, or if they’re lucky, might work their way up to middle management. There is very little chance for them to ever experience upper management.

Additionally, while you might say it is now enjoying 3 generations, it is in all practical purposes, it is still a single generation business – because the reins have not been passed down.

What ends up happening is this:
When the “old-man” finally passes on, there is a firestorm of assumptions, accusations, and arguments over what to do next. Occasionally, the business will be actually handed down to someone in the second or third generation to run, but it seldom works out.

Statistics Bear out The Pain …

Normally the firestorm or arguments and hard feelings points to the business needing to be put up for sale, and guess what ….. it’s unsellable!

What was once a thriving business is not strapped for cash because there are so many family members living off the income and not producing ad well as an employee would be.

What’s worse, the business is completely dependent on the family running it.
So If someone DOES buy it, everyone will grab their proportional share and scatter like rats on a sinking ship. Leaving the new owner high and dry without any trained help.

A mess to be sure, and the only way it can be addressed is early on with an exit or succession plan.

I come from a small town where there were 6 multi-generational family businesses that operated exactly how I just described.

Four of them were sold for a fraction of the value they could have gotten if there was a succession plan in place.
The remaining two, the owners are still alive and well. Only time will tell what will happen.
One of them, from what I understand, has recently filed for Bankruptcy protection – a death spiral only a court may work out.
The last one … Only time will tell.

How to Avoid a Multi-Generational Family Business Conundrums?
Create a Business Exit Strategy with a Succession Plan.

I know first-hand how family politics are and Creating a Succession Plan might be a bit uncomfortable.

Uncomfortable or not, it is an absolute necessity if you want your family business and legacy to live into the future.

How it is done is a serious business decision. But I believe it should be done based on ability, qualification and work ethic. Let the family members “WORK” for it with the owners tutelage. Let them have skin in the game with a stated reward through healthy competition.

This utilizes each individuals’ skills as part of a thriving business – and then hand the reins over to the most qualified to own, manage and reward the niche players of the business as well.

Do this BEFORE they take you out on some gurney – feet-first.

Multi-Generational Family Business Conundrum

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About the Author Paul Forsberg

I Solve Business Puzzles and Help People Buy, Build & Sell Businesses For Monthly Cash Flow & BIG Paydays. Author #1 Amazon Best Selling Business Book "The 5 Fundamental Elements of Every Successful Business .... Why Most Businesses Cannot Be Sold & What You Can Do About It."

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