The 4 Forces That Drive Family Business Success
Research shows that 30 percent of family businesses make it to their second generation and only 12 percent make it to their third. Daunting statistics like these make you wonder what the 12 percent have that the others don’t. Why does one family close up shop while another keeps chugging forward?
I decided to take a look at the patterns and recurring themes found in families with multigenerational success. Was there really a secret set of ingredients? The answer was yes. Those businesses that survived three, four, five generations were powered by four distinct forces.
1. Family unity
Unified families have a much easier time adapting to change and typically put family and business interests ahead of their own self interests. In my experience, families build unity by making communication a priority. Here are a few things they do:
- Holding regular family meetings
- Educating family members about the business
- Building conflict-resolution skills
- Learning about the components of good communication
2. It’s more than just money
Successful families must be committed to a set of values beyond just financial gain. These values typically manifest in the form of a mission or vision statement.
For example, one family I work closely with defines its mission as creating economic opportunity for its employees and community. Establishing a core set of values gives family members a sense of purpose and the opportunity to commit to something greater than themselves. Families who leverage this force:
- Identify core values
- Translate values into action
- Use values to build a strong culture
3. A unified visionWithout a thoughtful succession plan in place, passing the torch from one generation to the next can feel like you’ve been handed a Pandora’s box of complex decision making. Succession planning is far more complicated than simply figuring out who’ll be the next CEO. Change management, estate taxes and retirement are closely linked to succession, and in order to deal with these multifaceted challenges, successful families:
- Build an independent board to provide accountability to management
- Strategically plan for the business on a regular basis
- Align strategy with the values and vision of family ownership
4. Preparing the next generation
Investing in the next generation is a must. Unfortunately, “investing” in the next generation is often misconstrued as “finding the next CEO.” It’s a common trap for family businesses to fall into, one that usually leads to pressuring the next generation (implicitly or explicitly) to come into the family business. In my experience, next-gen family members who join the business for the sole purpose to please their parents become poor performing successors with low self-esteem. Under their leadership, the business, more often than not, fails. They become susceptible to what I call the "successor’s curse." The successor’s curse is that they are encouraged to overly emulate their parents, and the people around them don’t think that they can possibly be credible because of their last name. Successful multigenerational families counteract this curse by investing in their next generation by:
- Helping them match skill/passion to work (regardless of whether or not that work is in- or outside the business)
- Preparing them to be responsible owners
- Holding those working for the business accountable for their performance
- Educating them about the challenges of leadership
While there are considerable challenges when you transition your business to the next generation, there is also considerable reward for those that do it successfully. Beyond financial gains, the successful multi-generational family business creates strong and enduring family relationships, makes significant contributions to their communities and establishes a legacy for future generations to be proud of.
Andrew Keyt is the author of Myths and Mortals: Family Business Leadership and Succession Planning and the executive director of the Loyola University Chicago Family Business Center.