Many companies take pride in the fact that they have a family atmosphere. However, a real family business may be just the opposite. Family owned businesses can sometimes put any soap opera to shame. The founder of the business may secretly sabotage the efforts of his or her own children because it is too difficult to give up their “baby.” Sibling rivalries can sometimes resemble the Punic Wars. Other “hands in the till” may involve partners, former spouses, stepchildren, or even lovers. Then there’s the square-peg-in-a-round-hole syndrome.
This is the founding parent who is bent on leaving a legacy by having the business live on and is determined on having one or all of his or her children take over the family business. The now adult child may not want to be in the business, but wouldn’t dream of disappointing mom or dad. The son or daughter will soon begin to struggle with business operations and some decisions. If the founding parent is not paying attention and has moved on to other activities, the company may quickly head on a downhill slope from which there is no return. These scenarios are not just isolated cases. According to an article in the on-line HBR, during the second generation’s leadership, around 70% of family owned business fail. Only 10% are left for third generations to take over. In fact, there is a familiar saying that states, “shirtsleeves to shirtsleeves in three generations.” So what’s a parent to do?
In my work, one business owner has two adult children. One of them is unsuitable to take over the family business due to this individual’s lifestyle. The other adult child has been given carte blanche as the CEO. Unfortunately, determined though this person might be, the ship is sinking more and more every year. Business owners cannot assume their own children are well suited for any particular place in the business – if at all.
Secondly, ensure that the one(s) coming on board understand business and the business you own. For example, one father had his son go out in Corporate America and make his own way with no ties to the family name. Another way is to have the adult child work his or her way through the company ranks. From personal experience in our family restaurant, our son was made to learn to prep food in the kitchen, do service as a busperson, as a server, cashier and host. Now he manages one of the restaurants. For other companies it might mean starting in the mailroom or the factory floor. This helps the adult child’s ego remain in check and helps earn the respect of other employees.
Thirdly, be sure to plan for growth as well as succession. For example, just recently I was coaching a client who owns a business in Brazil. The family is composed of a stepfather, mother and three brothers. As children are borne to the brothers, the company could grow faster than it is ready to onboard family members. I was attempting to help my client (one of the brothers) see the necessity to hold a meeting with the people named above to plan for succession. He stated he had thought of doing this for a long time, but never seemed to find the time. I asked, and how would you find the time if some catastrophic event occurred? He admitted he would then find the time and smiled. Do it now BEFORE such an event occurs.
While operating a family business can be tricky, there are ways to prevent disasters from occurring that can stop legacy building and profitability in its tracks. It does take time to put to put these plans in place, sometimes as long as 20 years. Therefore, it should start as soon as possible. Don’t try to put this plan together yourself. Consultant a tax attorney and your accountant. There may be some delicate conversations. There may be yelling. There may even be resentment. However, the level of these pale in comparison to a family legacy winding up in ruin.
