Do You Have a Succession Plan, or Are You Delusional?
One of the many things I enjoy about what I do is that I get to meet a lot of successful and interesting people. Recently, I had lunch with a successful third-generation business owner who had accomplished the unheard-of feat of taking his business into the fourth generation. For most people who start a family business, the dream is to have it stay in the family for generations to come. The founder may think of that as a gift to the family, giving them meaningful employment and an easy income. They may think of it as a stepping-stone, assuming their children can build on what they started. When asked, about 88% of people who run family-owned businesses think that those businesses will stay in the family for at least five more years. However, the statistics paint a far bleaker picture. Most family businesses fail at an alarming rate. It is very rare for them to move on from generation to generation. For instance, a mere 30% — less than 1 out of every 3 businesses — actually make it on to the second generation. These are the children of the founder. They should theoretically be in the best position to run the company. But most fail. And why is that? Because it is difficult for the second generation; when they were born, the business was already alive and in the process of prospering. They never had to feel the pain of being short on cash when it came time for payroll or having to create or invent ways to get business in the door. Basically, when they showed up, the business was up and running, and it was their job not to screw anything up and let the first generation keep going until either they passed away or handaed the reins over to them. Overall, I think being a second-generation owner is the toughest situation.
the founder’s grandchildren. At this point, hopefully, the second generation has learned from the transition from the first generation to the second generation what to expect, but as you can see from the statistics, the odds are turning against this transition of being successful. The fourth generation sees a mere 3%. By the time the great-grandchildren take over, 97% of family-owned businesses are dead, and if the third generation has not sought professional help, the business will have been sold or dissolved. People often have blind faith in their children and other family members. They have misplaced confidence. They think that it will all work out. This is where the saying “Thunder, Blunder, Under” originated. The first generation was the family entrepreneur who put everything together and built the business. The second generation kept things going, and the third generation couldn’t keep the business together for unknown reasons. The truth is that running a family-owned business is incredibly hard. Keeping it going from one generation to the next is nearly impossible. However, one thing the family planners never talk about is this: How many businesses are able to span three to four generations to begin with? I talk about being in the video rental industry. This industry didn’t last one generation. What about the farming industry? It looks like it may have had three generations it could support, but in today’s world, a small farm is not a viable business to be in. And what about the convenience store industry? It began as a filling station, then a gas station, then a convenience store, and then what? A building that sells soft drinks, coffee, food, cannabis, and vapes. Who knows what is next?
So, the question is twofold: Are you in a business that has more than one generation of life left in it, and do you see the business you are in starting to fade away and may not have enough future left to support your family and your children’s family for two generations? The next question you must ask yourself is: Will your family be capable of taking your present business to the next level? Notice I did not say keeping the business running. No, because I could walk in and keep your business running, but I may not be able to grow your business, and if a business is not growing, it is dying. There is a difference between keeping a business running and growing a business. All too often, parents are delusional about the capabilities of their children and what their children can really do. I know when I started in business, I had the illusion of my children taking over what I had created, only to find out some of the businesses I had did not have multiple generational life in them. My children had no interest in them, or worse yet, they didn’t have the entrepreneurial capability I had when I started them. I had to face the harsh reality that there was not going to be a legacy business in my family. Instead, I had to put my big boy pants on and understand that my children were not me, and they were better suited for other businesses they enjoyed and were more capable of and where I could support them in their endeavors. We all think about succession planning, and maybe it is time for all of us to take off our rose-colored glasses and look at the reality of things within our own families and businesses before it is too late. –Terry Monroe
Beyond that, a staggering 12% carry on further and get to the third generation or
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