Why do only three percent of family businesses make it to the fourth generation of business ownership? What happens along the way from generation to generation that impacts the future of that family business? Why doesn’t the next generation have the passion to work with the same level as the founders? There are many reasons, but it essentially comes down to about 4 basics.

1. Not letting go

2. Lack of interest

3. Poor business practices

4. Greed

Let’s look at some of the specifics:

Not Letting Go

The current generation is working the business. They still have the drive, they like going to work. After all, what would they do if they didn’t work? The next generation is in the business, but they are essentially biological employees. They don’t have a say, can’t make changes, aren’t learning leadership due to the current generation holding on and not learning to let go.

When our children learned to walk, they learned balance by falling and then standing back up again. Who hasn’t laughed and cheered when a toddler is learning to walk. Where is the laughter and cheering when that same toddler has grown up and now wants to learn how to run the business? Fear creeps in, control remains and learning is stagnant.

Eventually the current generation lets go. None of us live forever. However, since the learning of the finer points of the business never happened with a true mentor, they business often fails with that next generation.

Lack of Interest

Every day Dad and Mom came home from work sat at the dinner table and talked about business. Not the positives, but that customer that always takes advantage of us, that new technology that doesn’t work, those employees that won’t work hard enough and the complaints are endless.

When it is time for vacations, watching your children’s sporting events, or plays you are late or non-participatory. Work emergency kept you from attending. Money challenges were the excuse for no vacation. Now you wonder why this next generation doesn’t want to take over the business. ‘

What would the impact be if:

• The business discussion at the dinner table (yes you have a dinner table discussion) focuses on how the customers appreciated what you did for them.

• You managed the business so you could take even that staycation – which means you even stay around the house, but do things as a family unit (however that is defined that are fun and inexpensive.)

• You talked at age appropriate levels about the fun of running a business, the benefits, what profit means and its relationship to revenue.

• And the list can go on.

This change in attitude may not mean they follow you into your business, but they might just have a much better perspective on the family business.

Poor Business Practices

“No one I have ever hired can do this job as well as me!” That is the opening statement for probably 85% of business owners I have ever met. That includes family and non-family business environments. The second most common statement: “Customers only want to deal with me – so it is hard to get away from the business.”

Both statements are not true 98% of the time. Now if you are an artist and your business is oil painting, then that is probably true. However, most other business environments do not have that specialized “art” to the business. A true business should be “a commercial profitable enterprise that can work without you”. That means you have put the policies and procedures in place that allow the team (both family and non-family) to run the business in your absence.

One of my clients was commenting that they have put the policies and procedures in place, but the family members won’t follow them, so why bother. What are the goals for the business? Have you gotten everyone on the same page? Do they know why the policies and procedures are in place and how those policies and procedures impact profitability. If not, then it is not a surprise they don’t want to follow. The team sees these as a set of “Mom” is nagging us about how to do things and we have a lifetime of tuning out her nagging. (That same comment can be translated to Dad as well.)

The end result is when the current generation does choose to exit the business and the business often fails. The smooth transition of how to operate the business isn’t transferred, so although it might make it to the second generation, it seldom makes it to the third.

Greed

All business owners are wealthy! I hear the laughter now, but societies perception is often wrapped up in that statement. The next generation has been given everything they need, sometimes to the detriment of the current generation. One of the siblings that is taking over the business, or unfortunately, sometimes all of them, don’t want to work and just want to collect the proceeds of the business. No re-investment, just essentially a cash cow that eventually dries up along with the fortunes, or lack of fortunes of the company. Sometimes one parent is deceased and the other parent just wants to take from the business with no concern over the impact to future generations and the next generation is left to watch the business bleed out money, with no hope for the future.

All of these challenges impact the sustainability moving forward and can be directed toward a solution – if a solution is desired. The question is: Which one fits your business and what are you going to do about it?