Many entrepreneurs dream of running a generational family business. And why not, some of the most successful brands in the world started out as family businesses. Many companies like Walmart, Chick-Fil-A and Dell Computers are examples of some of the most successful family businesses and are still mostly family-owned. Although it’s a bold ambition, it’s certainly possible. With effective goal setting, teamwork, and dedication, your vision of creating a generational business sits right on the horizon. Today we’ll take a look at what generational family businesses are and how the work.
What is a Generational Business?
When a family owned business withstands the test of time and pervades multiple generations, it’s known as a “generational business”. Right now, there are approximately 5.5 million family businesses in the United States alone, but only 12% of them will make it to the third generation. Why the sudden drop off?
The truth is, managing a family business is significantly more difficult than running a solo operation. A “solopreneur”, as they’re often called, makes business decisions single-handedly, but sometimes lacks proper support. Conversely, a family business stands on a foundation of teamwork and communication, which can be difficult to sustain, but more rewarding long-term.
Running a family business comes with its own unique set of challenges. The biggest seems to be the transition of ownership with each new generation. Sometimes, children of business owners simply choose to pursue a different lifestyle. Other times, new ownership turns out to be a poor fit and results in the failure of the business.
Although it’s impossible to predict what might happen over the next several generations, it is possible to plan ahead. One key factor into generational success involves creating a strategic succession plan. There are ways to set your business up for long-term, generational success and fight the odds.
Obstacles of a Generational Business
Making the transition from one generation to the next is no easy task. It’s important to consider the potential obstacles – and opportunities – that await your business.
When you’re dealing with multiple personalities, there will inevitably be conflict. This is completely normal, especially within family businesses. You may notice, as your family business grows, that each family member has specific strengths and weaknesses. It’s important that you take note of these differences; this can eventually help you find the right roles for everyone.
If you want your family business to succeed generationally, conflict resolution skills need to be your highest priority. 60% of family businesses fail directly due to interpersonal conflict. Many times, the damage is not limited to a financial impact. Sometimes, relationships are damaged irreparably. Knowing how to navigate conflict without losing everything will provide some much needed stability.
Teamwork isn’t just about mediating disputes, either. It’s also about knowing your family members. Take the time to learn the different ways that they process information, their specific skills and preferences, and utilize that when deciding who takes on what role in the business.
One common challenge family businesses face as they attempt to break through the next generation is mismatched roles. Sometimes, business owners have a vision of what they expect from everyone.
For example, a father running a family business might have always expected his son to inherit the shop. However, as time goes on, he might realize that his youngest daughter is a better fit. It’s critical to stay open-minded about the future of your business, or you might miss out on some life-changing opportunities.
Additionally, don’t be afraid to involve the next generation in planning early. Without creating pressure, allow the next generation to choose how involved they want to be in the family business. You might be surprised when one or more family members excitedly offer to take over.
Key Benefits of a Generational Business
Generational businesses have some perks you’ll want to take advantage of. When it comes to running a business, two heads are better than one, and so on. When you’re able to work as a unified team, anything is possible.
Strength in Numbers
Tackling a problem as a solopreneur means extensive deliberation, often without any external input. When you’re running a generational business, you have access to many alternative points of view. Making a decision becomes a team effort, and deliberation involves multiple perspectives coming together for a better outcome.
The success of a generational business largely relies on fundamental family values. In a family, happiness can be achieved through connection, communication, and resilience. The same goes for happiness within a family business.
When a generational business thrives, the family running it experiences a unique closeness. There’s nothing like bonding with the kids as they learn the value of hard work, or listening to hard-earned financial wisdom from our elders. These experiences bring family members closer together and allow us to recognize the talents we all share.
Creating a Legacy
A huge advantage for generational businesses is their longevity. Family businesses that survive the transition from one generation to the next are stronger for it. If your goal is to create a lasting legacy and a secure financial future for your family, a generational business is an excellent pursuit.
Family businesses retain talent better than competitors. They experience less turnover, more dedicated employees, and can survive economic difficulty. This is because the motivation for contributing to a generational business runs deeper than the search for profits. Family members are inspired to succeed by their relationships with one another, and the hard work of those that came before them.
Hosting regular family meetings to discuss the business’s future is a great way to inspire the next generation. Encourage family members to get actively involved with the business. Studies show that the more involved the younger generation is with the family business, the more likely it will be a successful transition of ownership when the time comes.
Take the time to set milestones and overarching goals for your business. If you’re the current business owner, set a goal for a retirement age. From there, work out a detailed plan of succession. Even if some of the details change over time, having a strategy puts you ahead.
Don’t be afraid to directly ask family members how they want to contribute to the business. Some family members may prefer little or no involvement, whereas others might leap at the opportunity to take over someday. You’ll never know unless you ask. More importantly, be prepared for rejection. After all, you can’t force anyone to do something they don’t want to do.
To help facilitate the eventual succession process, train all family members thoroughly. It’s important not to overly focus on just one or two family members, but to train everyone evenly. After all, you never know who might suddenly want to take over the business someday. It’s important that everyone is prepared, just in case. Thankfully, the training will benefit them no matter what, even if it just means developing a good work ethic.
Running a generational business is no cakewalk, but it can be done with the right amount of teamwork, respect, and honesty. There are many things to consider before starting a family business. However, through open communication and group planning, success may be ahead.