According to the Family Business Institute, only 30 percent of family businesses survive beyond the founder’s generation. From there the odds of survival only get worse: only 12 percent make it to the third generation, and a paltry 3 percent persevere into the fourth.
It doesn’t have to be that way. There are a variety of things families can do to ensure their businesses thrive from generation to generation. Here are three factors to consider.
Have a Plan
It’s important to develop a business transition plan and to do so early. An effective plan will help owners determine the future disposition of their business, both when to sell and to whom, and ensure the business will provide for the future financial needs of their families. It includes financial planning, estate planning, ownership transition planning, leadership and management training, strategic planning, and should consider all of the dynamics inherent in a family business. In addition, every generation should possess a wealth creation mentality; without this mentality, a family business will likely not endure.
Develop the Next Generation
Too many parents pass on the family business without passing on the knowledge and skills it took to create the business. There’s so much focus and attention paid to the assets of the business that the human element—preparing successors for leadership—is often lacking. Having a strong business balance sheet is irrelevant if the next generation isn’t equipped to run the business effectively. It’s important to invest the necessary time to ensure subsequent generations are sophisticated enough to do the job.
Continuously Reinvent the Business
Conventional wisdom states that if you find that you’ve done the same thing the same way for five consecutive years, you’re likely going to fall behind. It’s important to allow your business to evolve with your customers’ needs. That kind of agility is what separates successful businesses from less successful ones.
Your business is your livelihood — something you've been building for years. It’s important, then, to protect it and to ensure that subsequent generations understand just what they’re inheriting. John F. Kennedy once said, “To those whom much is given, much is expected.” Embracing this mentality can be the difference of between becoming one of those fourth-generation businesses or not.