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Success Tips for Family-Owned Companies

Family-owned businesses are vital to the economy--but most can't transition successfully to a second generation. There's a better way to preserve your company's success.
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I work with a lot of family businesses as clients. I have seen a wide range of behavior in the interplay of family members–much of it really unpleasant.

But still, I had no idea how prevalent family-owned businesses were until I read an article from Gaebler.com's Resources for Entrepreneurs. Among the stats cited, U.S. family-owned businesses:

  • 50% of the U.S. GDP
  • 60% of U.S. employment
  • 78% of new jobs in the U.S.

But even if those sound a little bit generous, here's the thing that struck me: Only a third of those make a successful transition to the second generation.

I have been on vacation for the past week with a family whose business is making their transition to a third generation, and I got a chance to ask them how they are handling this very difficult handoff. One of the fast answers–with a lot of laughs–was, "Who says it's going well?" (I think that's part of the reason it is in fact working; they laugh a lot.)

But more broadly, they said, the current handoff is going well in part because of the way the first generation handed off to the second. Here are the key points they mentioned.

Don't Let Go Too Quickly

Don't assume that because your children have been in the business a long time they are ready to take it over. You don't want to confuse attendance with leadership.

One reason my friends' business did well was that the founder stayed around in a decision-making role. You need to stick around as an advisor until your children become the decision-makers.

Allow for Mistakes

Mind you, there will come a time when you do need to step away. Here's a telling story: The grandfather in this family had a big argument with the father about how to run things. Then, one Monday, the grandfather came in and said: "Look, son, I have thought about this all weekend and I am doing you a disservice. I learned this business because I made decisions and had to live with them.  You've been in charge for five years now and I'm still making too many decisions. So you make them and ask me if you want any of my help."

For that next year, the son made all of the decisions, good and bad. After the first year, he says, he asked his father for advice on the big ones.

Set Parameters

In a business that employs multiple family members, there has to be some understanding of boundaries–a way of defining who is responsible for what part of the business, without interference. There also has to be some understanding of which decisions are "too big" to be made by just one person.

The term "betting the farm" is a perfect way to describe business-ending decisions made by some (but not all) of the family members. Don't assume that because you're all family, you all think the same way.

Last updated: Jun 13, 2012

TOM SEARCY | Columnist | Founder, Hunt Big Sales

Author, speaker, and consultant Tom Searcy is the foremost expert in large account sales. With Hunt Big Sales, he has helped clients land more than $5 billion in new sales. Click to get Searcy's weekly tips, or to learn more about Hunt Big Sales.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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