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Generational Issues in a Family Business

May 25, 2010 by Frank Goley, Business Consultant

Children may not automatically want to be part of the family business.  Sometimes children who have grown up in the business become bored, uninterested or lack the desire and drive necessary to successfully run the business in the future.  They may actually take the business for granted, assuming it will always be there for them. Understanding this going in, a family business can more effectively plan for generational issues in the growth and future of the business.

Preparing the Next Generation

The questions to ask are:  Why do children join a family business?  What are their motivations?

– To Influence the Family:  This can be a good thing or a bad thing, depending on the kid’s underlying motivations.  A Family Business should foster a mission which positively influences family members, not provide ammo for the children to attack each other.  Positive Influences include:

§  Family Education Fund/ Emphasis on Continuing Education

§  Foster an Atmosphere of Openness & Learning

§  Set good examples for kids to aspire toward

§  Ingrain the values of Business Integrity and Ethical Responsibility

§  Foster & Promote Civic Duty

§  Promote & Support Community Volunteer Work, Projects and Board representation

– To Help the Family Succeed:  Success for the Family Business should translate to the success of the Family.  Future generations can have better lives, pursue their passions and be happier if part of a cohesive team striving for a better future for the entire family- not just those in the business.

– An Opportunity to Further one’s Career:  It isn’t necessary for every family member to remain with the business.  Family members should be encouraged to pursue their passions, and the family business can be the proving grounds, the incubator, for family who want to pursue other careers or possible spin off another related business.  Often, children find that after working for other companies early in their careers, the Family Business is a great career destination, allowing them to reach their full potential and constructively apply their expertise and experience.

– Like the Family Business:  Having a passion for the industry and business the family enterprise occupies is often a major reason why family members join the Company.  What also plays into this is the requirement to work outside the Company to gain expertise and experience.  When the family member returns to the family business, there is inherent respect for the opportunity given and the successful growth history of their predecessors before them.  Having a firm understanding of what makes the family business special and unique creates a strong loyalty and passion for it.

– The Challenge:  If family members worked in the family business from a young age, were taught the value of a dollar, went off to college and to work for an outside Company for a several year period, then returning to the family enterprise can be a fantastic challenge to pursue.  For this reason, it is important the family business provides qualified family members with a real growth opportunity, a challenge to inspire drive, loyalty and passion in their career maturation.

Sense of Duty and Responsibility:  Some of the older children in the family’s next generations may feel the duty and responsibility to serve their family interests and ensure future succession success of the business.  This becomes apparent after the younger children become involved in the Company and sometimes the older child moves onto another career since his or her passion was extinguished by the stress and forbearance of fiduciary responsibility.  Or, it is sometimes the older children who spin off a subsidiary or new Company after feeling they have accomplished their role in the Company.  It is important to encourage the family’s children to pursue their passions, no matter what industry, and gain outside experience; however, sometimes it is a necessity to have the older child assume responsibilities early on if resources are scarce in the Company’s particular Growth Stage.

Resource:  For more information on Small Business Growth Stages, the inherent characteristics, risks and issues, please see my article:  Strategies for Managing Small Business Growth.

– To Make Money:  While this is often the number one reason family members join the family business, it is closely followed by the “Liking the Business” category.  This relationship certainly makes sense:  making money is a major requirement of any career but it is strongly linked to liking what you are doing, the passion factor.  A well-prepared family business provides ample growth opportunities for family members to nurture their passion and be well rewarded for it through a competitive Compensation Package.

Considerations when planning and preparing for the next Generation in a Family Business

§  When family members are young, have them work on simple jobs on a part-time basis.o    This provides insights into the business, helps them understand the business from the bottom up, gives them a strong work ethic and encourages them to pursue and finish higher education.

§  Work for an outside Company after graduating from college to broaden training and background.o    If the family members worked in the lower ranks of the business before and during high school and during the summers in his/her college years, then outside experience can justify moving a family member into a higher position level upon entering back into the business.

§  Some tips when preparing for the next generation to join the Company: 

o    Never allow a family member to work in senior management until that member has worked for someone else for a few years.

o    Rotate the family member throughout different positions to cross train, as well as, pinpoint interests and skills.o    Promotions only come when earned, just like everyone else in the Company.

o    Devote time every day, preferably over breakfast, for face-to-face mentoring, teaching and training.

o    Don’t take business issues and matters back home.

o    Reward the family member with responsibility so he or she can learn to manage the business in order to potentially take over or have executive level responsibilities in the future.

o    Make sure the family member knows you trust him or her.

o    Allow them to make mistakes and fail; give them room to grow and learn.  Help them when asked; give them autonomy.

Next Generation Issues and Solutions

Here are some common main generational issues characteristic to family business operations and how to effectively deal with them.

– The Business Owner Who Won’t Delegate:  A very common problem in family enterprises is the owner or CEO who can’t let go.  Many owners have a strong personal connection to the business which prevents them from allowing next generations to assume more responsibility in the business.

§  The second generations are “entrepreneur successors” in training and the business owner patriarch or matriarch should be very careful not to stifle that passion and drive.

§  An inherent attitude that an owner’s or founder’s shoes cannot be filled is common in a family business; therefore, it is vitally important to the future continuation of the business for a clear path toward ascendancy for the next generation be established through training, mentoring and delegation of responsibility.

§  Best Advice:  Hire a Business Consultant to help you work through these issues in order to develop a clear ascendancy plan that is fair, yet, challenging.  Establish clear goals and expectations so next generation family members can strive to attain goals and career growth, without stifling their passions and drive.  The Business Consultant can bring valuable experience and objectivity to this often controversial issue.

– Next Generation Gaining Acceptance, Respect and Credibility:  If a family member has worked from the bottom up during their formative years, gone off to college to earn their business related degree(s) and gained valuable expertise and experience working for an outside firm, give him or her the respect they deserve.

§  Next generation members will work hard in the business if they are praised, encouraged and accepted as equals.

§  Be careful not to set expectations too high, they should be in line with the family member’s training, education, personality, skills and experience.

§  A next generation member should express strong interest in the family business so the family knows of his or her passion, drive and interest level.

§  The next generation member should know what their capabilities are and communicate that clearly to the family owner(s).

§  A next generation family member should conduct a self-analysis of goals and skills:o    What are my strengths and weaknesses?o    What areas do I need to work on or need help on?

o    What other parts of the business do I need to learn about?

o    What are my leadership qualities?  Are they sufficient?

o    What training, mentoring and continuing education do I need to fulfill a leadership role in the family business?

o    Am I happy working in the family business?

§  Three Stage Training Program for Family members joining the business:

o    Stage 1:  Initial learning stage to fully understand all the aspects and divisions of the Company:  Cross-Training.

o    Stage 2:  Specialization in a particular skill.

o    Stage 3:  Become a generalist, learn to manage, motivate and lead.  Need to have strong strategic Management Skills.

Resource: My article on Leadership Qualities of a CEO may be helpful…

§  The next generation should have mentoring relationships not just with the family founder/ owner/ CEO but also with experienced business people in their industry, preferably one from other family enterprises.  Long-term development mentoring support is a vital component in a next generation member’s growth.

§  As previously discussed, a next generation family member should work outside the family business as this will increase his or her knowledge, experience, confidence, and most importantly, enhance credibility with family and non-family employees alike.

Posted in Business Management.

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