Reverse the Third-Generation Curse!
Even though your family business may not have been profiled in the latest issue of TCB, you must be incredibly proud of the enterprise you have built from scratch, with sweat, tears, and hard work.
With success, you provided luxuries for your family that you didn’t have. You tried to shield them from the hardships you struggled with. Never spending on yourself, you ensured that your kids had the best—elite colleges and comfortable lives.
Have you provided similarly for the future of your other baby—your business?
Andrew Carnegie predicted “three generations from shirtsleeves to shirtsleeves.” A Chinese proverb roughly translates as “You can only keep wealth in the family for three generations.” This truism posits that the first generation starts a business, the second generation runs it, and the third generation ruins it.
Your family might have felt you were absent from their lives and considered the business a competitor and a bit of a turnoff. They might have resented having to work in the company without compensation on weekends or after school, especially as they watched their peers (seemingly) enjoying life. They did not grasp your hustle to acquire new customers but understood missing out on things. You worked hard to squeeze out the risk, and they thought the business ran itself—the proverbial golden goose.
This lack of savvy about entrepreneurial churn grows even more critical by the third generation—your progeny, raised in luxury or at least affluence, dream of interesting vocations rather than drudgery and the grind at the family business. Meanwhile, the world changes. These content, uninterested, and often absent scions can’t compete with lean, mean, and hungry new entrepreneurs, just like you once were.
Ford, Walmart, and Cargill are examples to the contrary, but these exceptions prove the rule. According to the Conway Center for Family Business, 12 percent of all family businesses make it past the second generation, and only 3 percent make it to the fourth generation.
It’s essential for founders to prepare an antidote for future generations against this inherent poison. It will take tremendous effort and a long-term plan, especially for the third generation, to be guardians of the business.
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I suggest you instill four competencies in each succeeding generation, at an early age, as preparatory essentials. These also act as an indicator of which family members can rise to the challenge:
- Bring together each succeeding generation through shared values and vision.
- Instill long-term commitment to becoming stewards of the future.
- Create a lasting family culture with values for the business as well as its place in the wider community.
- Make each generation work from an early age.
- Every group should learn to earn their keep.
- Provide substantive work rather than make-work or empty supervisory roles.
- Arrange appropriate training and the latest education relevant to the enterprise.
- Learn from failure.
- Failure is not defeat. Try again. What did you learn? Remember Edison. He knew 5,000 things that did not work—thus he was getting closer to the solution.
- Try something new. When starting to walk (or bike), how many times did you fall? Try and try again till you learn a new skill.
- Get to know entrepreneurs who are trying different things.
- Temper the family by learning from challenges and mistakes.
- Listen actively to suggestions and implement credible ones.
- Write ideas in a daily diary.
- Periodically review and present ideas that may be opportunities.
- Look for patterns and explore their application in the business.
- Discuss feedback, parse its relevance, and implement selected opportunities.
- Prepare to take advantage of emerging opportunities by innovating and reinventing over time.
Family members interested and capable of taking the business forward will make themselves evident. Those not interested or who fail to show passion should be given a fair stipend and removed from active participation.
If none of the next generation is interested or up to snuff, sell the company to a deserving protégé. Your next generation can live the life they choose, while the new owner keeps your legacy and your baby healthy and prosperous.
Rajiv Tandon is executive director of the Institute for Innovators and Entrepreneurs and an advocate for the future of entrepreneurship in Minnesota. He facilitates peer groups of Minnesota CEOs. Reach him at rajiv@mn-iie.org.
