A substantial number of the world’s most successful businesses are family owned. However, this does not mean that all family businesses succeed. On the contrary, most family businesses do not get past the third generation. According to the U.S Small Business Administration, family businesses account for a whopping 62% of the country’s employment, however, only a third of these businesses make it to the second generation. From these statistics, it is clear that very few family businesses make it past the second generation. However, it is not all dark and gloomy for family businesses as the likes of Nike, Wal-Mart, Ford and Philips are among the most successful businesses in the world today. So, what do you need to do to create lasting family business empire? Here are five tips on how to build a family business that will go beyond the third generation.
Define roles
One of the biggest inhibitors of success for family businesses is lack of defined roles and responsibilities. Many-a-times, lack of defined roles leads to personal squabbles, which eventually bring the entire business down. On the flip side, if everyone’s role in the business is clearly defined, you will not have any conflicts. Also, defined roles create boundaries among family members. In this regard, no one will interfere with another person’s role or work. When assigning roles, evaluate each one of your family members’ talents and assign them roles based on their expertise and talents. Roles should not be assigned based on family members’ preferences or desires. It’s also important to choose the right business structure for your family business. This will make it easier to assign roles to the family members.
Have a succession plan
While some family businesses fail because of younger family members’ lack of interest in the businesses, many fail due to lack of a succession plan. Thus, if you want your family business to grow beyond the second generation, you must develop a succession plan. A succession plan involves grooming and preparing younger family members to take over from you. One company that understands the importance of a succession plan is SC Johnson. Founded in 1886, this multi-national company has been passed down from father to son throughout its 130-year existence. Today, the company is ranked number on Forbes’ list of the America’s largest private companies, with annual revenue of $11 Billion dollars.
Contrary to SC Johnson, the Greece-based family company Onassis failed to get past the second generation due to lack of a succession plan. The founder Aristotle Onassis lost his eldest son in 1973. This prompted him to start grooming his daughter Christina. However, no handover of power was ever formalized and Aristotle died two years after his son. After his death, the estate was split between his daughter Christina, his wife, and a public benefit foundation. That was the end of the Onassis business empire.
Give equal treatment to family members and other employees
The temptation to give special treatment to relatives is ever present threat to the success of all family businesses. To avoid this trap, it is wise to put family members under the supervision of another employee. In this respect, if your adult children work in the business, they should have a supervisor they report to. This way if they get complacent, you can ask then supervisor what they are doing about it. This minimizes family interactions in the daily operations of the business.
Have a family constitution
While the bond that exists amongst family members can be beneficial to the success of a business, it can also jeopardize the business. To strengthen the business, it is important to have a family constitution. In this document, you should outline the business’ vision and mission. Also, the family constitution should contain employment policy, ownership policy, succession plan, dividends and benefits policy and who can be elected to the board of directors. This will help resolve any problems that might crop up in the future.
Empower the next generation
Grooming the next generation will be critical to the success of your company. Many family businesses have failed simply because family members were not actively involved. Therefore, to prevent a gap in succession, it is important that you involve your children in the management of the business. The Bancroft family, which owned The Wall Street Journal, relied too much on outside managers to run the business their family had owned for more than 70 years. They just collected dividends from the company, and were not actively involved in the running of the business. The Bancroft family sold their business to Rupert Murdoch and his media empire in 2007.
