Why does Third Generation Family Business Fail
Ever heard of the saying; the first generation creates the business, the second generation runs it and the third generation ruins it?
Multiple research studies indicate that as business is passed on from one generation to the other, the risk of maintaining its overall health increases. The success of such enterprises heavily depends on how the subtleties of ownership, family and business are integrated. In this article, we discuss some of the potential reasons why family businesses fail as they are passed on from one generation to the next.
Lacklustre succession planning
Most family businesses do not invest in a succession plan. In those cases where a succession plan has been created, a specific person who will spearhead such efforts is not selected. Many business owners may be hesitant to pass on the torch before their time is due and are simply too caught up in their day-to-day to think and plan for when they are no longer around. With that said, creating a business roadmap is critical in ensuring its survival and will require the extensive involvement of all parties involved.
Lack of consultancy
Ensuring business resilience for the years to come will require the feedback and guidance of succession planning consultants, not just accountants, lawyers and marketers. Such advisors should be able to work with different business members to plan and overcome the challenges of succession.
One of the main reasons why family businesses go bust! Many family-owned businesses lack the necessary procedures on how to handle conflict professionally and egos might inflate when arguments reach crossroads.
The business world is constantly changing and will require constant re-inventing and adapting strategies to ensure your organisation’s survival. The problem with different generations is that there are different views and perceptions on how a business should be managed. This can create tension and conflicts between family members with rifts which will impact the entire operation.
Corporate governance is just not on the agenda for some family-run businesses. Governance entails adherence to certain set procedures such as regular meetings, documented policies, timely reporting etc. All require a certain degree of commitment. In certain instances, family members may be less inclined to raise sensitive issues due to fear of losing control or sharing confidential information.
Next generation leaders may not be at all too familiar with the running of a business, especially if they are placed in a position where everything was prepared for them. This creates below par leaders who will not be able to withstand the tests of business successfully. This may be accompanied by a lack of know-how, qualifications and strategic thinking, which is a recipe for disaster.
Third generation members should use their family business upsides to their advantage. Many successful businesses have lasted different family generations. It is all about finding the right balance.