I was heading to Las Vegas for a long weekend when someone asked about my favorite vice. I answered smugly, “Oh…I don’t gamble.”
There was a pause, and she said, “That’s interesting. And I thought you owned a business!”
Of course we don’t think of owning a business as gambling, but just because we (along with the banker) own all the chips on the table doesn’t mean we’re not at risk of losing. But each of us believes our chances of winning are higher than the chances of losing. However, would you bet your company net worth on something with a 30% chance of winning?
A recent article in Harvard Business Review brought up the disappointing statistics about the success rates of family business transitions from the first generation founders to the second…and then to the third.
And…yes, the 30% is rate of successful business transitions to the second generation. (Only 12% of family businesses make it to the third – but we’ll leave that for another post.) The HBR article relates the story of “Fiat, the Italian auto group run by the heirs of Gianni Agnelli, went through five CEOs and three chairmen in two years before bringing in an outsider to lead it.” And it doesn’t just happen to big companies!
Why does this happen to successful, profitable first generation businesses? Well the reasons are many and include: Lack of planning and preparation for an eventual transition; poor development of qualified second generation owners; unqualified and/or uninterested second generation owners; poor business and/or personal decisions by the second generation; unforeseen external catastrophic impacts on the business; et al. I liken any transition to being ‘between trapezes’.
There are a lot of things to learn from those companies that have successfully made the transition (or even transitions). Why would any of us insist on learning the hard way?
“The most successful family firms establish good governance as a baseline, preserve ‘family gravity,’ identify and develop both family and nonfamily talent, and bring discipline to top-level succession.”
Here is the link to the full article on “Leadership Lessons from Great Family Businesses.”
My take-away – don’t assume anything, especially that your next generation (who you probably love dearly) has a genetic predisposition to make them great business leaders. Take a hard look at the strengths/weaknesses and execute a plan to shore up the soft spots with external resources, train and develop the right family member or hire non-family leadership. Practice with a ‘net’ if you can before you go into the center ring for real.
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