For many family businesses, the goal is to ensure the company survives from one generation to the next. However, that's often easier said than done.
Just 30 percent of family businesses make it to the second generation, and only 12 percent make it to the third, according to a Concordia University study.
The study looked at interviews with 21 families who've been running their own businesses for an average of 11 generations. As part of the research, Concordia University management professor Peter Jaskiewiczoutlined a four-step process that can help families make sure family businesses are successfully transitioned to future generations.
- Create a legacy tale: Develop a shared story that shows how the business has survived adversity and been better for it. "It can be a grandfather telling his granddaughter that the family business survived 30 years of war in the 1600s, or a mother telling a son that she introduced new farming equipment when everyone else thought she was crazy," Jaskiewicz said in a statement.
- Focus on the next generation from the start: It's important to include children early on and keep them involved throughout their schooling. Jaskiewicz said the goal is to have successors running around the business as toddlers. "As they age, strategic educational choices help them recognize entrepreneurial opportunities that will bolster the family firm," he said.
- No buyouts: Forcing next-generation family members to buy out the previous generation or siblings who aren't involved can significantly hurt the business financially. That's because this can cash-strap the incoming leaders. In order to acquire the lion's share of the business, successors shouldn't have to pay off other family members.
- Embrace spouses: One of the largest dangers to family succession is a spouse who is not on board, Jaskiewicz said. "A husband or wife who doesn't see the value of the family business has the power to break that business up," he said. "Because half of the adults in every generation are likely to be in-laws, it's important that they become part of the family early on, so that they are just as invested in the business as those with blood ties."
Jaskiewicz cautioned that while the four-step process might seem easy to follow, entrepreneurial succession starts at birth and takes at least 20 to 30 years to develop.
"Despite the challenges that multigenerational family firms face, our research suggests that some have already built and passed on their entrepreneurial legacies and left behind this entrepreneurial roadmap for others to follow," Jaskiewicz said.
The study was recently published in the Journal of Business Venturing.