4 Ways That Many 3rd Generation Business Owners Fail

This phenomenon is often known as the "3rd generation issue." This is a complex set of challenges that face the grandchildren of business founders who choose to take the helm of an enterprise that was in motion long before they were born. There's main groups of challenges that a third generation business owner has to overcome to take charge successfully.

Keeping the relatives business both "in business" and "in the family" after the second generation is trickier than most people recognize -- even those who are trying to make such a thing happen. For example, forty percent of family-run businesses manage to successfully pass to a second generation. This is not a surprising statistic; not every business venture has the "legs" to make a second generation successful, but plenty of do. What is surprising is that only thirteen percent of these well-seasoned businesses are successfully transferred to a third generation.

Way one: "If I had my way..."
Conflicting opinions in the controlling relatives can greatly undermine a successful transfer of leadership. In the first generation of a relatives business, the chain of command is clear. Within the relatives, people know who is involved with the business and who is not. However, as the relatives structure grows, it gains more complexity as it gains members, and exponentially more relatives members become involved with the finish result. As a result, more of them get strong opinions about "how things ought to be done." A quantity of them can be vocal about it.

Way two: "But we have always done it this way!"
Organizational momentum within the business can be both lovely & bad; the trick is figuring out which behaviors are holding things together... & which are holding things back. Resistance to know-how can be a common issue, but technology-for-technology's-sake can be a disruptive, cash-gobbling mess as well. A third-generation business owner needs to practice some objectivity about analyzing operations; consultants & mentors are way to accomplish this. Another is to have taken some specialized training in business systems analysis. Unless the issue is glaringly obvious -- "what do you mean they don't have electronic mail??" - the general rule is "no sudden moves." Observe & consult; & when the move becomes clear, act decisively.

Failure to fully support the more youthful generation in a business transition can be deadly to the business. Conversely, the more youthful generation needs to have the vision & persuasion skills to build a powerful consensus around alter. Plenty of times the more youthful generation has at least some formal business education; but all often these college programs are built around academic theories - not real-world practice. In the actual world, a rolled-up college degree is not a magic wand; additional training in persuasion techniques might be a very wise move - stuff they don't teach in college. Great Aunt Ida might have been wholly intimidating when the heir apparent was years old; yet even he must be satisfied to lend her stern, grizzled support.

Another momentum issue: changes in the marketplace may have radically changed the industry sector surrounding the business. For example, a company may have started out making a fortune with pagers, but those companies which didn't follow the market trend in to cellular rings suddenly found themselves with a rapidly-eroding customer base & much capital tied up in going the wrong direction. These kinds of assessments take a raring to go eye & lovely long-range market intelligence; assuming what has worked historically will always work in the future is a definite way to get outmaneuvered.

Way three: "It won't work that way."
Alter resistance within the business is  a "given;" but this is something a small different. Often it is the senior staff involved in every day operations -- the ones the transition team has to depend on - that can be the largest nay-sayers. They may not even mean to be, it is that over the years, they have become specialists in why things are "not possible" in lieu of figuring out ways to make lovely changes work. Other employees mask chronic pessimism as so-called skepticism and may undermine successful transition with poor attitude and water-cooler gossip. Some of these bad operators will must be discovered and managed through retraining or other schooling. Some... may must go. Henry Ford one time said, "If you think you can or you think you can't; either way you are correct." A successful third-generation transition needs to have everyone on board.

Reliable, positive people are the heart of any company. The reputation and success of the business rides on their initiative, willingness to modify and every day activities. As a third-generation business owner, it doesn't matter if the senior plant manager used to give you piggy-back rides if he is not finding ways to carryover your banner forward today. Be aware of "expert blindness:" when folks select they know it all and cease learning anything new. It is that attitude that led to this actual quote from the 1920's: "The wireless music box [radio] has no imaginable commercial value. Who would pay for a message sent to nobody in particular?" Who indeed? As amusing as this is in retrospect, market specialists at Blockbuster didn't see Netflix coming, either... so this is much a current issue to be aware of.

Way four: "I'll go my own way."
As a relatives becomes more diverse, its traditions and customs, as well as the attitudes towards work and play will alter. often, the third generation relatives designate may fail to fully engage in their new role. They may not have desired to take over the relatives business, but did so out of a sense of duty or relatives responsibility. Possibly they desired to do something else with their life.

This is tricky, because the new business owner may lack the passion and attentiveness that makes a transition successful. Understanding the nature of their actual, innate drive for fulfillment can be a nuanced small bit of "mind control;" that is, the ability to control one's own mind and impulses, desires and the necessity to "go play" in lieu of tending to the less-satisfying details of the relatives business.

Outside interests in the third generation are not necessarily a bad thing; properly implemented, they can bring diversity to a company's activities & philosophy. Successfully integrating new business ventures are like marrying new bloodlines in to a family; bringing strength through contrast in the event that they are a happy "fit." There's cases where there is no common ground... & this contributes to the low percentage of successful third-generation legacy business in operation.

If thinks about a kingdom as a relatives business, royal families face this challenge constantly, managing it more-or-less successfully from within -- but they have royal training behind them. A hereditary local plastics company does not, nor does it usually have the organizational underpinnings that make generational transitions an expected & natural event.

Business succession is seldom simple, but with a tiny preparation & an awareness of the nature of the potential generational pitfalls, it is feasible to do it the "successful way."