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Wonder, Thunder and Blunder

09/01/2013  | Tags: , ,

FamilyPossibly the biggest challenge for family businesses is to keep the descendant to continue running the business.  They say that the founder is in “Wonder” that he had managed to build a money machine; the second generation can be “thunder”, and make a big success having the benefit of getting groomed in the entrepreneurial culture, but without yet the trappings of wealth; their children however, are likely brought up comfortable and often make a “Blunder” of the business.

If the business is unsuccessful, than it makes sense for the next generation to follow a different path and be unfaithful to the family firm. Let father fiddle with it, if he has no better idea for wasting his life.

This blog note is about the hurdled faced by the sons and daughters of those parents owning and running successful companies.

The first hurdle is ability.  Entrepreneurs come from all walks of life, but they typically share some basic success characteristics, such as independence, persistence and critical thinking. These traits are not universal and the chances of at least 2 of the 3 to be present in the next generation are medium at best.

Next question is whether the entrepreneurial drive is present in any of the potential successors.  The hunger to succeed often triggered by the sizable gap a person perceives between their initial circumstances and their goals. The bigger the gap the greater the gravitational force pulling the person towards the goal.  For the second and later generation, that havebeen brought up in a life of comparable comfort this gap is likely much smaller, than for the founder who started with nothing.

Third is identification.  The family business is the founder’s baby, who will naturally identify with it completely and will have an emotional motivation on top, to make it work.  This is likely not the case for the son or daughter, whose job will be to become a devoted foster parent.  Strong identification with family tradition can help here create the necessary bond.  A sense of duty may also help give a different,  but possibly equally potent motivation for the person sensitive to such sentiments.

Another challenge is to train the successor to run a big company. Again the founder is at an apparent advantage here, having gone through the process of creating and building the business from scratch, which process rendered him ample chance to train himself through his trials and tribulations.  The daughter will have to step in at a high level and make it still bigger, which can be a tall order for most.

On the other hand, she can be groomed for the higher job from the outset.  There will likely be money to educate her at the best schools and universities including a Harvard or similar MBA, plus she’ll get experience by interning through high school and college years at the family firm.  Another plus is the entrepreneur’s culture that she would be exposed to all through her childhood.  Entrepreneurs’ kids are widely considered to be much more likely to be independent, self-starters with a strong work ethic than their peers with corporate or public sector employee parents.

In any event, the successful next generation must be mentally prepared and willing to choose a life of challenge and responsibility, instead of a life of leisure or low commitment.  It helps the parents if they have plenty of descendants to choose from.

Istvan (Steve) Preda

Istvan (Steve) Preda

ispreda

Strategic Advisor and Investment Banker who helps companies grow, groom and get great investors.
Comments (1) - We would like hear your opinion too!
  1. Istvan:
    Well written article. The last paragraph says it all.

    I gave a presentation on succession to a group of 30 something’s, they being the presumed next leader or co-leader of a closely held enterprise.

    The presentation starts with….”my father purchased his first business out of the obit column!!`!!” Huh, is the usual response. No succession plan, no kids old enough to take over, partner much older, zero kids, and not a US citizen. Dad made a very good deal with a quick closing.

    Personally, my career accelerated because I was recently appointed the number 2 of a division (a new position) when the division leader died unexpected at 46. My training in the succession arena was always at the behest of those same owners, the std line ALWAYS….what happens if you get hit by a car tonight on the way home. Will the co survive, key word survive a-n-d seamlessly!

    I close this presentation with suggesting that a SWOT be done on each attendees org chart reflecting upon the above. Of course I suggest this exercise be completed with their parents input!

    Again, great article.

    Skip T

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