There are many family businesses in BKBG among both Shareholders and Preferred Partners. A challenge for many family businesses is to transition from one generation to the next. The statistics are not positive. 60% of second-generation family businesses fail and 90% of third- generation businesses do not survive. How can you beat the odds?
Insight from Babson University Professor Matt Allen may provide a potential answer. He believes many family businesses fail because of a lack of mutual understanding as defined as, “I know your approach, beliefs, goals, etc. that you know mine and that we’re both aware that we know these things about each other.” In many family businesses, mutual understanding does not exist due to the lack of experience with situations that lead to problems.
One reason for the lack of mutual understanding is that the relationship at home between a child and a parent are vastly different than in the office. A novel event among family members in the business requires developing a new meaning. A pandemic, death, divorce, marriage, financial challenges, etc. all can potentially disrupt the status quo and increase stress, emotional instability and ambiguity, making mutual understanding all, but impossible. Allen recommends engaging in activities and discussions that build mutual understanding. These generally challenge family members both intellectually and emotionally. These may include what is the core purpose of your business, your values and beliefs ranked in order of importance and priorities.
What would happen if the leader of the business unexpectedly became ill or passes away? Should you have a transition plan just in case and what would that look like? How will the business continue to prosper when leadership and ownership are transferred from one generation to the next? Where are the businesses’ top growth opportunities and what constraints does the business face in capitalizing on them?
Allen also recommends that family members engage in providing constructive feedback, identifying areas where family members can improve to become more effective. Family members must know each other’s approaches beliefs and goals in order to effectively respond and capitalize on novel situations and proactively provide a roadmap for the future success of the family business as it passes from generation to generation.