Five Reasons Second Generation Owners Struggle

Working for my dad was, how shall I put this... challenging. And as "challenging" as it was for me I can imagine it was even more difficult for him. I was a bull headed 23 year old with definite ideas about how he should run his business.  Nearly twenty years later my dad has grown six feet taller and immeasurably wiser.  We no longer work together, but I recognize some of our struggles in the clients I work with today. Given my past working relationship with dad family businesses have a special place in my heart. And I see them struggle in ways unique to family businesses. Unless they deal with these issues the jobs of both family and non-family members are at risk.

Mom and dad play it safe
When it comes to business entrepreneurs leap over tall buildings with a single bound and conquer uncomfortable situations without blinking an eye. But that courage and resolve often evaporates when it is time to have a tough conversation with a family member. There is a big difference between sitting down with your largest customer to talk about the realities of a price increase and sitting down with junior to talk about deficiencies in his management style. Parents are often reluctant to have the tough conversations and risk relational stability with their family member employees.

The best managers thrive in situations where they are both empowered and held accountable.  Yet, second generation employees are the least likely to be held accountable. Most successful business people can tell you a story from their past when a boss or customer set them straight. It is these experiences that resulted in personal and professional growth. Parents need to stop playing it safe and risk a little discomfort for the sake of their child's growth.

Safety nets make poor teachers
Talk to company founders and you will hear stories about bootstrapping and sales heroics that are inspiring and terrifying at the same time. There are plenty of things that we don't think we can do. But placed in a situation with no other choice we learn that we can do a lot more than we think we can. The problem second generation owners face is that there are few impossible situations that must be overcome. The financial resources of a successful business discourage rather than encourage risk. Company founders live in an environment saturated by risk while the second generation is insulated in an environment protected from risk. As a result they have few experiences where the only option was success or catastrophic failure. They are uncomfortable and no one wants to live through them more than once, but these are the stories that give us the confidence to do more than we ever thought possible.

No one remembers how to grow
The first generation grew the company from nothing to "successful" then transitioned  to "stable." It sounds silly to imagine a company founder bragging, "you know, junior has done a great job keeping the status quo." But that is what mom and dad often expect.  The status quo is a lot harder to maintain for a second generation than growth. What they need is a mandate to change the business, to grow it, to reinvent it. The second generation has to learn how to grow the business again and that also means they must diplomatically usher the company's founders, employees and customers into a new era of change. 

Siblings
Businesses are not cash and they don't divide nearly as easily. A business cannot succeed going from one owner/operator to one operator answerable to three equal but passive shareholders. It is very common for one child to be involved in the business while the siblings are passive heirs. This is a recipe for disaster. And the trouble doesn't wait until after the funeral to start.  Ask yourself how hard you would work to grow the company knowing that in ten or twenty years you will be taking flack from every sibling wondering how much the next dividend check will be. Parents need to settle the succession issue before they hand over control to a child. There are no easy ways to handle this sensitive issue, but they become exponentially harder the longer they are put off. I have talked with over a dozen business owners who inherited their parent's business along with their siblings. The problems didn't stop and the company didn't start to flourish until they had successfully bought out the siblings who weren't working in the company. 

Entitlement
This is the one everyone points to but I have listed it last for a reason. Yes, some children come into the business with an entitlement attitude. I know I did. I could say things to my dad, even borderline disrespectful things, and I knew I wasn't going to get fired. But I think those days were less frequent than I remember them.  In the case of my clients I think that is definitely the case. Most children recognize the opportunity they have been afforded, and they work their butts off. 

Entitlement is more often the false pretense other employees use to criticize the shortcomings of the parent or the child. I have witnessed perceived entitlement in the face of kids working 60 hour weeks, giving up bonuses and pitching in to help whenever asked. And it usually happens in cases where for good reasons or not the child has leapfrogged the normal progression of advancement within the company. They may have started in the mail room but when a key management spot went vacant they jumped a few spots and cut a year or two off the original plans for promotion.

These are not all of the issues that families must overcome to work together successfully. But they do seem to be inevitable for most families. Making them part of the conversation within the family and within the company is the first step to making sure they don't stand in the way of future growth and success for everyone.