Why Family Businesses Should Avoid Playing the Second Generation Game

Having witnessed how world and Olympic cycling champion Victoria Pendleton beats herself up when putting a toe – let alone a foot – wrong on Strictly Come Dancing, I’m not surprised that new scientific research suggests perfectionism is inherited not learnt.

However, whereas Victoria’s cycling skills are inherited from her father; the same scenario cannot be applied to the old Lancashire proverb ‘from clogs to clogs’ implying that, however rich a poor man may eventually become in business, his great-grandson, the third generation, will almost certainly squander the wealth – dragging the family back to poverty and ‘clogs’.

Having worked with business owners for more than three decades as a business strategist and executive coach, here’s my take on why this proverb is true.

I’ve witnessed the passion of entrepreneurs drive their business to the total exclusion of everything – even their family and children. Many say: “When I’ve grown the business to £Xmillion I’ll take it easy and spend time with the family” – but by then it’s usually too late; the children have grown up, flown the nest and created a life for themselves that does not involve the business.

Many such siblings have bitter memories of the business overshadowing family life, with missed school prize-givings or sports days and holidays cut short or ruined due to “trouble at mill”.

The entrepreneurs that manage to maintain a strong bond with their children, often because they want them to follow in their footsteps, then proceed to mess it all up when “handing over the reins”. At the age of 90, the founder of one famous Yorkshire family business was still going into the business and chastising his son for what he was failing to do. His grandson is now subject to this self-perpetuating legacy; his own father is now well past retirement yet still casting a critical eye over his son’s decisions. Although this sounds extreme, it is not an unusual situation.

The founders who push their sons or daughters to take on the business, at the expense of a successful independent career, all too often send the family business hurtling back to ‘clogs’. The second or third generations do not necessarily have a love or passion for the company – often taking on the burden out of a sense of duty or, in some cases, succumbing to emotional blackmail.

The bitterest blow for the founder and heirs is to be told by their own children they would rather: “Sell sunglasses on the beach than step foot inside the family business” – the same business that has paid for their fine education and expensive holidays.

The parental sense of loss and failure is profound – often as if the meaning of life has been snuffed out for them – and many never get over this. Yet some families navigate their way through these choppy waters and the business prospers and survives. The question is how?

Firstly the founder needs to recognise that business leadership and ownership is not in the genes, for the most part it is something that is learnt – and that learning has to be planned. An old Yorkshire family tradition advocates sending your son to a good private school, a good university, then to work in the City where he’ll discover how his family and other people’s money is mismanaged before learning how to make money. Then, just when he is starting to do well, he’s summonsed home to work in, and take over, the business in a few years.

The second key is to establish a family charter, a written agreement between family members regarding business-related issues such as: ownership, voting/control and employment. It may also be referred to as a family mission statement or family constitution. Key to this charter is the issue of handing day to day control of the business to professional management in preference to family members.

Many second, third and even sixth generation members of family businesses have found how to grow their companies and enjoy a family life worth living as members of the What If? Forums.

Family business ownership is not in the genes and there is no reason why the ‘from clogs to clogs’ proverb should hold true today. Tell us how you’ve managed to avoid the pitfalls.

As a business strategist with decades of expertise in helping family businesses, contact me on richard.bosworth@whatifspecialist.com or go to @richardwhatif on Twitter, Richard Bosworth on LinkedIn or www.whatifforums.com.

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