Family Business Survival

The secret sauce for surviving from generation to generation, says family-business expert John Davis, has three main ingredients: growth, talent and unity. The secret sauce of long-term family business success can’t be captured in numbers.

GROW EVERY GENERATION

In order to stay alive commercially as a family, grow the business assets faster than the family or business consumes them. Of course, growing families and businesses are both good at consuming assets. For many family companies their sustainable real growth rate is 6 percent. That might seem easy to achieve but it isn’t.

Returns on assets tend to wane over time as an industry matures and ultimately declines. To maintain high returns and keep the family company modern and competitive, well-timed, significant bets in growth businesses are necessary. Some of these bets can regenerate your core business, but others might diversify your business activities, moving away from your original business. Without diversification and entrepreneurial efforts, the business is probably not going to survive long-term.

IDENTIFY AND DEVELOP FAMILY WEALTH GENERATORS

Good family owners are needed to support the company and good family board members to guide the company. Also needed are one or more members per generation who are wealth creators—those who know how to make winning bets that produce the financial returns needed.

The best young talent often shows an interest in business between the ages of 8-14. Develop these wealth generators by providing the right opportunities for them to learn about business. These wealth creators need to be stretched beyond their comfort zones in their understandings and capabilities. Give them real projects and don’t protect them from failure.

BUILD FAMILY UNITY

Building family unity is of prime importance. Family feuds that result in ownership splits weaken a family and greatly reduce its assets and returns. A programme is needed to bring together the family behind the business, to strengthen trusting bonds and build family commitment to the company. A good shareholder agreement is very useful, and whilst keeping people together when there are fundamental disagreements over a company’s direction are not always seen to be practical, even these rifts must be managed in a respectful and careful way, ultimately with a commitment to preserve family unity and assets.

“Growth, talent and unity” should be your mantra if you want multigenerational success.

Are you doing enough to keep your family business thriving into the next generation?

Adapted from an article by John Davis – Harvard Business Review