Growing up, I had a classmate whose father owned a group of successful funeral homes. My friend lived on the street with all the rich kids and he spent summers in cottage country and winters on the ski hills.
In addition to being privileged, he was a trouble maker. He was smoking pot regularly by eighth grade, and soon after he turned 16, he was tearing around the neighbourhood in a Jeep his parents had given him. He fell behind scholastically, eventually getting shipped off to a reform school, and we lost touch.
It’s funny how sometimes kids who get everything wind up with nothing.
It’s a natural instinct to want to see your children do well. If your business has provided you with unique opportunities, it’s hard not to want to see it become the next great Canadian dynasty, following in the footsteps of the Molsons, the Irvings, the Richardsons or the Shaws.
The problem is, if the statistics are predictive, your family business transition will probably look more like the Asper debacle. McKinsey & Co. estimates that less than 30 per cent of family businesses survive into the third generation of family ownership.
With this, and the next two columns, I will explore the topic of family business transition. I’ll propose two reasons why so many family business transitions fail, then for the balance of the week, we’ll discuss ideas for making a more successful transition.
Family businesses struggle with transition for many reasons. Here are two to start our conversation:
Your kids lack “scratch-and-claw” drive
Successful business owners often give their kids everything they didn’t have growing up. They sacrifice so they can send their kids to better schools, with tutoring and extracurricular activities. Then they often pay for a postgraduate degree in law or business. All of that coddling may do wonders for the kids’ grammar but it often seems to do nothing to sharpen entrepreneurial instincts.
The drive to succeed comes from wanting something you don’t have. Many business owners have done a great job of giving their kids everything — except the hunger they need to scratch and claw their way to building a successful business.
Don’t equate education with experience
Heart surgeons spend four years in an undergraduate program and another four years at medical school. You’d think that after eight years of postsecondary education, they’d be ready to treat patients, but even after all of that schooling, they still spend five more years as a resident and another few as a fellow before they crack their first chest. No matter how smart, experience trumps education.
Most family business patriarchs or matriarchs have spent years becoming the technical expert in their field. Customers seek them out personally for their deep knowledge. Their kids are 20 or 30 years behind them on the learning curve. Despite having the right genes and attending the best schools, they have still experienced only a fraction of what the business owner has in a 30-year career.
Your kids, no matter how smart, well-educated and media savvy, may not have the drive nor the experience to take over your business.
What other causes have you seen for family business transitions failing?
Wednesday: Why would you want to pass your business to your kids?
Special to The Globe and Mail
John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell . Throughout his career as an entrepreneur, Mr. Warrillow has started and exited four companies. Most recently he transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which he sold to The Corporate Executive Board in 2008. He is the author of Drilling for Gold and in 2008 was recognized by BtoB Magazine’s “Who’s Who” list as one of America’s most influential business-to-business marketers.