Not Another Number: Defying the Next-Gen Statistics
8 August 2024
“I’m just worried I can’t live up to it, to all this… I don’t want to bring this family down, you know?” My client Stephen* was nervously twiddling his thumbs, chewing the insides of his mouth while glancing over at me. The weight of expectation bore down heavily on him, and he still felt like the juvenile son of the family in his mid-30s. How was he to continue the legacy of the palm oil business his grandparents had started, which had since diversified into a lucrative empire with renewable energy and value-added products?
Stephen was seen as the brains of his generation. Intelligent, capable and with a good sense of humour, he made it to Ivy League schools and came across as someone with his head planted firmly on his shoulders. But deep down inside, he was fighting back the anxiety of Imposter Syndrome and of rising up to the challenge of leading his generation of cousins to eventually take over the running of the family business. He wasn’t even the oldest of them, and he felt like one or two cousins were trying to sabotage his rising leadership.
"富不过三代" (fù bù guò sān dài) is a Chinese proverb which translates to "wealth does not pass three generations." The sentiment that wealth and business success accumulated by one generation often dissipates by the third generation is also represented in other cultures: "shirtsleeves to shirtsleeves in three generations," goes the American saying, with the Italians adding rather poetically (and the one being my favourite), “from stables to stars to stables."
The universality of this belief is only perpetuated by the less-than-encouraging statistics of family business survival rates:
Only about 30% of family businesses make it to the second generation.
Around 12-15% of family businesses survive into the third generation.
Just 3-5% of family businesses continue to operate into the fourth generation and beyond.
Added to these are rather dismal numbers around leadership transition challenges…
Studies show that around 70% of family businesses fail or are sold before the second generation takes over.
Of the businesses that survive to the second generation, approximately 60% fail during the transition to the third generation.
Leadership disputes and lack of succession planning contribute significantly to these high failure rates.
…as well as governance and management issues:
25% of third-generation family businesses face significant governance and management challenges.
A lack of formal governance structures, professional management, and clear succession plans are key factors in their decline.
Only 10-15% of third-generation family businesses have robust governance structures in place, which correlates with their higher success rates.
The numbers seem stacked against Stephen, and he felt that they only sealed his destiny as a failure each time the unreasonable demands from family members piled onto his plate. For the time being, his parents’ generation still led the business, but as this was transitioning into the third generation’s hands, things were getting increasingly difficult to negotiate. There were simply more hands in the pot as the family grew, and as some of his older cousins already had children of their own, they were starting to make decisions for the fourth generation’s wealth share with diverging visions for the business.
This is where, as the statistics suggest, having durable governance structures, professional management, and clear succession plans could solve the family business quandary. Stephen knew that too. He just didn’t have enough faith that he could pull it through before the cacophony of dissenting voices and compelling arguments would break his strength of leadership and take the business down with him.
Stephen was afraid of ruining family relations, and equally terrified of ruining the business.
We’ve been taking it one session at a time, starting with working on defining Stephen’s vision of legacy, succession, and where he fits into it all. Unsurprisingly, bringing considered attention and reflection to each vision uncovered areas of friction rubbing up against what he felt was the family’s expectations in future planning. This helped him to articulate his own needs, strengths, weaknesses and proposals to bring into legacy planning discussions with his family. In our time together, I’ve helped Stephen to clarify his strategic positions in negotiations, communicate them without being overwhelmed by the emotions of pre-emptive opposition, and keep his nervous system regulated during heated discussions and the fear of disappointing others.
Governance and legacy planning is and should be a dynamic process – and as such, discussions led by a governance advisor are still ongoing in his family. The difference is that now with every successive challenge, its rising leader is defying the odds of his generation, taking their legacy forward with each increasingly well-executed and confident decision.
Keen to defy the statistics and fight today with clarity and confidence?
Let’s find a time here to connect and see how I can help you.
*client’s name has been changed for confidentiality
Sources:
https://www.thebalancesmb.com/why-most-family-businesses-fail-4165259
https://www.forbes.com/sites/forbesbusinesscouncil/2021/09/20/why-do-family-businesses-fail/?sh=375b4a5f3f1a
https://www.familybusinessmagazine.com/why-do-most-family-businesses-fail
https://hbr.org/2012/01/succession-planning-failure
https://www.pwc.com/gx/en/services/family-business/family-business-survey.html
https://www.forbes.com/sites/stevennoll/2020/10/12/the-three-biggest-reasons-family-businesses-fail/?sh=63b3a8fa4d6f