PASSING THE FAMILY BUSINESS TO THE NEXT GENERATION - IS IT THE
BEST CHOICE?
As Penn State professor William Rothwell ominously points out in
the forward to Exit Right: A Guided Tour of Succession Planning
for Families in Business Together, more than 40% of the people
who run the closely held operations that comprise 80% of the
North American economy will retire by 2007. It makes me wonder,
what is going to happen to all of those businesses? Although it
is a noble gesture, passing a business down to the next
generation is more often than not, unsuccessful. In fact,
statistics show that only one-third of all family businesses are
successfully transferred to the next generation and only 13% are
transferred onto the third generation. Many family business
consultants say the primary reason for this low survival rate is
the failure to develop and effectively plan for the transfer of
ownership and management of the closely held family business. I
agree that this is a factor, but in my dealing with family
businesses I find that there are some more fundamental reasons.
The first is that the next generation has a lot different life
style than the business founder and entrepreneur. They do not
share the same drive and commitment that dad needed to build the
business from scratch. They go to the good schools, get a taste
of the good life and generally do not share the passion of the
business founder. I recently was involved in selling a produce
distributor. I found that most of the firms were in their second
or third generation. I asked a third generation owner why this
particular industry had such success with keeping the business
in the family. He said,