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The challenges of transitioning a family business between generations.
I’m sure we’ve all seen the statistics about transitioning family businesses between generations. Spoiler alert, the stats are pretty grim! According to the Family Business Institute, fewer than 30% of family businesses will successfully transition from G1-G2, and of the ones that did successfully transition to G2, less than 13% of those will successfully transition to G3. For those of you doing the math at home (0.3 x 0.13), this means that fewer than 4% of companies started in G1 will remain under family ownership into G3 (www.familybusinessinstitute.com/consulting/succession-planning/).
Celebrating the success of family-controlled businesses.
In a 2010 study of 4,000 family and non-family controlled companies, Harvard Business School found that family-held companies outperformed their counterparts by 6% in market returns, and 10% in profits. This is a significant difference. The researchers attributed these superior results to three distinct competitive advantages found within the family-controlled companies in the study:
Introducing formalized governance processes can help enterprising families to sustain these competitive advantages over the long-term, particularly when multiple generations and/or non-active family shareholders are involved.
As a planning firm, Blackwood Family Enterprise Services strives to deliver innovative and meaningful results for our clients. That means we are always searching for and working to develop tools that improve the planning process and make it more authentic and user friendly. The “Starting From the End” Planning Exercise came out of a personal planning experience with my husband Patrick.
Last week a friend forwarded a thought-provoking video to me. The commercial is about organ donation and does a great job of demonstrating the importance of making your wishes clear if you want to make your organs available for others when you are gone.
To continue building a thriving business in the second generation, family members must be able to communicate effectively with each other, even when stressed. This is particularly important when non-family management and staff are involved in the business since poor dynamics and family outbursts can cause great harm to the business. One tool that can be used to help families while transitioning their business to the second generation is a sibling code of conduct document.