2004 Fall/Winter Volume No. 4

The Next Generation and the Family Business

Ken Cooper,
Information Technology Officer
PolyJohn Enterprises
ken.cooper@polyjohn.com

According to the MassMutual Financial Group/Raymond Institute American Family Business Survey, revenues from family-owned firms grew by more than 50 percent between1997 and 2003. During a time when most other businesses experienced a recession, American family-owned businesses grew at a robust pace.

The study also revealed that more than half expected to increase staff by up to five percent over the next year. What’s more, family firms said they had not decreased employment levels over the last three years; despite wide-spread layoffs in the rest of the economy.

Apparently, American family businesses are strong and healthy. From talking to many of our customers around the country, it seems that your portable restroom businesses are doing as well, if not better, than other family businesses.

The fact that business is generally good should be reason enough for second or third generation family members to be interested in joining the family business.

However, if you or someone you know is considering this career path, you should know that entering the family business is not necessarily the easiest path to success. A previous MassMutual survey from1995 revealed that the potential for conflict increases significantly as family businesses enter the second and third generations.

Knowing that things may get tougher, not easier, for subsequent generations makes it important for family businesses to communicate well across the generations. It is also important that the second and third generation get all the training they can. This should include higher education in business, apprenticeship training with other businesses or with managers within the family business and, of course, close communication and training with the previous generation.

When working with family members, there are both advantages and disadvantages to keep in mind. The advantages include:
Loyalty and Stewardship. As they say, blood is thicker than water. Family members may be more likely to stick it out with your company when things get tough. The training and education investment you make in a family member is more likely to stay within the business and pay dividends down the road. Family members also may develop a deeper sense of responsibility and stewardship for your company.

Knowledge. Children of owners tend to learn a lot about a business just hanging around or working summers. When they become old enough to take a job in the company, they will have a much better background than raw talent off the street. In cases where children plan to enter the business, they may spend years preparing the proper skill set to work in the family business. Outsiders with that kind of know-ledge or preparation would be hard to find.

Compatibility. While parents and their children will always have issues, they at least tend to know what those issues are and how to work around them. That kind of compatibility can take years to develop when working with non-family employees.

Some of the disadvantages to working with family members may include:
Emotions. When you work for a relative or parent, the emotions you feel are wrapped up in your personal history in ways that are completely different than working in a typical boss/employee relationship. No matter how old or how successful the younger generation becomes, a parent’s criticism will always sting worse than criticism from a boss.

Communication. When two or three generations work side-by-side in a family business they must learn to communicate with each other in a professional manner rather than the old familiar ways they learned at home. Treat your business like a business and your family like a family.

Respect for both experience and education. Often the second generation brings a stronger educational background to the family business, while the first generation has the stronger experience level. This only becomes a problem when one generation underestimates what the other brings to the table. When the second generation brings a new skill set to the operation such as marketing, accounting, or computer skills, they can help modernize the business and take it to the next level. However, they must understand that knowledge without experience can easily be misguided.

Entitlement thinking vs. responsibility awareness. Owners should never assume that the next generation is entitled to run a business some day. Nor, should the younger generation assume that the business will one day fall to them. A business is both a great asset and a great responsibility. As we all know, entitlement programs tend to deaden responsibility. Therefore, it should always be clear to both generations that business leadership must be earned not given. As your family business grows more successful,
it becomes desirable for owners to delegate more of the hard work to the next generation, as well as to others from outside the family. It is important to make room for both family and non-family to grow and prosper within your company if your company is to grow and prosper.

An oft-quoted study says that only a third of family businesses make it to the second generation, and only half of those make it to the third. Being aware of some of the advantages and disadvantages of a family business may help the second or third generation avoid some of the conflicts that have been shown to increase within a family business.

During a time when most other businesses experienced a recession, American
family-owned businesses grew at a robust pace.

Industry Info

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