Taking Over the Family Business? Read This First!

family business

Being an entrepreneur is one thing. Being a second- or third-generation entrepreneur is another. A second- or third-generation entrepreneur is a son or daughter who takes over and transforms the family business or at least doubles it in size.

It’s important to note, first off, that if you’re a son or daughter of an entrepreneur who takes an entrepreneurial leap that has nothing to do with the family business, you aren’t a second-generation entrepreneur. You’re an entrepreneur, pure and simple.

This message is for a member of the next generation thinking of taking over the family business or an entrepreneurial parent trying to determine if their son or daughter has the requisite entrepreneurial DNA to take over the business.

I’m going to rip the band-aid off here with two points:

  1. A true entrepreneur has six essential traits, and
  2. you’re born with them—they cannot be taught.

To be perfectly direct, if the next generation doesn’t have the six essential traits of an entrepreneur:

  1. visionary
  2. passionate
  3. problem solver
  4. driven
  5. risk taker, and
  6. responsible,

they probably aren’t a next-generation entrepreneur. To find out if you or they are, take the Entrepreneur-in-the-Making Assessment.

I’m writing this after witnessing far too often the challenges faced when a non-entrepreneurial son or daughter takes over the family business.

For instance, I worked with a family business in which the father wanted to transition the business to his son, who didn’t possess the six essential traits. They became my client when the family was about two years into the transition.

Already, the changeover was painful for everyone. The entrepreneurial deficit created a stagnant, self-defeating dynamic. Every time there was a tough decision to be made, the son would say to the leadership team, “Okay, let’s vote.”

The business, like most businesses run by consensus, never grew and the leadership team was frustrated with the lack of progress.

Kathy Kolbe and Amy Bruske’s book, Business Is Business: Reality Checks for Family-Owned Companies, is the proverbial handbook on family businesses. Kathy and Amy state, “We’ve seen family-owned businesses survive economic losses, fires, tornadoes, threats and deaths. We have never seen a family-owned business survive heirs who lack ambition.”

These unfortunate circumstances occur when the next generation feel entitled to the role, or the parent put their kid in the position because continuing the family tradition was “their dream.”

Being an entrepreneur isn’t something you can inherit or learn or are entitled to. It’s something you are.

Let’s start by imagining the circumstances in which a parent would want to put their kid in the role of running their company. The typical reason is that the parent is thinking about retirement / succession planning and wants to put someone in their founder / entrepreneur role.

To successfully achieve this, the parent must first clearly recognize that their role will now be available to someone, not necessarily their son or daughter. This will help them detach from fixating on a successor within their family. Uncoupling that link will help the parent see more clearly what’s needed and if their kid has what it takes.

If they want the company to evolve, grow and last for decades, they’ll need to fill that role with another entrepreneur—someone with the six essential traits—no matter who it is.

If the parent’s objective is merely to maintain the status quo of the company and let it run its course, then they can pass the company on to one of their kids that doesn’t have all of the traits.

If your son or daughter isn’t the right fit, then simply fill the role with someone else who has all the requisite entrepreneurial traits. I assure you they’re out there. Hopefully, it’s a niece or nephew, a son- or daughter-in-law, or someone already working in your business. Worst case, you’ll have to look outside the company.

If you want a non-entrepreneurial child to join the business, and they want that as well, put them in a position suitable to their skills. You’ll both be happier.

You must realize that it’s fairly rare for a son or daughter to be born with their parent’s entrepreneurial traits. Research on the subject shows that only about 32 percent of second-generation businesses survive, only about 13 percent of third-generation, and only about 3 percent of fourth-generation and beyond.

On the positive side, I’m happy to say that I’ve witnessed many success stories where a daughter or son took over, grew the company, transformed it, and made it more successful than in the previous generation, and in every case, the next generation had the six essential traits.

Of my 134 clients, 40 percent are family businesses. I have stories of second- and third-generation entrepreneurs that have taken the reins and grown their family businesses tenfold. I share these stories in Entrepreneurial Leap: Do You Have What It Takes To Become An Entrepreneur?.

Finally, I’d like to offer two last pieces of advice from my personal experience as a second-generation entrepreneur in my first business:

  • First, the next-generation entrepreneur needs to go succeed somewhere else first. When I wanted to get involved in my family’s business, a real estate sales training organization, my father was adamant that I succeed somewhere else first. He urged me to go sell $5 million in real estate in a calendar year, which I did. It helped greatly from several standpoints: my confidence level, the respect from his employees, and my having broader experience
  • Second, a second- or third-generation entrepreneur should also understand that, unfortunately, you have to work harder than anyone else in the organization to get the same level of respect. It’s just the reality of being the owner’s daughter or son.

For a complete how-to guide on knowing if you, or your son or daughter, have the six essential traits of an entrepreneur, purchase Entrepreneurial Leap: Do You Have What It Takes to Be an Entrepreneur?

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