The report hit me like a two-by-four. With survival rates like that, you might as well get your affairs in order now! I’m talking about business survival rates, and several years ago, I learned a startling statistic about family businesses.
According to The Family Firm Institute, only about 40% of family businesses survive into the second generation (that was me), 13% are still viable into the third generation (that would be our three boys), and only about 3% of all family businesses operate into the fourth generation or beyond.
The Problem: 88% of current family business owners believe the same family or families will control their business in five years.
The experts will tell you the number one reason for the failure to survive is the lack of succession planning. This biblical principle is evident in Proverbs 11:14,
Where there is no guidance, a people falls,
but in an abundance of counselors, there is safety.
However, no amount of planning will overcome the lack of successors asking themselves the question, “why?” Specifically, why would they want to continue running the business?
Overcoming One Challenge to Succeed
Every leader can have successors to successfully continue the business by overcoming one challenge.
The one challenge every successor must overcome is having a Why that is large enough to carry on!
The founder, and each generation of successors who follow, should ask themselves…
- Is my why bigger than me?
- Is my why bigger than the current business or current job responsibilities?
“Once you find your why, you will be able to find your way.” – John Maxwell
The “Why” Experiment
The University of Pennsylvania’s Wharton School of Business experimented with the why question.
They divided employees into three groups at the university call center where they solicited donations from alumni.
- Group one – Read stories written by former employees about the benefits of the job such as improved communication and sales skills.
- Group two – Read stories from former students about how their scholarships helped them with their education, careers, and lives.
- Group three – Read nothing. They were just told about the purpose of the call and were to ask for a contribution.
The researchers found after a month that group one and group three raised roughly the same amount of money from alumni as in the past.
However, callers in group two raised twice as much money as the other groups!
Group two’s understanding of the importance of their work – the why – motivated them to get better results. What you do and how you do it are important. But the why gives the passion (the fuel, the energy) to succeed.
“The person who knows ‘how’ will always have a job. The person who knows ‘why’ will always be his boss.” – Diane Ravitch
How do you know?
When the second, third, and fourth-generation successors find that something inside them by asking the question, “why?”, only then will they have the passion and professional will to resolve to do whatever it takes to make the company great, no matter how big or hard the decision.
How do you know if you have the passion and professional will? Ask yourself…
- Is passion a characteristic of your life?
- Do you wake up feeling enthusiastic about your day?
- Is the first day of the week your favorite, or do you live from weekend to weekend, sleepwalking through your everyday routine?
- How long has it been since you couldn’t sleep because you were too excited by an idea?
Does your passion show? To get an honest assessment just ask your co-workers. Ask your spouse about your level of desire.
The succession failure has more to do with the successor not honestly asking the why question and assuming the leadership role without the passion and professional will to run the business as the first generation did.
Think about it. If you, as the new leader, lack passion and professional will, how do you think your employees are going to behave after watching you?
My Families Solution
When I heard of the statistic that there was only a 13% chance that our boys would successfully survive, I immediately began a family succession planning process to teach our three boys to learn how to become good owners of the business, but not managers working in the business.
Even though only one of our boys had a real interest in the business, all three of them were working and doing other things. I started to talk with our boys about allowing professional managers to run the business.
I took time to consider and discuss the succession plan with my wife, our three boys, and our COO – and all agreed to the plan. The plan (before me selling my company in 2011) was that on a set date I would roll into a Chairman’s role, and our COO (whose why matched mine) would become the President of our successful business.
Choosing to sell the company rendered my succession plan unnecessary, but I’ve never regretted the time and effort invested in the planning process.
As a steward of our family business, it was the right thing to do. And I’m confident that any fellow business owners who take time to plan their succession will reach the same conclusion.
Do you have a succession plan?
Do your successors understand their why to continue the business?
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