RetailerNOW October 2016

Page 32


Beware the third generation Why do family-owned businesses seem to die just two generations removed? By Wayne Rivers


t a recent peer group meeting in western Kansas, we were taking a tour and learning a bit about the history of Foster Farms. In the early 20th century, Benjamin Butler Foster owned lumber yards in Kansas City, and he began to buy farm ground in western Kansas and eastern Colorado during the Dust Bowl era (talk about a confident entrepreneur! Was anyone else on earth accumulating farmland during the catastrophic Dust Bowl?). He eventually had more than 30,000 acres of farmland—a huge operation even by today’s standards. Ben Foster died in 1961, and Foster Farms was sold in 1965 to a partnership that included several family members. The partnership dissolved in 1969. The Foster family was incredibly successful by anyone’s account, and yet their family-owned business didn’t make it much beyond the death of the founding entrepreneur. The amazing arc of Foster’s business success prompted an insightful question from one of the peers: “If it’s true that family businesses go from shirtsleeves to shirtsleeves in three generations, what causes this?” Shirtsleeves to shirtsleeves in three generations? Maybe you’ve never heard this old saying, but it’s one that cuts across many cultures. The Japanese have a different way of saying it: “Rice paddies to rice paddies in three generations. The Scottish are a little less vague in their telling: “The father buys, the son builds, the grandchild sells and his son begs.” The Chinese don’t


OCTOBER | 2016

sugar-coat it: “Wealth,” they say, “never survives three generations.” We kicked around the question of why this so often happens and came up with three reasons why family businesses tend to fail within three generations. 1. Lack of shared vision. This sounds like a nebulous, “consultant–centric” concept, but it most certainly is not. Founding entrepreneurs like Ben Foster, whether they go to the trouble of writing it out or not, have a driving, compelling vision for their future success. As more people—family members, strongwilled non-family managers, and outside advisors—get added to the vision conversation, it becomes harder and harder to get everyone on the same page. Even for the largest, most successful family company, resources are very limited, and executives and owners must debate on and decide how best to allocate those resources. If one family faction advocates for expanding the lumber business, another advocates for investing resources in the agriculture business, and still another advocates for getting into a new line of business entirely, resources get stretched to or beyond the breaking point. Only by focusing like a laser beam on a shared, compelling common vision can groups of executives make decisions consistent with long-term inter-generational success. Finding multigenerational families in business together who genuinely have a common vision is exceedingly rare. 2. Entrepreneurs are quite rare. We spill so much ink advocating entrepreneurship and lauding successful busi-

ness leaders that we assume a huge segment of the population must be entrepreneurial. It’s not! Even if people happen to share the bloodline of a successful entrepreneur, the odds of them having the same drive, energy, ambition, and talent are very low. The conventional wisdom is that the children of successful entrepreneurs are more managerial than growth and innovation oriented; that is, they work harder to preserve the creation of the founder than to continue to expand it. 3. Complacency. Pat Riley is the legendary basketball coach and NBA executive behind the successes of the “Showtime” LA Lakers and Miami Heat. Riley doesn’t use the term complacency. He refers to it as the disease of “too much.” In sports, a talented young person works incredibly hard to excel in high school and college, and, if his dreams come true, he makes it to the rarified air of the pros. As a professional athlete, he continues to work to improve himself and his team until finally he reaches the pinnacle— a world championship. At this point, an athlete may have worked 20 years or more to achieve this singular goal—just as an entrepreneur has worked 20 years or more to become “an overnight success” in business. For an athlete or a business owner, it’s at this point where the accolades come rolling in. An athlete receives a huge contract, endorsements, lucrative invitations for speaking, and celebrity notoriety. A family business leader receives trade association or media attention, invitations to be on church, bank, or hospital boards, hearty attaboys from his professional advisors, and