From the Gettys to the Waltons, some of the wealthiest families in U.S. history have earned their riches through the family business (or businesses). But today, fewer family businesses endure through the years, and often many members of the newest generation show little interest in continuing the family’s line of work.
With only 30 percent of all family-owned businesses surviving into the second generation, 12 percent surviving into the third, and three percent surviving into the fourth generation and beyond, it’s important to foster a strong sense of entrepreneurship among the youngest generations. Learn more about the steps the most successful businesses take to accomplish this goal.
Why Entrepreneurship Is Important
It’s incredibly rare for a third- or fourth-generation family business to continue in the same line of work or even the same industry where it began. Evolving to meet changing needs and expanding into new areas can be the key to keeping a company viable, and entrepreneurship is a crucial part of this process. Because anywhere from 60 to 90 percent of business owners have most of their net worth tied up in their business, maintaining profitability requires calculated risks.
However, it’s also important to differentiate between a potentially lucrative path toward expansion and a pet project or expensive hobby. Walking the line between encouraging outside-the-box thinking and avoiding boondoggles can pose a challenge for both the business owner and the prospective entrepreneur.
Boosting the Entrepreneurial Spirit Among Younger Generations
There are a few steps business owners can and should take to foster entrepreneurship among the younger cohort.
Create standards and metrics by which to evaluate business ideas.
Some of the most life-changing advancements in medicine, technology, and manufacturing were discovered nearly by accident. Others were created through years, even decades, of careful research and retooling. For entrepreneurship to truly thrive, it’s important to encourage a balance of both methods.
Creating a rubric by which to evaluate business-related decisions can accommodate a multifaceted development process while ensuring that decisions are made on logical rather than arbitrary bases. Combining these decision-making flow-charts, standards, and objective metrics make up the key to picking out the next million-dollar idea from the universe of possibilities. Using such a process can also reduce the risk of pursuing a business idea that turns out to be a money-loser.
These standards and metrics should allow for the flexibility to refine the idea so that it is a successful one. Instead of simply dismissing a proposal out of hand, decision makers use the rubric to evaluate each factor on which the project fell short. By solving these problems or coming up with contingency plans to reduce their impact, budding entrepreneurs will get a front-seat view of the process of growing and adapting a business.
Show (or tell) the struggle.
For those who grow up during the “golden years” of a family business, there can be a lack of context for recent successes. In other words, it can be easy for budding entrepreneurs to get discouraged if an initial idea doesn’t pan out or appears to require too much work or time to bring to fruition.
It can be worth revisiting the blood, sweat, and tears that were necessary to build your successful business. Discussing how long it took to turn a profit and what sacrifices were made during the early days (e.g. long hours, less time with family, financial turmoil), can provide much-needed perspective for those who have only witnessed the latter part of the journey.
You’re not only enhancing your personal relationship through sharing the company’s history in the context of your personal family life, but you’re also showing that you trust the next generation by digging into the tougher times and pivotal moments with them.
Provide mentorship opportunities without suffocating.
It can be tough to walk the fine line between encouraging budding entrepreneurs by providing your hard-earned advice and micromanaging or suffocating them. The right balance is different for each business and each entrepreneur, but here are some tips to keep in mind.
- Encourage entrepreneurs to venture outside the family business if they show interest in doing so. Not only can this help them see what else is out there, but it can also provide them with skills and ideas they may ultimately bring back to the family business.
- Consider (and reconsider) when to provide unsolicited advice. If it’s a topic you know well, it can make sense to provide some guidance, whether asked for or not; but in other situations, stepping back can be the best way to provide some breathing room.
- Create an atmosphere where failure is an option. Not every idea is a success, and getting that “first failure” out of the way could pave the path for future progress.
By keeping these tips and tricks in mind, you’ll be better positioned to mold the next generation of entrepreneurs. Penta Wealth Management can help. “Preserve and Prosper” isn’t just our motto, it reflects our entire approach to doing business. Partnering with us can allow you to focus on the ins and outs of your business while ensuring your financial house is in order. Explore our website to learn more about the services and support we offer.
