Categories: Leadership

Why Second Generation Businesses Fail

This post was originally published on 12 Most on August 19, 2011 and can be found here.

Business starts out with a boom.  The entrepreneur strikes out of love, passion, inspiration, and sometimes out of pure genius.Soon the idea becomes a company, and the company becomes fluid.  The company becomes a place where people come to work every day and attempt to make a living for their family.Over time the company grows and grows, time passes by and the company becomes mature.

Eventually the founder grows too (old that is) and either by choice or circumstance, the founder exits the pride of the family and in many cases leaves it to the children that the business has so long provided for.

The next generation is not always inspired or passionate the way the founder was.  Often they have desires to go into other fields or they see the family business as a means to an end, but they never see the business like the first generation did.

While sometimes it works out. Perhaps education, or family loyalty provoke commitment and the business thrives on.  But so many times, that isn’t the case. It is so often that the 2nd generation comes in and turns a once thriving operation into nothing more than remnants of what was and thoughts of what might have been; and when that happens there are some consistent reasons why.

Below you will find the 12 Most Company Killing Personality Traits of 2nd Generation Business Owners.

Now none of this is emphatic.  There are success stories, and many traits can be attributed to business failure.  However with family businesses there are some consistencies to why even the mighty fall.  These are twelve of the most….

1. Entitlement

It is too often that the 2nd generation feels entitled.  It isn’t uncommon that the company is handed to them on a silver platter, perhaps paying nothing and immediately being put into senior management.  This sense of entitlement is risky as in many cases the new owner doesn’t learn all aspects of the business, and/or they just don’t appreciate what they have and the opportunity associated with it.

2. Laziness

When you are entitled you are often lazy.  While these are not completely interdependent character traits.  They often can be found together.  The founder of the successful business was very likely not lazy.  If the second generation is watch out!

3. Indifference

Don’t care? Don’t succeed! Entrepreneurs often succeed because of what I refer to as Give a Crud! (insert word of choice) If the new ownership takes over and doesn’t have that deep down give a crud to go with the passion you may as well forget it.

4. Passion

As said above, many if not all great ventures are found out of passion.  If you don’t have at least a fraction of the passion of the founder, it will be hard to convince your customers, employees, and other stakeholders to stick around. Kaboom

5. Resources

Strategy execution is almost entirely dependent on the resources to carry on.  Sometimes when the founder exits they want to take a lot of the equity out of the business leaving it to run on cash flow and goodwill.  Well that is fine in a boom economy, but in a tough economy that is only going to leave the 2nd generation owners to go boom while Mom/Dad are at the country club.

6. Knowledge

Hand a kid a business and say: “Hey! you should learn as much as you can about this.” Yeah right! That went out the window when the business was turned over.  Standing in the corner office looking out at “The People” the new owner says “People my People, get busy and bring home the bacon.” Sometimes that lasts even if for only a short time.

7. Network

The business founder knew all the customers, the employees, the businesses in the neighborhood.  The mayor, the chief of police, and the owner of the restaurant down the street.  With a passion for the business he/she wanted to meet everyone because they never knew where business may come from.  Over time it became quite a wonderful network.  The new owner, if they expect those customers, advocates, and others to become loyal, they better take a lesson from the founder. Otherwise, tic tic tic tic tic….POW

8. Disrespectful

Perhaps osmosis provided the inheriting/incoming owner with some work ethic and perhaps even knowledge.  However, respect is a whole different story.  In the process of building the business, the aforementioned network, and so many others in the value chain and the business industry may have had their hands in the success.  If the 2nd generation owner doesn’t respect those who helped the business get to where it is… Watch out for the Bizpocalypse

9. Employee Mentality

If the new owner comes in thinking of the business as a paycheck and they lack an “Owner” mentality all I can say is watch out.  During lean times the new owners need to flex.  When the business seeks to expand, perhaps the big cheese has to go without for a while until the risk pays off.  If that isn’t in the cards for Gen two, then neither is long term success for Gen One’s hard work.

10. Unmotivated

Different than lazy…How? Okay, well perhaps the incoming owner isn’t just lazy in general but just not motivated to work hard on this business. We have all met plenty of second generation business owners that can play golf and vacation like it is nobody’s business.  Well in chapter 11 it will be nobody’s business and an unmotivated owner is a key ingredient.

11. Selfish

There is something to be said for charity starting at home.  Some second generation owners take this a bit too far.  As the business ebbs and flows their lifestyle never does. They proceed to lead a life of fancy cars, vacation homes, lifestyles while the employees don’t see bonuses or raises.  Trust me, people are taking notice.  If the founder has passed, they are rolling in their grave because even if they were selfish they knew that success of the company was key to their own selfish desires.

12. Selfless

The overly altruistic business owner.  This can affect the first, second, third, and beyond generations.  Some business owners just can’t see that their desire to never make a tough decision with regards to hiring, or changing suppliers, or firing are ultimately leading them down the road to failure.  Deep down they believe they are serving the greater good by keeping everyone employed even if the business is coming to a grinding halt.  Their selflessness is rooted in selfishness because no one will benefit when the business ceases to exist!

12 traits, 12 bad endings.  The second generation isn’t doomed, but they do have to work harder to find the love and care that was given to the business by the founder.

What did I miss? Are there other traits that lead to 2nd generation business failures? If there are, I want to know about them. Let’s discuss here!


Photos courtesy of Mike Baird and Sonya. Used under creative commons license, some rights reserved.

Daniel Newman @danielnewmanUV

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. From Big Data to IoT to Cloud Computing, Newman makes the connections between business, people and tech that are required for companies to benefit most from their technology projects, which leads to his ideas regularly being cited in CIO.Com, CIO Review and hundreds of other sites across the world. A 5x Best Selling Author including his most recent “Building Dragons: Digital Transformation in the Experience Economy,” Daniel is also a Forbes, Entrepreneur and Huffington Post Contributor. MBA and Graduate Adjunct Professor, Daniel Newman is a Chicago Native and his speaking takes him around the world each year as he shares his vision of the role technology will play in our future.

Share
Published by
Daniel Newman @danielnewmanUV

Recent Posts

Why Harassment Prevention Training Should Be A Top Priority for All Employees

Learn why companies should make harassment prevention training a top priority for all employees in order to create a positive…

2 days ago

4 Growing Enterprise AI Trends: Where Are We Now And Where Are We Going?

What are the enterprise AI trends that we are seeing now and where are we headed? Let’s take a look…

1 week ago

RPA In The Real World: Driving Marketing, Analytics, Productivity and Security

Robotic Process Automation is poised to take off. Let’s look at how businesses use RPA to move forward.

2 weeks ago

How AI Will Transform Customer Service?

AI’s ability, both present and future, to transform customer service in business is nothing short of extraordinary.

2 weeks ago

Amazon’s Upskill 2025 Initiative: What Does This Do for the Future of Work

Amazon recently announced that it would invest $700 million to upskill 100,000 of its own employees, in all areas of…

3 weeks ago

Dealing with the IoT Skills Gap

The IoT is still expanding. How will we manage and maintain the networks, data, clouds and connections that govern and…

1 month ago