Beating the Third-generation Curse in a Family Business

Many businesses across the country tend to fail once the grandchildren of the founder take over the company. This is particularly true if the third generation has no experience running the business and has not gone through the hardships the earlier generation experienced.

Around 40 percent of family-owned businesses reach the second generation, while approximately 13 percent go to the third generation. Around 30 percent of family businesses have misgivings about handing the reins of the company to the next generation, with around nine percent anticipating a conflict within the family will happen when it is handed down to the next generation.

This conflict can cause the business to fail. The chances of failure may even increase if the family goes through a rough time and issues emerge in their relationships. They may have to resolve the problems by hiring family law attorneys to increase the chances of an amicable settlement between the two sides.

Despite this, a family can still make the business successful as it is passed on from one generation to another. Here are some ways family-owned companies can avoid the third-generation curse.

Train Before Giving a Position

Many family-owned businesses seem to oblige their children to join the company. But this move may not go as planned, especially if the children are not inclined to join the company. Even if the children are welcome to join the company, they may have other interests, especially if they are already well-off due to the business.

At this point, the children will pursue their professions or passions. They will treat the family business as their fallback option. When they fail in their pursuits, they may return to join the family business. But they do not have the training and skills to take on a leadership position within the company. This will increase the chances of failure if they end up leading the company in the future.

To counter this scenario, the business can make sure the children have the necessary exposure to the company before they welcome them. The family needs to consider the job as a responsibility rather than an entitlement. The business should think the family members are employees of the company who still needs to qualify for the position they are aiming for.

Manage Entry into the Business


Another issue that can lead to business failure is when there are too many family members in the business. This typically happens when the firm does not grow fast enough to accommodate the growing family. For instance, the three children of the founders have three children each who also get married.

When most of the children and grandchildren of the founder joined the business together with their spouses, the company may not have enough open positions for everybody. It may also take away an available spot for a person with more skills and knowledge than any family member.

To remedy this situation, the business should manage the entry of family members. Managing the entry means the company should make sure the family member who joins the business has something to bring to the business. They should have the skills and training that can help the business grow. Additionally, they should also have strategies in mind that can help the company.

Have Mentors Who Are Not Family

Mentoring is important in business since it gives new members the guidance they need while working in the industry. Mentors typically know how the company works and can advise the mentee on what they need to do. In family businesses, the parent and offspring tend to specialize in one aspect of the business.

For instance, if the father is in the finance department, the son or daughter will also be in the finance department. In these instances, the father becomes the mentor. This makes it challenging for the parent to provide the appropriate feedback to the son or daughter since they have a unique personal relationship that can interfere with giving feedback. Additionally, the son or daughter may end up not getting the training in other departments, which is necessary for future executive positions.

To prevent these situations, the business can get a mentor who is not a part of the family. In this situation, the mentor will not have any personal bond with the mentee and provide honest feedback. To ensure the mentor offers honest feedback, the business should protect the mentor from any retribution from any family members.

The third-generation curse affects a lot of family businesses. But these family businesses can avoid the curse if they know what to do.

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