Small businesses are the backbone of America, a description I wholeheartedly agree with.  These businesses that are commonly family-owned and operated create two-thirds of new jobs and employ close to 48% of the country’s total workforce.  Because of where I come from and what I currently do for a living, family-owned and operated companies hold a special place in my heart.  I believe if small businesses fail, especially in the 2nd generation, it directly impacts our, nation, society, and especially the family members of those they employ.

The odds are stacked against small family-owned businesses. Here is some data you may find staggering.

• 90% of startups fail with the original founders within the first year. 
• After 5 years, an additional 50% fail of the surviving 10%
• 70% of businesses do not survive the transition from first to second generation.  
• If your business has made it into the 3rd generation, you can count yourself within an elite 10% of successful businesses. It is extremely difficult based on the odds and realities of running a business to remain relevant and competitive. 
• Only 3% of those left transition from 3rd to 4th generation

I am no mathematician, but the probability of a company being successful with multiple generational transfers is not high. It’s a feat that is astounding and extremely difficult.

My mission and goal is to empower other 2nd generation businesses to thrive & do so while maintaining healthy family relationships.  Here is a picture of my family taken a few years back of our company:

While the aptly named HBO show may be a dramatization, owning a generational family business can feel extremely complicated at times. Combining the family dinner table with the conference room table can come with a slew of issues both rewarding and challenging.

Here are some observations coming across hundreds of other family-run companies of mistakes:

The biggest mistake made in 2nd generation businesses is wasting time on perceived personal injustices instead of what the business needs to grow. A few of these issues that pop out:

1. Confusion over titles, roles, and responsibilities
2. Bringing in personal childhood issues – who did Mom favor? Dad favor? Who had it rougher? Who got a higher allowance at 13 years old? Who did the family dog love more? Seriously, the list can be endless and mostly juvenile, but it’s very real in a family-run company. 
3. Who works more or less? Who spends more or less? Who earns more or less? These are complex issues to solve but that need to be addressed and worked out.
4. Wanting a bigger slice of the proverbial pie instead of building a larger pie

Most 1st generation business owners (especially in the 1-5M annual revenue mark) commonly make one big mistake when transferring their business to their children/family– they do not know how to properly transition ownership given the complexities of family.  In my experience, the informality and inability of anticipating future issues can lead to a financial and family disaster years later.

Consider any small business with one parent as the single founder/stock owner, doesn’t matter whether the founder is the father or mother per se. As the sole proprietor, the founder never had to deal with the following:

• The complexities of working with family members that are also business partners. 
• Quarterly or Annual Profit/Revenue Sharing – How to “Whack it up” fairly to put it in non-technical terms
• Reporting Up to a sibling or family member that is in charge.  Imagine your brother or sister being your boss, that is tricky.
• How to properly divide up stock ownership and even annual income based on performance and talent. 
• How to understand the complexities of Birth Order in a business environment. 

When planning to transition your company to the next generation, or when cleaning up the messy pile that was left to you, the bottom line is this:

To succeed from 1st to 2nd to 3rd generation you need to evolve and grow. We cannot squander or screw up that special asset and golden goose that was transferred, sold, or gifted.

For 2nd generation owners, this starts with putting your egos and childhood baggage aside. Sharing the ownership of your company, especially with siblings, can blur the lines between business and family. Having a system that clearly defines roles is a great first step toward keeping family and business issues separate. There is a legal component we all know about called Buy/Sell Operator Agreements but, equally important, there needs to be open and honest communication on how to treat one another and behave as business partners. It is important to address the intangible issues that legal paperwork cannot solve.

When defining roles within the company for 2nd Generation, it is important to figure out who is good at what. Who is the visionary? Who is strong at sales? Who is strong at operations or finance? The skillset and passion of the founder do not always get passed to their children – but do not necessarily have to for the company to continue to succeed. By the time the 2nd and 3rd generations are taking over, the company is already on its feet and established. These future generations need to know how to double or triple down on what is working and adapt along the way. Fortunately, 2nd generational owners do not need to be just like the founder as long there are smart decisions made and passion. Avoiding big financial mistakes is just as important as evolving over time.

As a 2nd generation co-owner of the Unified Communications Provider- Telecloud, I am personally invested in the realities of family-owned businesses. I’m the youngest of three siblings and have spent the last several years balancing the fine line between family relationships and business success. This juggling act has taken more time and effort than I could have expected before we transitioned ownership from my father, but we chose family first. The success of the business is paramount to treating one another fairly, professionally, and with love and is vitally important when things get heated.

I created my personal brand called “$econd Generation” to share experiences, learn from one another, and help others thrive in order to beat the odds of failure and create amazing family businesses together.

We are the backbone of America.

Keep Growing, Vincent Finaldi