When the children take over

More than 70% of all businesses in the United States are family businesses, generating more than half of the U.S. Gross National Product (GNP).

That stat from Family Business USA, a consulting firm, probably understates the dominance of family businesses in the hardware and building supply industry. And that’s good, but sometimes not-so-good when it comes to surviving the ownership transition to the second generation. Two out of three U.S. family businesses don’t survive to the next generation, according to Family Business USA president Henry Hutcheson.

Hutcheson, author of “Dirty Little Secrets of Family Business,” provides tips for dealing with the biggest threat to a family business -- surviving transition to the next generation.

“There are a number of sound practices while sustaining a family business,” Hutcheson said, “but there’s a big difference between working with your children and lining up your succession plan with your kids in mind.”

Here are three of his keys:

• Identify your children’s individual strengths. It’s impossible for your son or daughter to think and act exactly like you. If you’re the founder of the business, this may be even more difficult to keep in mind because you started a business from scratch. Your children may not have the same entrepreneurial spirit. That’s perfectly OK, because your business is in a different stage from when you started it. While experience has given you a large bank of knowledge, allow your successor to shine and contribute at their pace. Guide them gently; they will want to do some things their own way. Let them know when they’ve done something exceptional, especially if you wouldn’t have thought of it.  


• Expose your children to all aspects of the job. Merchandising, production, management, buying, marketing, financial planning -- the list goes on regarding all the things to understand in general management. You may not be an expert in all areas, but you know more than the average employee. To start preparing your children for the top position, they must understand how things work at the bottom. When they’ve spent time in the trenches, they better comprehend operations, and the kind of people they’ll need to employ in the future. 


• Stretch your children’s abilities by having them work for another company. The period after graduation is a scary phase of life, but jumping into the family business right away isn’t the best move. Children have an urge to distinguish themselves from their parents, and working for another company is a great way to do so. Let them spread their wings, learn new things and appreciate small victories outside of the business. If and when they choose to work for the family business, they’ll feel better about the decision.