SECOND-GENERATION ENTREPRENEURS
Before turning to the Entrepreneur-in-the-Making Assessment in the next chapter (which is the final filter to confirm if you have entrepreneurial DNA), let’s take a look at second-and third-generation entrepreneurs. As you recall, that’s a son or daughter who takes over and transforms the family business or at least doubles it in size.
It’s important to note, first off, that if you’re a son or daughter who takes an entrepreneurial leap that has nothing to do with the family business, you aren’t a second-generation entrepreneur: you’re an entrepreneur, pure and simple. This chapter is focused only on a member of the younger generation thinking of getting involved in or taking over the family business.
It also will help an entrepreneurial parent determine if their son or daughter has the requisite entrepreneurial DNA. To be perfectly direct, if they aren’t visionary, passionate, a problem solver, driven, a risk taker, and responsible, they don’t.
Please feel free to skip this chapter if you have no interest in learning about multigeneration entrepreneurs.
I am adding this chapter because I’ve seen far too many times what happens when a nonentrepreneurial son or daughter takes over the family business. It’s an excruciating experience for all involved. The next generation may feel entitled to the role, or the parent puts their kid in a leadership position because continuing the family tradition is “their dream.” Being an entrepreneur is not something you can inherit. It has to be inside you no matter who your parents are.
DEFINING THE ROLE
Let’s start by imagining the circumstances in which a parent would put their kid in the role of running their company. The typical reason is that the parent is ready to retire and wants to put someone in their founder/entrepreneur role.
The parent must first clearly recognize that their role will now be available to someone, but not necessarily their son or daughter. This will help them detach from fixating on a successor within their family.
Uncoupling that link will help the parent see more clearly what’s needed. If they want the company to evolve with the times and last for decades, they’ll need to fill that role with another entrepreneur—someone with the six essential traits—no matter who it is.
If the parent’s objective is merely to maintain the company or let it run its course, then they can pass the company on to one of their kids even if they don’t have the traits of a true entrepreneur.
However, if the company depends on your entrepreneurial abilities or your business is in an industry that’s constantly evolving, your thinking has to be different. If the son or daughter doesn’t have the six traits 100 percent, I urge you not to move forward. If you do, it will be painful and frustrating for all involved. Instead, fill the role with someone else who has all the requisite entrepreneurial traits. I assure you they’re out there. Hopefully, it’s a niece or nephew, a son- or daughter-in-law, or someone already working in your business. Worst case, you’ll have to look outside the company.
If you want a nonentrepreneurial child to join the business, and they want that as well, put them in a position suitable to their skills. You must realize that it’s fairly rare for a son or daughter to inherit their parent’s entrepreneurial traits. Research on the subject shows that only about 32 percent of second-generation businesses survive, only about 13 percent of third-generation, and only about 3 percent of fourth-generation and beyond.
For instance, I worked with a family business in which the father wanted to transition his business to his son and daughter, neither of whom was an entrepreneur. They became my clients when the family was about two years into the transition. Already the changeover was painful for everyone. The entrepreneurial deficit created a stagnant, self-defeating dynamic. Every time the leadership team had to make a tough decision, the son would say, “Okay, let’s vote.” The business, like most businesses run by consensus, never grew.
On the other hand, I’m happy to say that I’ve seen many success stories where a daughter or son took over, and the company grew, transformed, evolved, and actually became more successful than in the previous generation.
A great example of a second-generation entrepreneur is Jay Feldman of Feldman Automotive. Jay started working in his dad’s car dealership at the age of eight, washing cars and doing odds and ends. He remembers always wanting to be on the lot. On snow days at school, he didn’t want to play like the other kids; he wanted to go to work at the dealership.
He started selling cars before he had a driver’s license. He described himself as “extremely competitive,” which he showed by becoming the top salesperson in the summer when he was sixteen years old.
After graduating college early, at age twenty, he went to work for the dealership full-time as finance manager. He quickly worked his way up to sales manager and then general manager of the dealership. In that position, he grew the dealership from $20 million in revenue to $45 million.
At age twenty-five, he and his dad became fifty-fifty partners when they moved and built a new dealership. Jay grew the newly relocated dealership to $85 million. Since then, Jay has bought his dad out and continues to buy and grow dealerships. He currently has ten dealerships, generating $1 billion in revenue and employing nine hundred people.
Now let’s look at the example of a third-generation entrepreneur, Mike Uckele of Uckele Health and Nutrition. His grandfather started a supplement business focused on the health of farm production animals (cattle, swine, etc.) in 1962. In 1978, Mike’s dad came into the business, and Mike’s dad and uncle ran the business until 2005.
Mike first got involved in the family business in 1987 while in high school and after graduating college became involved full-time. After a decade of watching his dad and uncle bicker as partners, he offered to buy the company to solve the problem, and they took the offer.
At the time, the company was earning $4.5 million in revenue, still focusing on the health of production animals. Mike’s passion about the family business cannot be overstated. He first whipped the company into shape by cutting unnecessary inventory and getting rid of bad customers. He then refocused the company to supply the equine, pet, and human supplement market. By transforming the company, he took it to another level, growing it to $50 million in revenue and 150 employees.
Another example is Gretchen Hopp Doyle of Baker-Hopp and Associates, a rare fourth-generation entrepreneur who has beaten the daunting odds. Her insurance agency was started in the early 1900s by her great-grandfather, John A. Baker, as a life insurance company that he ran out of his house.
John had four daughters involved in the business. One of his daughter’s husbands (Gretchen’s grandfather) had the entrepreneurial gene. He took the company over in the late 1940s.
In 1967, Gretchen’s father took over the business and grew it rapidly.
At the age of twenty-five, Gretchen wanted to be an entrepreneur and business owner herself. In 1996, she joined the family business. She started in sales and worked her way up through the ranks. When her dad was ready to retire in 2006, she and a partner bought him out. Gretchen has since bought her partner out, becoming the sole owner of Baker-Hopp and Associates. She continues to successfully grow her fourth-generation business.
Kathy Kolbe and Amy Bruske’s book, Business Is Business: Reality Checks for Family-Owned Companies, is the proverbial handbook on family businesses. Helping you decide if you should bring a family member into your business, how to bring family members into your business, managing the relationship, and removing family members from your business, Kathy and Amy state, “We’ve seen family-owned businesses survive economic losses, fires, tornadoes, threats, and deaths. We have never seen a family-owned business survive heirs who lack ambition.”
SUMMARY
I hope this chapter will greatly improve the odds of multigenerational-family-business success. The fact that fewer than 15 percent of family-owned businesses survive through a third-generation is heartbreaking.
Finally, I’d like to offer two last pieces of advice from my personal experience as a second-generation entrepreneur. When I wanted to get involved in my family’s business, a real estate sales training organization, my father was adamant that I succeed somewhere else first before coming to work for the company. He urged me to go sell $5 million in real estate, which I did. It helped greatly from several standpoints: my confidence level, the respect from his employees, and my having broader experiences.
The second piece of advice is that a second- or third-generation entrepreneur should also understand that, unfortunately, you have to work harder than anyone else in the organization to get the same level of respect. It’s just the reality of being the owner’s daughter or son.
Let’s now move on to the Entrepreneur-in-the-Making Assessment, the final filter in determining if you have what it takes.