“Only 30% of Family Businesses Survive＂ - How to Transition Your Business Successfully
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Summary
One of the hardest things to do is passing a business down to your kids because succession is so hard. So, today we re going to talk about the 10 mistakes parents make when passing down a business to their kids and 10 things they can do right to set up their kids so eventually one day they can successfully pass their business over to the next generation.
Transcript
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So, do you know one of the hardest things to do is whatever business you run to pass it down to your kids?
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Let me tell you why. According to statistics, 70% of the global GDP around the world is ran by a family business.
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60% of our workforce, they work for a family business.
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However, only 30% of the businesses that families run makes it to the second generation.
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12% chance of making it to the third and only 3% chance making it to the fourth because succession is so hard.
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So, today we're going to talk about the 10 mistakes parents make passing a business over to their kids
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and 10 things they can do right to set up their kids so eventually one day they can successfully pass their business over to the next generation.
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If you get value out of this video, give it a thumbs up and subscribe to the channel and stick around to the very end.
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I'm going to give you the PDFs in our new Entrepreneur Circle on Manac.
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You'll get all of this given to you so you can sit down with your wife, husband, have this conversation with them.
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Oh, this is my son. He can handle the whole business.
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Oh, this is my daughter. They can for sure do it.
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You have no clue the DNA of running a business.
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But the DNA of running a business is a very, very different thing.
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When I talk to my kids right now, I got a 13, 11, 8, 3-year-old.
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Who do you think can manage the business and run it one day and grow it?
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What do you think is needed to be able to grow the business?
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You think it's just because you got the best grades?
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You need to start having that conversation with your kids now.
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Number two, I sit with a lot of business owners and their kids will come and they're running a business together and they're fighting.
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We run a consulting firm called Bed David Consulting.
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You can go to beddavid.com to find out how we help families out.
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And you know what's the most common mistake that the father running the business or the mother, the parents run the business and the kids make?
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The son or the daughter will say, every time I bring up a conversation with my dad or my mother, they don't want to talk about it.
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He doesn't want to do anything with your business.
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You're making a kid want to go do his own thing.
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Schedule a damn appointment meeting off-site, not in your building, elsewhere, couple hours away from your building.
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Write down 15 issues you need to go through and actually have the conversations now before it's too late.
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Well, yeah, my son's going to run this division.
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Your son automatically thinks he's entitled to come and run the whole thing.
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It's like that one movie, Horrible Bosses, where Colin Farrell is a son that does cocaine all the way running the dealership.
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One of the mistakes they make is no meritocracy.
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Everybody's like, oh, my God, this guy's son is running.
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You don't think that's a big part of the business?
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Doesn't mean that the employees are not realizing that maybe one day one of your kids is going to run it.
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This next one is tough, which is the founder is not letting go.
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So they allow the kids to come in and say the kids have been working for the company for 5, 10 years.
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As much as they want to give up the power, they don't want to give up the power.
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But if they've earned the right and they've done their part, they've worked their asses out,
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they followed every guideline you followed, you've got to let them run it and see what they're going to do with it.
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Or else you shouldn't have started in the first place, but you've got to let it go eventually.
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I went to an event with Goldman Sachs last year in Chicago at St. Regis.
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The Walsh family, the, you know, Reinsdorf family, one of the Chicago Bulls, all these guys.
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They're all talking about how they pass the money out to the next family, how they get the promotion.
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One family is talking about you have to go get an MBA, work for somebody else for three years before you come in.
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But they were all having their own systems of how they did it.
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The interview process, the interviews are G1, first generation, G2 wealth, second generation, G3 wealth, G4 wealth.
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There were guys in there that were G5, G6 wealth.
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The money that's been passed down for G5, G6, that means somebody did it right.
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And they put a structure in place with formal training.
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Those who screwed up, no formal training, just wing job.
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No one sits down and goes through all the details.
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That takes six to 12 months of doing a property.
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And if you're somebody that's got a lot of money or you're making good money, you've got a good business, you could spend a few hundred thousand dollars doing this property.
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They sit down with your kid and they tell them what's going to happen with the estate.
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It's a very, very important, but most parents, small business owners, that's a family-owned business, they don't want, we don't need estate planning.
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No wonder only 30% of the business makes it to the second generation.
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A lot of that is on the founders that they don't prepare for that to be taking place.
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No success planning, skipping legal, skipping financial planning.
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It is so important to sit down to do the planning with everybody up front.
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First, just you and your wife, then the kids being involved.
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And if you don't do something like that, what's going to happen with the business?
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Sometimes it's sensitive for the father because the father's identity is tied to the business.
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And it's kind of like, oh, you guys just want to get rid of me.
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Sometimes the overreaction is a way of saying, do you guys don't realize how much I work as
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They need to be able to have that conversation the right way.
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But there needs to be a vision beyond the founder that worked like a slave to build the
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Next day, assuming they're interested, what if they don't want to do it?
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And you're pressuring them and it creates resentment.
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I'm just doing it because I want to make you happy.
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I wanted to be like, well, my son is the first baseman.
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I need to have a serious conversation with you.
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And you need to let go of your dream because I don't want to play this game.
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I said, once you finish the season, he says, I'm going to finish the season, but don't
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You know what happens right now when he plays soccer?
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He trains three, four, five hours a day of soccer, but he loves watching the game of
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A little weird because it's typically the other way around.
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You need to allow your kids to be able to tell you, I don't want to run the damn business.
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And I remember I'm talking to this group that let us entertain you.
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I was like, hey, dad, man, I don't know what to do.
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The father who built this billion dollar empire, seven, 8,000 employees during COVID.
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The kid says, we were worried that he would be worried because most of his equity is still
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But we're like, shit, we got to figure this out.
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The three kids that were running, let us entertain you.
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This last one's tough to do because parents sometimes use this as the guilt.
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And we worked so hard for this business for you.
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I'm like, I'm always going to look at this business tied to guilt.
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Every time I think about this business, I link it to guilt.
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Versus they need to look at it and say, man, every time I look at this business, I feel a
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That comes from the founders, the parents, you, not the kids.
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So now these are 10 strategies on how to do it right.
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So imagine somebody comes and applies for a job.
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If they're not ready, what feedback do you give them?
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Give them the feedback, but treat it like a business decision.
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So many people, when they come, when they're coming down, sitting with us, it's usually
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We're running election night the other day, a few months ago.
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You go talk to RJ, our chief HR officer, and get your comp plan.
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He's sitting in the HR's office like this with RJ, negotiating his pay.
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He comes and says, dad, can you sign these three ads?
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I got this guy to pay $99 if they're signed by you.
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He said, that guy right there wants to buy a three, four.
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Let him gradually feel involved in participating.
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Eventually, this could lead to them being excited and care about the business.
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Hey, son, if one of you guys wants to one day run this business, this is what I expect.
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You need to get your MBA to understand business and have a couple hundred case studies under your belt.
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You need to go work for somebody else for a few years.
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Because you got to get experience before you come here.
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You have to show that you can respect all the other bosses that we have here that are building this company.
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If you can show me you can earn respect from them, later on you can get their respect if you choose to become a leader in the company.
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Create a leadership council or board to coach them and mentor them.
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Let them, instead of you always solve all the problems, let them go and establish these relationships with these other people so they can also learn how they think, how they process issues.
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But create an advisory board for them to start having to make some of these decisions and get the feedback from others, not from you.
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This next one I already got, but it's reporting to someone else.
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Even when I, my sister wanted to work with my company many, many years ago, I said, you can't work with me directly, but I want to work with you directly.
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I'm telling you, for the sake of the relationship, it's better.
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They build a very good business for themselves, but they work with somebody else, not with me.
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Talk to them about earning respect from their peers.
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So if my kids want to come in, I'm like, hey, if you ever wanted, you better make sure they respect you.
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Don't act like just because you have a last name that you can go push people around.
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If you do that long-term, you're going to be fine.
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I'm like, Barron, when are you going to do a big interview?
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Barron Trump, everybody around the world wants to know about you.
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And you still say, I have to go win at something before I do an interview with the market.
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This next one is communicate with all stakeholders.
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The kids, the kids to you, coworkers, shareholders.
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And last but not least, number 10 is document everything.
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So no one's going to be like, you favored Johnny.
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Now, this was the same structure for all of you guys.
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I believe it was the Chicago Cubs ownership family.
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I said, so how did you guys decide who was going to get the Cubs?
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My kids said, yeah, we're not going to work that hard.
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The other guys don't want to come in early, leave late.
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But document everything up front so there's no infighting.
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Okay, so if you're someone that's watching and saying, I want all these notes.
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All you got to do is go subscribe to the Entrepreneur Circle on Manect.
00:14:49.400
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00:14:58.600
All the notes and everything I do on these shows will be there moving forward.
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And we will have many additional things that I do will be there as well.
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Go say, babe, how good of a job are we doing with this?
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If you got value out of this video, give it a thumbs up and subscribe to the channel.
00:15:21.520
And if you enjoyed this video, there's another video I did on the title of generational wealth.
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If you've never seen it, I give you a bunch of stories how other families did it.
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If you've never seen that, click here to watch it.