Lessons for Third Gen Success
I am often reminded that 90% of third generation family businesses fail. However, when we take a closer look, many of these common reasons for failure can be mitigated. Applying the discipline of a third generation family office to your individual investing is also a great way to avoid future pitfalls and set yourself up for long term success. Below are our top 5 reasons for failure along with lessons you can learn from each of them.
1. Lack of succession planning: Family businesses that are successful plan well in advance. I started informally shadowing my grandfather at work when I was 7 years old. We talked about real estate and the business at the dinner table for as long as I can remember. I started formally working in real estate when I was 18 years old and intentionally acquired the skill sets needed to run the business. Lesson here: be intentional and have an idea of what will happen with your business / investments after you pass.
2. Dilution of vision: Our vision is to maintain or grow wealth per capita from one generation to the next. As much as the business is a vehicle for financial preservation of wealth, it is a vehicle to pass on the values that are important to our family. Every family is different but for us, it is first and foremost hard work. There are a few other values as well but we will do a separate post on this one later this year. Lesson here: know what your values are and manage your business / investments to align with that vision. Vision is also more than just financial goals.
3. Family conflict: When the family fights, the business suffers. We work on our relationships intentionally and proactively to avoid family conflict. Lesson here: minimize conflict in your life. It’s toxic to your health and the health of your investment portfolio.
4. Resistance to change: Every generation of the family business has to re-invent the business for the business to be successful over a long period of time. Innovation is key to continued success as markets and technology evolve. Lesson here: innovate, innovate, innovate.
5. Overdependence on the business: We value every person having a job and not solely relying on their family distributions. Every member of our third generation has a career they are passionate about. Lesson: Diversifying income streams will always lead to better outcomes over time.
Kelly Chang Levine and I love talking to other family offices and family businesses. Always feel free to reach out to ideate on family office best practice in addition to real estate.
