Leading any business is extremely challenging. If the business is a family business, the level of difficulty is increased, and if you intend for it to be a multigenerational business, the difficulty is even greater still. If you truly desire to build a business that will continue for many generations into the future, your business strategy requires more planning and much greater attention to the long-term impact of every decision.
Traits of multigenerational businesses
To intentionally build a multigenerational business, you need to have a clear understanding of the philosophy and strategies that help ensure its success. Here are some suggestions.
- Leaders make decisions not only for their current needs or the current generation, but also for the best interest of future generations.
- Establishing a multigenerational mindset keeps them focused on developing leadership, success and business skills that will serve every generation in the future.
- There is a keen emphasis on establishing and maintaining core values that are relevant for any generation.
- Leaders teach the importance of creating, gaining alignment with and reinforcing the value of their vision as the focal point of the direction of their business.
- The family’s resources are never built and stockpiled solely for the use of the current generation. These resources are considered an investment in the future, and future generations are taught to respect this inheritance as a gift from previous generations that must be passed to future generations.
- The key assets of the family business – land and facilities – are continually owned only by blood relatives. If multiple generations have acquired and paid off these assets, it would be unfortunate that death, divorce or other unfortunate incidents would indirectly cause those assets to eventually transition out of the family. This may be controversial in some families, but strategies can be put in place to ensure that each family in the business has plenty of opportunities to have ownership in the operating entities of the business, and to buy their own assets along the way.
- Individuals who do not adhere to the core values of the family are not allowed to inherit any of the key assets. Those are transferred to only family members who are actively involved in the business and whose success (or failure) is driven by their performance in the business. Investment strategies can be developed so that non-farm heirs will be transferred valuable assets that do not diminish the key assets of the family’s legacy.
The importance of well-defined core values and a written vision statement
Core values are the non-negotiable philosophies of the business that help determine right from wrong, and wise from unwise, in all decisions, regardless of the individuals involved or the impact on profitability. These must be taught and vigorously reinforced from one generation to the next if the business will continue to thrive.
A written vision statement defines the long-term, non-specific directional guidance of your business for employees, customers, leadership and the community stated in general, philosophical terms. It includes your values, priorities, core competencies and other important aspects of what defines you and your purpose. Each generation will have to redefine that vision to accommodate changes in the industry and take advantage of opportunities that may have never existed. Each revision must keep the core values intact.
It is a deliberate decision
If there is a desire to create and maintain this type of business, you must choose to do it and be very deliberate about that choice. You cannot desire it one year, then set it aside the next. To ensure success, it has to be your focus year after year and be a key factor in every decision that is made.
This multigenerational focus will affect the way you make financial decisions about how much debt you will take on – and what you will leave for the next generation to pay off. Your strategy on how much money the elder generation will draw from the business for their living expenses after they step away from regular involvement in the business must be a factor. In some situations, the elder generation chooses to make investments in other businesses or properties that provide them with the regular income they need later in life, so they don’t need to take a draw. They might also have adequate income from payments for the sale of the business from one generation to the next, allowing them to no longer need a salary. One important strategy is to be certain that the elder generation’s long-term healthcare needs are financed, without having to draw from the business’s cash flow.
The decision to grow a multigenerational business also requires that there be a successful and profitable business to pass on to the next generation. Why would a younger person want to buy a business that is barely getting by, heavily in debt or declining rather than growing? If these situations exist, the next generation would be better off starting their own business or buying one that is much more stable and profitable.
Key actions to take
- Define, develop and reinforce your desired culture: Make a list of your core values that provide the basis for your culture, making certain that these values are the ones most essential to your success and that will be required for every generation to embrace and continue. Teach them to your family and staff, reinforcing them at every opportunity as you make major decisions and address challenges that arise.
- Prepare them for leadership: Identify the unique character traits, abilities, strategies, values and philosophies that have been essential to the success of your business. Then list the reasons these have been crucial to your success and develop a structured plan for teaching these skills. Incorporate the teaching, development and mentoring of these skills into your regular communications and strategies. It is important to realize that this is a lifelong process that will need to be modified as the business changes, the individuals develop their skills and interests, and the leadership transitions from mentor to patriarch.
- Build a multigenerational business plan: Creating and regularly updating your business plan helps to ensure the history, legacy, strategies for success and long-term vision are passed from one generation to the next, and that family members, partners and other individuals respect this legacy. Topics to include in your business plan include your vision, mission and core values, family and business history, a description of your business, an overview of your products and main customers, your marketing strategy, a financial summary and a general financial forecast for the future.
