By Mike Periu
The American dream for many Latino families is to one day purchase or start a small business. They envision their children, nephews, nieces and other relatives joining the business and taking part in the family effort to succeed in the U.S. When the time comes, the greatest joy is to bequeath that business to the next generation. It's a beautiful dream but one that often doesn't become reality. According to the Institute for Family-Owned Business, only 40% of family-owned businesses survive to the second generation; 12% make it to the third; and only 3% survive to the fourth generation. Very few entrepreneurs have the privilege of seeing their grandchildren take over the business they started.
Does it have to be this way? Not necessarily. Many times the issues that destroy a family-owned business aren't business related; they have to do with how relatives perceive one another and treat each other. These human issues are within the control of the founders and they need to ensure that their dreams of multi-generational business success are realized. If this is your dream then you should:
Require outside experience from your relatives
Many small, family-owned businesses fail to thrive because they lack new ideas and have never experienced working in a larger, better-run organization. Avoid this problem by requiring that family members obtain experience working at other, more successful companies before joining the family business. This will expose them to best practices for managing operations, marketing, sales and finance which can only serve to strengthen your business.
Don't expect better or tolerate worse performance
Many parents have a difficult time managing their adult children in a family business setting. Some parents are too hard on their children, holding them to an unrealistic standard of performance. This leads to great frustration across both generations and could permanently damage the relationship and the business. Other parents are too lenient and let their children perform below par while still giving them the rewards of ownership. This leads to a sense of entitlement among the children which other employees resent. It damages the business and leaves the next generation completely unprepared for leadership. Expect from your children no better and no less than you would from an employee who didn't share your last name.
Start succession planning early
Many business founders consider themselves irreplaceable; this is a problem especially if it's true. Succession planning is a complex task. It requires identifying talented relatives; guiding and training them for leadership; documenting processes and practices; preparing legal documentation; and much more. An illness or accident could require a son or daughter to take over the business years earlier than anyone expected. Preparing them early can minimize the chance that this will lead to the demise of your business.
Key person insurance is a special type of life insurance where the beneficiary isn't a person but instead is your business. Most family-owned businesses rely tremendously on the efforts of one or two individuals. If one should die unexpectedly, it could be catastrophic for the business. The proceeds from a key person policy can be used to cover the costs of transition such as hiring new staff, contracting consultants, softening the blow of lost sales and more.
Latino immigrant entrepreneurs tend to start businesses that serve
their own community. This makes sense since it's a market they
understand, language barriers may limit access to other opportunities
and they have a natural network of customers and suppliers within their community. While this may make the launch of the business a
little easier, it hurts the long-term growth of the business because
the founders can't reach beyond their local community. When the next
generation of family members, who are usually more acculturated and
are less connected to the immigrant experience, take over the business
they are put in a difficult position. They don't have the same
relationships within the community as their parents but the business
itself isn't positioned to grow beyond that community. Don't put your
children in this impossible position; instead start planning for
growth beyond your comfort zone from the beginning.
A family-owned business can enrich you both financially and personally, but only if it is managed correctly. Don't let inexperience, jealousy or unforeseen circumstances steal your dream away. Your great-great-great grandchildren will appreciate it!