My friend Rick recently had conversations with some old friends at a local construction firm. In each separate conversation, the story of what is happening within the company is eerily the same. They feel as if the work they are performing is meaningless and that the future of their current employment is almost hopeless in terms of advancement and stability. Much of the conversation leads back to a real lack of leadership and involvement in the business by the current management.

A few years ago this company went through a transition. The business is a family owned business and the management and control has been handed to the second generation to manage the day to day operations of the company.

Because of the similar, separate stories that Rick heard he researched the success and failure rates of family owned businesses. He was surprised by the number of articles that a simple search of Google can bring. One article in particular caught his attention. The article was titled The Top 7 Mistakes Why Second Generation Small Business Owners Fail at Business Success written by Leanne Hoagland-Smith from Ezine Articles. Turns out that 2 out of every 3 family owned businesses fail in the 2^nd and 3^rd generations. The following is a list of those mistakes taken from the web page article.

1. Ivory Tower Mentality – Knowledge Failure

Successful first generation business owners had the ability to send the next generation to college to learn improved business skills. Unfortunately, many of these professors in business schools never worked in the real world, but rather pontificated what they believe should be instead of what is is.

2. External Customers Relationships transfer – People Failure

First generation business owners knew that their businesses needed loyal customers and took the time to develop these relationships. Second generation business owners believe that the relationships their fathers or mothers had would automatically transfer to them.

3. Source of Employee Loyalty – People Failure

The loyalty of many employees within family businesses began with the first management team and not necessarily with the company. When the second generation came in, they believe that the employees loyalty was to the company.

4. No Plan – Knowledge and People Failure

The success of many small businesses came from the entrepreneurial spirit and not necessarily from having a plan. With no plan to hand over, the next generation continues to conduct business without a solid written business plan. In today’s market place any business that does not have both a strategic plan for establishing a new vision and a strategic action plan will have great difficulty in surviving less along thriving.

5. Performance Savvy – People Failure

Since businesses are comprised of people, managing people takes an understanding of what motivates people to do their very best. For example, when the current management team cries poverty and can’t afford raises for the employees, but then purchases brand new expensive cars, their actions have a negative impact on the employees. Employees don’t mind new cars, but do mind luxury cars.

6. Assumptions – Knowledge and People Failure

Today’s second and third generation business owners carry numerous assumptions that were true for their parents or grandparents, but not necessarily true today. Assumptions include:

• Market place
• What motivates employees
• How much time the business demands
• Owner entitlements

7. Values – People Failure

Many first generation business owners operated by core values where a man was as good as his or her word. Handshakes instead of formal contracts had much greater value. Today’s business owners appear not to have the same deep seated values of their ancestors. The result of the lack of values can be summed up in one word – greed.

Rick concludes with the following:

Upon reading this article I was able to see almost all of these same mistakes being made within the company that was being described to me. After sharing this article with a few of these friends, they concurred that this article was scary true to the situation they were experiencing.

It is a real travesty for a once successful and strong company to now be sliding backwards. Many of those who had been around since the beginning and helped build the success now sit on the side line unable to change the downward direction. For many people, the careers and employment they pursue are more than the paychecks that they receive.

I think this is a great article that every 2^nd and 3^rd generation business owner needs to read. Probably wouldn’t hurt for the 1^st generation either. I think everyone in construction can take something away from this article.

Thanks to Rick for a thought-provoking post.