Generational Businesses

You've got to love entrepreneurs. They're responsible for much of our Gross National Product, most of what makes America great (ie, new ideas) and almost all of the best jobs. They work ridiculous hours, often starve themselves to pay their employees in the early days, take crazy risks, fight fear with enthusiasm, and learn what they don't know by doing. Entrepreneurs are what makes the rest of the world wish they were us (that is, Americans). They may be eccentric (Steve Jobs used to soak his feet in the toilet), they may eventually become self-entitled (two words: Larry Ellison), they might be arrogant (pick your favorites here), but a certain amount of all of these ingredients are required to be the man or woman who says, "I have an idea and I'm going to make it real!"

But piss on their kids.

This isn't sour grapes. Most of us will never be founders, and that's okay. Many of us actually like being the folks who help make the vision happen; we just want someone slightly less mad than Captain Ahab to follow. It can be satisfying to be the person that figures out the 'how' without the pressure of having to come up with the 'what' or the sleepless nights spent pondering the 'why'. An entrepreneur's work is never done, but we get to go home and have lives.

But why do so many seem to mess it all up by leaving the business to their kids?

It's not that they walk into wealth (okay, maybe it is, a little). But if you work as hard as founders do and take the big risks, you should absolutely be comped for that, and making sure your kids have the best of everything that you can afford is the American Way. Send them to the best schools, buy them the best clothes, take them skiing in Whistler and snorkeling in Belize. Do it all. But never, ever leave them your business.

Let's start with the obvious: You understand your business because you had to know everything; there wasn't anybody else. You know how to handle employees, what makes an effective marketing campaign, how to negotiate with vendors, and how to keep Customers coming back.

Now let's look at your son/daughter: Their first job was probably working for you doing some kind of menial job. But they didn't technically report to you - thy reported to the head of whatever department handles shipping, cleanup, moving merchandise around or whatever. But they're your kid. How likely do you think that manager was to rip them a new one when they did something stupid that cost the company money? They probably didn't even tell you. And who else gets to set their own hours?

From day one, they are raised in an environment of resentment.

Now your kid gets older. You send them to college, they take a few classes, but nothing too stressful because they have a job waiting for them at home; their degree is window dressing. And they come back and you give them some kind of management job, their very first, and set them loose. And they suck, because they have no experience actually doing anything, because all of their lives you were the doer.

Trouble is, you don't notice, because everyone still comes to you, just like they always have. You don't know it, but your son or daughter is a joke, and nobody tells you, and they get used to making money - probably more money than anyone but you - for doing nothing very much. Until the day that they do something so monumentally dumb that it can't be brushed under the carpet.

And you fire them, right? Just like you would any manager that did that incredibly dumb thing. You fire them, because you realize that you should have put someone in that job with some experience under their belt, someone who'd worked for several other companies and could actually do what needed to be done. Right? Right?

"Of course not," you say. "This is my child, here. They are beautiful and perfect, even if they are a little dumb sometimes. They just made a mistake. I'll have a talk with them. It will be okay."

So you have a long talk, and they're really embarrassed, just like that time they cut their little sister's hair or put that baseball through the window, but you give them a couple of pointers, pat them on the back and, just so they know that you love them, you give them a promotion. (Tell me that you have not seen this happen.)

Time goes by. Things seem to be going okay. You're working just as hard as always, still making all the big decisions, but you're the president and that's what president means. Meanwhile, your kid has learned that the secret to keeping everyone happy is to let them do pretty much whatever they want, and to spend most of their day chatting with employees about things that have nothing to do with the business, or having meetings where there is a lot of conversation but no decisions.

Eventually, you get old. You spend a little less time at work because your son or daughter is now in a VP role of some kind, and they have to stretch their wings sometime. Everyone in the business seems happy, so things must be going well, right? Your business has become a Name, it's not as hard to fight for Customers as it used to be, and you stopped having to worry about making payroll years ago. And someday, probably much later than you promised your spouse, you retire, move to Costa Rica for part of the year, and your business is in the capable hands of the 2nd Generation, one or two or more of them, but of course they never fight like they did when they were kids, and things are exactly the way you dreamed they would be, with grandkids coming to visit you and afternoons spent fishing or antiquing or traveling with friends.

Until a new competitor with a better idea, better staff, or both moves in and eats your empire alive. Not right away, usually. There's time for your kids to hire expensive consultants to tell them what to do and to endlessly debate whether or not they should do it, and getting second opinions from still more consultants, trying to do what you always did because it always used to work, but the new guy does new stuff and, before you know it, Customers stop coming in the door. Then the layoffs begin, until finally there's no one left. Your kids have money, of course, and they made more on the sale of the business or the land, but you still remember the look on the faces of all of the employees on the day that you or your son or daughter told them when they would receive their last paychecks.

Not all 2nd Generation businesses die this way. Some last long enough to be passed along to the 3rd Generation - kids who want to do something other than work for their folks, who in fact work for someone else and build up some experience, and eventually realize that their parents are running a money machine into the ground. If they come into the business, they're all about numbers, and hire experienced managers to do most of the work. They're more like a ringmaster than a founder, with a keen eye on the books, and they make sure any children that they bring into the business work somewhere else first, just like they did, and walk in the door with ideas of their own.

So if you're an entrepreneur, rather than go through all of this, ask yourself a couple of questions (plus probably a few more), and act accordingly:

1. Did your kid(s) ever ask for your business, or is that your idea?
2. Did you ever ask them what they wanted to be when they grew up?
3. Can you get someone better for less money?