The stunning failure rate of next-generation businesses

The idea behind a family business often involves passing it on to the next generation. The founder never intended it to be something that just benefited them personally, but hoped to give it to their heirs both so that they could keep growing the business and so that they would have a stable income.

Unfortunately, the statistics show that this does not often happen. But the second generation, the reality is that 60% of those businesses will fail and close their doors. By the third generation, that number increases all the way to 90%. While it’s not impossible for a company to survive that long, nine out of every 10 have to shut down.

Why do businesses fail in the second generation so often?

As a business owner, your first question is likely why this happens — so that you can avoid it. Problematically, there are many reasons. Sometimes, the relationship between parents and children is dysfunctional. In other cases, the heirs do not have the same skills and abilities as the founder. In still other cases, they simply don’t have the drive and determination required. They may even take the business for granted and not realize how much work it is to keep it thriving.

This is why it’s so important to have an excellent business succession plan. It can address some of these challenges. For instance, the plan can put multiple heirs in positions where their skills are best used, and it can avoid heirs that aren’t interested in running the company. Moreover, the heir can work with the founder to learn the ropes as the succession plan is being created and put into place.



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