Family Business Beyond Three generations

Few family-owned firms anywhere in the world last beyond three generations. The late Andrew Carnegie, who built up US Steel and became the richest man in the world for some time, had coined a phrase for it:  It takes three generations to go from shirtsleeves to shirtsleeves. Other countries have similar proverbs.

The assumption is that the first generation starts the business, the second builds it up, while the third generation of the family squanders away legacy.

What goes wrong and how can a family-owned enterprise thrive beyond three generations? How to ensure longevity, especially for family-owned and run small and medium-sized businesses in India. How they can scale up from a medium-sized enterprise to big business.

In some cases, the second and third generation of the family have grown by building up the core business started by the founder and also building adjacencies while in others there has been a sharp pivot.

A lot of issues that crop up – from problems when family members have ambition but not the capability, to the issues that might become evident when a professional is given charge of the group.

Sometimes, despite having an impeccable resume, a professional may not work out. It may be the fault of the entrepreneur or the family members who could not let go fully. Or it could be simply that the professional was used to working in a very different environment and despite all his ability and qualifications, made little effort to understand the ethos of the new company.

Sometimes, a family member is given charge but proves to be inept but no one knows how to move him out or reduce his role. In other cases, there is a clash between the ideas and management styles of generations within the family.

Eventually though it depend on how willing the founder or family members are to learn the lessons and set their egos aside to find a proper solution. It is, after all, egos, personalities, ambitions, and capabilities that often destroy the business by the time the third generation takes over.