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Is Your Second Act the Family Business?

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It can be too easy to assume that a family business is just that—a business where each successive generation joins and stays and builds upon the founder’s vision. However, not only is that belief untrue, but it also does a disservice to the positive transformation a family member can bring to the business if they’ve had a chance to build their own career first.

Generative family businesses share a strong sense of legacy through shared values and the responsibility of acting as stewards for their descendants. Even so, the second generation can often receive an implicit or explicit message along the lines of “don’t mess with success.” Allowing this generation to venture outside the family business can give them a chance to acquire new skills and develop new ideas that they can then apply to the family business down the line. This is not a new trend—62% of family business owners say they encourage the next generation to gain work experience outside the family business.

Looking out for future generations is key, as less than 30 percent of family businesses survive into the third generation of family ownership.

Mid-level and senior professionals who’ve spent their careers outside the family business should be valued for their fresh perspective, even if that perspective may seem counter-intuitive. Time in a new environment can spark creativity and open them up to new ways of thinking and processes – and may even help them invent the next big thing.

Let’s look at a few ways these professionals can help the family business thrive.

Risk tolerance. Family businesses may be too prudent when it comes to major company decisions such as M&A and diversification, as they usually have a significant amount of their wealth tied up in the business. This aversion could limit investments, which could then impact the company’s competitive advantage. However, a McKinsey study shows that while the average M&A deal for family businesses is smaller, there was a marked increase in total value (measured by market capitalization) versus nonfamily businesses, at 10.5 percentage points compared to 6.3 points.

A family member who has worked for a larger corporation can share what worked and what didn’t and apply those learnings to the proposed growth of the family business.

Giving back. Having a charitable giving mission can help keep future generations of the family engaged in the business, so families need to come to a consensus on the direction of their philanthropy. That could be establishing a discretionary budget or allowing family members to directly interact with a cause of their choice. Adding someone with outside professional experience and intimate knowledge of the family to this discussion can help provide clarity on the right direction.

Embracing new tech and trends. The professional looking to come back to the family business has undoubtedly gained expertise in one or more areas, from marketing analytics to advertising to crisis communications to risk management. All these require the ability to work with traditional and agile project management approaches, integrating new trends and work processes, and an incredible amount of cross-collaboration.

In a PwC survey, family business owners listed digitalization, AI and robotics, and cybersecurity as their biggest challenges to staying ahead of the competition. When they come back to the family business, these professionals will have a deep bench of knowledge and transferrable skills that can help the business stay a step ahead of disruption and be poised for larger growth spurts down the line.

Bottom Line
The second generation is usually not just responsible for developing a long-lasting business but a united family. Nearly 43% of family business owners do not have a succession plan in place. By giving this generation room to spread their wings, owners can help family businesses survive and thrive in the long run.

Make a Seamless Transition with Treehouse Wealth Advisors
At Treehouse, we have ample experience serving our community of innovators, legacy builders and impact makers. As a team of individuals who are dedicated to helping clients achieve well-lived, meaningful lives, we understand that life rarely goes according to plan. No matter your financial goals, we’re prepared to help you create the life you’ve always envisioned for yourself and your loved ones.

Don’t hesitate to reach out for a second opinion!

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