Family businesses need to retain their 3rd generation

Last Updated on Saturday, 9 January, 2021 at 1:54 pm by Andre Camilleri

Mark Aquilina, Founder and Managing Partner NOUV

According to a Chinese proverb, ‘wealth never survives three generations.” According to The Family Firm Institute, only about 30 percent of family businesses survive into the second generation, 12 percent make it to the third generation, and only about 3 percent of all family businesses operate into the fourth generation or beyond.

In Malta, family businesses have always been regarded as an important pillar of the economy, contributing to the growth of practically every sector in the country. Their financial performance is many times stronger to that of non-family-owned companies. But not only.

I would even be tempted to state that at least locally, family businesses seem to enjoy an almost venerated position. Perhaps because a lot of family businesses flourished after the war and out of necessity, becoming a role model representing Malta’s flair for perseverance and resourcefulness.

Maybe it is our insularity where the family still plays a very central role in our society and therefore, family businesses tend to garner more acknowledgement and respect for having taken that one important leap of setting up a business. This would be further supported by the fact that the second generation grew up within a still relatively tight family structure.

Nowadays however, a growing number of third-generation would-be entrepreneurs are opting out of their family business to follow their own pathway; a generation already well-educated, tech-savvy, highly ambitious and has its own dreams to follow; a generation that believes and holds as its right to do something that is different and that appeals more to their sense of excitement and achievement.

At NOUV, in our work assisting family businesses, we stumble a lot upon this generational tussle between the older founders of the business, and their children who for many different reasons, find themselves alienated and disinterested in pursuing their career within the family business fold.

A young founder of an online business platform, after completing his MBA in Canada, returned to Malta adamant to pursue his dream of setting up his own company and categorically refused to take over a top management role his family offered him within their 60-year old construction company. He claimed that there was too much of a gap in the mentality between most members of the board and the younger family members who chose to join but were already struggling a lot to gain recognition for their more adventurous ideas. He was not ready to make the same mistake.

Another client, running his family’s thriving real estate business into its third generation was telling me how his daughter who just obtained her PhD in sustainability, refused to join her younger sibling and decided to pursue her ambition in setting up her own sustainability management consultancy firm.

Older generations struggle to understand why their children would refuse the comfort of a readily available job to start off on their own or even still, to work for someone else. And besides failing to see why they would want to cut off from the family business, they also fail to see that even the younger generation can recognize that joining the family business would come with its fair share of challenges.

These challenges go beyond the obvious generational gap when two generations try to communicate, a gap which seems to be growing wider and wider. The younger generation knows such a gap is bound to create rifts and difference of opinion in several aspects of business which would stifle their own role.

This generation wants to prove its independence without having to prove its credibility to the family members of an older generation who doubts and lacks faith in the abilities of the new generation. This can be very frustrating and most times it is what leads them to start their own venture, where they know they will have complete control over their business and no intervention of family members.

Although this phenomenon helps the growth of new start-ups, it undermines the existing eco system of family businesses which have taken several years to mature. The growth of start-ups steers an economy in line with market trends but when this comes at the expense of family businesses, then it is an issue worth looking into.

Today’s generation of young entrepreneurs, with their fresh outlook, their passion and the enthusiasm to prove themselves, holds the key to the future. Many times, this can come across as threatening to family business set-ups who would be reluctant to disturb the existing equilibrium.

But in all this, there is one certainty: if the family wants its business to have a future, they know that at some point, they will have to pass the buck. So, if they want a smooth succession, family businesses would do well to address the needs and desires of their family’s next generation who can certainly bring a fresh perspective and a much-needed innovative approach.

They can ride on their willingness to prove themselves and tap into their ideas, enthusiasm, and spirit to outperform, turning it into much needed fresh fuel for their business, whilst guiding them until they are readily prepared to take over.

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