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Six Key Issues Millennials Should Consider Before Diving Into A Family Business

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POST WRITTEN BY
Peter Kurzina
This article is more than 7 years old.

Joining a family business isn’t for everyone. It’s a risky decision that needs a lot of careful consideration. You might build a successful dynasty that grows into a Fortune 500 company, with generations of family continuing to lead the business. Or, like the vast majority of family businesses in the U.S., your business might not make it to the second or third generation. Even worse, your family dynamics could break down, leaving a legacy of dysfunction that long outlasts the business.

So how do you decide whether to join a family business? The next generation should consider six key issues before diving in:

  1. There can only be one CEO

Think about where you currently stand in the family and where you can potentially go in the business. If you’re in the second or third generation, there may be siblings and cousins all hoping to take over as CEO. Stop and think about whether your goal is senior leadership. If it is, ask yourself if this is realistic. Who is competing for those positions? Is your cousin the “golden child” of the family? Are you the most qualified? Are there family politics involved?

  1. Consider working outside of the company first

By working at a different company, you’ll gain experience and knowledge – not to mention objective feedback and evaluations. You’ll get independent verification of your performance and contributions. This translates to more confidence in your abilities if you enter the family business later. Instead of just being the “kid” -- the boss’ son or daughter -- you’ll bring real expertise to the company and be a respected member of the team. Some family businesses even have a requirement that members of the next generation must work outside of the business for a minimum number of years.

  1. Give yourself permission to walk away

The real power of the next generation is that it can walk away from the family business. There are many other options, like working for another company or launching a startup. You need to ask yourself if working for the family business is what you really want to do or if it is preordained. If you decide to walk away, be prepared for some emotional fallout.

  1. Would it be better for the family to stake you in your own business?

In some cases, you might achieve more in your own business. This is often the case for family members who are real hard chargers – the ones who inherited ambition from the family founder. Those individuals may be smothered by family politics. When the family business isn’t the right environment, it may be better to support them in a startup so they can pursue their own entrepreneurial journey.

  1. Realize the complexities of a family business

Companies are difficult enough to operate without intermingling with family. Likewise, family dynamics can be challenging enough without integrating business issues. Sometimes young people refuse to see these dynamics. Or they have seen it all too closely, like when their mother complains to their father that a brother’s wife has a fancier car.

A particularly complex issue arises when the CEO feels that no one else can run the business – that he will live forever. This failure to plan for the next leader kills a lot of family businesses. It’s part of why almost every country has a saying about the failure of a business to pass to the second or third generation. In the U.S., it’s: “Shirt sleeves to shirt sleeves in three generations.” In Italy, they say, “From the stables to the stars and back to the stables.” In China, it’s “Wealth never survives three generations,” and in Mexico, it’s “Rich father, noble son, poor grandson.”

  1. Recognize the risk of going into the family business

There can be severe downsides to going into a family business related to siblings, positions, titles, power, and money. Families have been destroyed over these things. The good news is that there are ways to avoid or minimize those downsides through communication, good governance, a commitment to succession planning, and talent development of younger family members. Consider how your family mitigates these issues so that you can realistically assess the risk.

When a family business works, the future can be very bright – and for more than just three generations. But it’s not a decision to be taken lightly. Make sure you’ve evaluated the pitfalls and hazards to ensure the highest likelihood of success.

Peter Kurzina is a senior lecturer at the MIT Sloan School of Management, where he has taught an MBA seminar on family business. Prior to that, he spent over 30 years doing corporate workouts, turnarounds, and interim/crisis management – often for family businesses.