Second generation business
Today, “Founder” is a sought-after badge of honor for entrepreneurs. With the rise of serial entrepreneurship, it’s increasingly common to see individuals helm multiple ventures, often handing over the reins of one successful enterprise to focus on another. In contrast, family business founders embed their legacies within the same entity, ensuring their name remains synonymous with the company for generations. In the U.S., there are 24.2 million family-owned businesses, accounting for 64% of the GDP. However, despite their significant impact, 70% face challenges by the second generation, either failing or being sold.
Second gen leaders face their own set of trials, expectations, and rewards. The world that second generation leaders are living in with their inheritance is vastly different to the one which their parents found success in. Competition, technology, and a vastly different workforce poses a unique set of challenges. However, while complicated in its own way, first generation leaders had their own trials and tribulations that they worked through which have provided them with bragging rights for generations to come.
Larry Brinker Jr. spent years learning his father’s business before stepping into the role of CEO at Brinker, a group of family-owned and operated commercial construction service companies responsible for over $4 billion in construction projects, which has played a critical role in the transformation and revitalization of Detroit. He understands the work that put into getting a company off the ground and building it into something that would stand the test of time to be passed on to the next generation.
“A first generation founder and leader is going to be that person who really put their blood, sweat and tears into creating a business from scratch. They’ve built a legacy. There’s absolutely something to be said about that! So no matter how much a following leader scales the company or professionalizes the company, that founder will always be set apart as the person who made that level of risk, put in that hard work, and who had what it took to actually stand that company up from the ground,” said Brinker Jr.
Understanding the differences between what a founder and a second generation leader have to face is key when identifying who the successor in the family will be and what they need to succeed. A family name alone cannot be an indicator of success when you have a company with employees who are relying on continued success.
“Taking the reigns as a second-gen leader is easier [than being a founder] because you have a framework and the foundation of a company to work with. If you’re fortunate, not only is that foundation there, but the reputation and the networks and market partnerships are also there.
Coming into a [successful] business, there are foundational principles and processes within the company that currently work. What makes it harder, in a unique way, is you’re continuing someone else’s legacy while building your own respect in the market. You need to pay homage to the hard work that has gone into getting the company to where it is, but understand that you cannot just stand on those laurels; you must figure out how you can continue to make the company better. And that’s through essentially thinking of new and creative ways to to run the business. That’s thinking about how we can be cutting edge in terms of technology and innovative. And even the most simple things, like how can we tap into the personalities of our employees to make sure that we’re getting the best quality of work while providing them with an excellent work-life balance. A second generation needs to think of all of these things; and it’s a unique mindset because they’re the first generation of leadership that is going to be coming in and making changes from the founder.”
Marygrace Sexton is the founder of Natalie’s Orchid Island Juice Company, a company that started 30 years ago producing fresh squeezed juice and has expanded to a global brand that is found in over 20 countries and worth $120M. Sexton is currently priming her daughter, Chief Marketing Officer and company namesake, Natalie, to take over the family run business. She has a similar mindset, but from the perspective of a founder.
“Second generation leaders should receive different types of acknowledgement, because in theory the business should be at two different phases when each leader is involved. Starting a business requires a different mentality and skill set – while running and expanding an established business requires a different set of talent and personality…If the company has experienced success and growth, I believe the second generation leader should look at the legacy of the founder and stay on path as it makes sense. After all, the founder is the cement that bound the philosophy in stone, from creating and establishing the brand, to differentiating it from competitors in the market, and setting the core values of the brand…The second generation leader should do their best to stay on the path set as best they can.”
With the acknowledgement that only 30 percent of family-owned businesses make it through the second generation, founders should be thinking about who they want to succeed them early on and starting their training early. Brinker Jr. shares that planning for the future generation was a big part of his dad’s plan because he knew he didn’t want to risk the company not being okay if something happened to him. That early on succession planning allowed for Brinker Jr. to start shadowing and learning early on, providing an easier transition when it was time for Brinker Sr. to step down.
“I think the biggest piece [in finding success as a second generation leader] is having the prior generations understand and be comfortable with the fact that you need to acknowledge the future generation. You should be planning for the pass off. People value those who have put the time in, earned their stripes, and that is great and valuable on its own. When you identify the family talent, you need to put those future leaders into the room at an earlier point so that they can start to soak up that knowledge and get them exposed. I think from that perspective, the narrative should be that the sooner you can get those generations in the room at the table, not necessarily with voting rights, but allowing them to be sponges is critical. This will allow them to be an even better leader sooner than what the traditional path has typically shown, and can start to bridge that gap between the two generations,” said Brinker Jr.
Sexton pushes for the importance of the company to act as a team, which makes it an easier transition for the company as a whole. “It’s extremely important to surround the second generation with a team of executives that compliment the family members skill set. Additionally, leadership needs to be able to encourage the successor to see the talents and contributions of the long standing executive team that have been with the company for years. When stepping into a new role, it’s crucial to not dismiss the knowledge and experience that the executive team has. After all, they are who got the business to the size we are today – despite the appeal to make drastic changes due to the technological advances and digital strategies that now exist.”
While statistics may not be in favor of family businesses thriving through the second generation and on, the 30% who do make it build a legacy that lasts for future generations to come. Companies like Brinker and Natalie’s Orchid Island Juice have taken the transfer of family leadership seriously and created a strategy around insuring its success. Over the next decade, the greatest intergenerational transfer of wealth in history will occur; around $16 trillion will be transferred with a large portion of that likely occurring within family-owned businesses. Second generation leaders, and on, should be planning to hold a large stake of the economy in their hands and working towards extending the family legacy, while maintaining success and increasing value.
