Best practices (and pitfalls to avoid) in second-generation businesses
Contributed by Vincent Finaldi, an EO New Jersey member and vice president of TeleCloud, a second-generation business that provides seamless VoIP communications solutions. Vincent also invests time in his passion project, $econd Generation, a video podcast that addresses second-generation businesses and the unique challenges of growing past the founder, navigating through family dynamics and continuing the family legacy.
Small businesses are significant contributors to the economy of nearly every country. In the US, small businesses are called “the backbone of America”, a description I wholeheartedly agree with. These family-owned and operated businesses create two-thirds of new jobs and employ close to 48% of the US total workforce. Family-owned and operated companies hold a special place in my heart. If small businesses fail, it directly impacts our nation, society and especially the family members of those they employ.
The odds are stacked against small, family-owned businesses. Consider these staggering facts:
- 90% of startups fail within the first year
- After five years, of the surviving 10%, an additional 50% fail
- 70% of businesses do not survive the transition from first to second generation
- If your business has made it into the third generation, you’re among an elite 10% of successful companies. It is extremely difficult, based on the odds and realities of running a business, to remain relevant and competitive.
- Only 3% of those remaining businesses transition from third to fourth generation
As these data illustrate, a company’s probability of success with multiple generational transfers is not high. It’s a feat that is astounding and extremely difficult.