Why You Should Pass Your Business to Your Children
In today’s newsletter:
- Why You Should Pass Your Business to Your Children
- Bears on the Market, Sports on Streamers, and a Speakerless House
- The Top Mistakes Leaders Commonly Make
Beware of statistics and catchy sayings.
In this case, the statistic to be wary of is that only 13% of family businesses make it to the third generation. The catchy saying is, “The first generation makes the money, the second generation invests the money, and the third generation loses (or spends) the money.”
This resonates with us. It’s the sort of thing that sounds true – after all, “hard times make good men; good men make good times; good times make bad men; bad men make hard times,” right? This wisdom has so permeated our culture, that even in very Christian circles, we are hearing stories of businessmen disinheriting their sons and acting like this is a virtuous act.
They’ll only lose it anyway, the reasoning goes. But even while we can think of high profile cases of spoiled heirs acting badly in public, the data tells a much different story, of milder, quieter individuals who get to work and don’t make a big splash in the tabloids.
The Book of Proverbs says, “A good man leaves an inheritance to his children’s children,” so shouldn’t we expect to find that it is, in fact, a good idea to pass your wealth onto the next generation?
The statistic that only 13% of family businesses make it to the third generation is false. In fact, family businesses are significantly more durable than its non-familial counterparts.
Harvard Business Review puts it this way:
“On average, the data suggests that family businesses last far longer than typical companies do. In fact, today they dominate most lists of the longest-lasting companies in the world, and they’re well positioned to remain competitive in the 21st century economy.”
13% of family businesses, according to the single study this number comes from, make it through the third generation, meaning they last at least 60, sometimes 80, years. The typical business lasts only about half a generation, if not less.
“With a more conservative orientation and far less debt, family businesses tend to be better prepared for challenging economic times than other businesses,” writes Carrie Hall of Ernst and Young Global. “When faced with a difficult economic climate, family businesses respond with a multigenerational perspective that informs their decisions, allowing them to survive and thrive, often by flouting conventional wisdom.”
With this unique combination of conservative financial practices, innovative business practices, and a long-range perspective, family businesses are adaptable and durable. It helps us make sense of companies like the world-famous Zildjian Cymbal Co., which is run out of Massachusetts by the descendants of an alchemist in Constantinople who founded the business 14 generations ago. There are plenty of examples like this one around the world, and much older as well. Japan’s Kongo Gumi, a construction company in Osaka, is in its 40th generation of continuous family operation and ownership, having been founded in the year 578.
“Before the multinational corporation,” says Professor William O’Hara, “there was family business. Before the Industrial Revolution, there was family business. Before the enlightenment of Greece and the empire of Rome, there was family business.”
Apparently that third generation has proven more competent than we were led to believe, and the money and associated responsibilities did not, in fact, tend to ruin the heirs. According to Senior Living’s recent Estate Planning Report, the average age someone receives an inheritance is nearly 51 years old. This is part of the reason Sam Dogen says, “most parents don’t need to worry about spoiling their adult children.” He goes on to make the point that as a 45-year-old, he is long set in his financial ways, and no amount of money given to him by his parents is going to change his lifestyle or habits.
In some segments of Christian culture, unfortunately, we’ve bought into the lie that money is the root of all evil, instead of what the scripture actually says: “The love of money is a root of all kinds of evil” (emphasis added). The Bible records God rewarding people with wealth as a blessing numerous times.
So it is troubling to see confused advice on this topic. A prominent Christian businessman recently said, “wealth is a curse,” and that passing an inheritance to his children and grandchildren would be morally wrong. “It didn’t seem to be fair to me that I might change or even ruin the future of grandchildren.” A prominent Christian pastor, likewise, told an aging couple that they did not have to leave their estate to their children because “Being rich is not necessarily a blessing. Far more often it is a curse.” He then quotes a passage from scripture that directly says to leave an inheritance to your children as not meaning that you need to leave an inheritance to your children.
Jesus scolded the Pharisees for this very sort of rationalizing in Matthew 15.
The Book of Proverbs councils us to “train up a child in the way he should go, and when he is old he will not depart from it.” Don’t buy into the hype that says family businesses can’t last and will ruin succeeding generations. There is nothing wrong with handing the baton to the next generation – but we also have the responsibility to mentor them while we are alive and working. Many family businesses, as they foster the next generation of leadership, actually require them to buy their shares of equity, so that there is not a sense of entitlement in the least. They are still giving a tremendous blessing, and the world benefits from a values-driven company continuing to do good work.
There is nothing wrong with selling your business, but if you have a heart for building a legacy, and if your children want to be part of that legacy, you can, in general, feel good about passing your business onto the next generation. Just teach them how to handle that future responsibility in the meantime.
INDUSTRY INSIGHTS
Bears on the Market, Sports on Streamers, and a Speakerless House
Bears on the Market
The bearish commentators are coming out in full force, warning of a coming crash that some economists and analysts, such as John Greenwood and Steve H. Hanke, warn could be another Black Monday – the largest single day stock market drop in U.S. History, when the market lost 22 points. Doomsayers such as legendary investor Jeremy Grantham have gone on record as forecasting a drop of 27-50% sometime next year, leading some to advise a shift towards quality stocks or bonds. Bears maintain that overvaluation, lingering inflation, stagnation in earnings, and inadequate policies by the Fed will contribute to the bubble burst. The bulls on the other hand, while not quite as pessimistic, are still noticeably quiet this week, with some even admitting that the market could be heading for rough waters.
Sports on Streamers
More and more Americans are “cutting the cord” of cable television, with only 40% of Baby Boomers reporting that they watch cable TV daily. For Gen X, it is only 27%, for Millennials, 23%, and for Gen Z, only 17%. Daily entertainment consumption is only on the rise, however, which is leading streaming platforms to expand into the last stronghold of cable: Live sports. Netflix, looking to grow its subscriber base and product offering, is airing its first-ever live sporting event, a golf tournament called the Netflix Cup, on November 14th. But it isn’t just Netflix. Max – Warner Bros/Discovery’s streaming platform – added a live sports tier to their service earlier this month, featuring MLB, NHL, and NBA games, as well as March Madness coverage. NBC’s Peacock and Disney’s ESPN+ bundle also include live sports streaming options. As streaming platforms make live sporting events more accessible, and with their unique ability to personalize ads during games, could this be the final nail in the coffin of cable TV?
A Speakerless House
The Republican-controlled House of Representatives is now in its third week without a speaker of the house, due to party in-fighting led by a very small contingent which ousted Speaker McCarthy in a historic action earlier this month. Jim Jordan’s bid for speaker has failed, and now nine candidates for the role are facing off, as world crisis and domestic issues press on the legislative body, which cannot function without a speaker. With no consensus candidate in sight, business leaders are asking if a government shutdown could be on the horizon, how we will respond to the wars in Israel and Ukraine, and what a stalled congress will mean for the economy.
Sunday School
Q. What are the three generally accepted terms for the first five books of the Bible?
A. Torah, Pentateuch, and the Law. (Torah is Hebrew for “Law,” Pentateuch is Greek for “the five,” as in the five books of Moses, and the Law is how we refer to these books in English translations)
TIPS & TRICKS
When the boss tells you to dress for the job you want, not the job you have…
The Top Mistakes Leaders Commonly Make
With Candido Segarra, executive trainer
As people, we tend to think of ourselves as totally unique, and while that may be true in some ways, the reality is that most of us have very similar struggles. That’s especially true in business, where leaders often make the same four or five mistakes over and over again.
I sat down with Candido Segarra, a former Nestle executive with 14 years of experience consulting for McKinzie and 17 years as CEO of Foresight Executive Training, to gain some insight on common mistakes in leadership.
Candido is a dignified guy, with an easy laugh and a welcoming presence, but when the conversation turns to business, he gets serious. I asked him, to begin, about the most common mistakes he sees when trying to train executives and other business leaders.
“Unrealistic expectations in business and people,” he answers quickly.
Those unrealistic expectations, according to Candido, can be split up into the following issues:
- Pride
- Poor Communication
- Staffing Issues
“I want to explain the pride part of it,” he says, zeroing in on the big picture. “I have seen a lot of condescending attitudes, you know – ‘I am the boss.’ It’s their way of expressing power. But when it’s me, me, me, me, and ‘How can I get to the top?’ and ‘How much more money can I make?’, you will find that employees respond to you a certain way. They’ll never tell you, but they will act more selfishly. Leadership trickles down in an organization.”
This pride can also lead to foolish projections, a staff that is fear-based and afraid to deliver bad news, and unwise business practices. “People will sometimes be paying themselves a $300,000 salary when the company is just not bringing in enough revenue to support that.”
Ultimately, he says, the solution is a servant’s attitude.
“As a leader, your primary objective is to develop your people – to take them to the next level professionally and personally, if you can. If you are humble and unselfish, and you let your people know that you are there to develop them, all your actions become aligned with that thought. Then, you are teaching even your lower level people to be coaches, to build up whoever they work with as well. You will see a growing, healthy organization when that happens.”
Turning to the problem of communication, Candido explains that failure to cast a vision and an unnecessary “need-to-know” attitude can cause a lot of problems in the workplace, especially when working with the younger generations.
“How much are you listening to your people?” he asks. “Whether you take their advice or not, it is valuable to listen to them. You may take a piece of the advice, then explain the context they do not have for the rest of it.”
Your employees, who are on the ground level day in and day out, often see things that the leader of the organization does not have the opportunity to see, and getting that feedback can be invaluable, but only if they are equipped to know what you are trying to accomplish as an organization. Otherwise, how will they know an important observation when they see one?
“Many employees work in a very vertical job,” Candido says. “The boss doesn’t explain anything. He’ll say, ‘You don’t need to know the numbers,’ etc. Sure, some things are confidential, but in general, keep your people informed of what you are doing and what they are doing.”
It is the leader’s job to not only cast a vision, but they also have to communicate that vision to get everyone on board. Communication is one of the top responsibilities of a leader.
“Especially with Gen Z,” Candido emphasizes, “they are really going to want to know why they are doing what they’re doing. It’s not because they’re nosy. It’s because they are curious and they need to know the whole puzzle before they realize how they’re going to do their work. They are a piece of that puzzle.”
When leaders do not want to explain anything, share vision, or they communicate rudely and aggressively with employees, an organization is going to start experiencing turnover, which is expensive, and absenteeism, which ruins productivity.
“The problem with turnover is you never have a fully-trained, fully-committed staff,” Candido says. “They are always spending time looking for another opportunity. And if everybody is not on the same page, committed and pushing together for the same company goals, you’re going to see low productivity. Turnover is not a line item on your financial statement. But if you have $20,000 monthly payroll where everyone is pushing for a full day every workday, that’s very different from a situation where not everyone is fully trained and employees are not motivated. You’ll pay the same $20,000 for half the output.”
Finally, Candido encourages leaders to be honest about when their staffing choices are not working out, and they need to make a change.
“The people that drive you crazy aren’t the people that you fire,” he says, “but the ones that you keep [when you shouldn’t]. These are the ones who lower your productivity.”
This is particularly a problem, he says, in what he calls “low-self-esteem organizations,” places that do not pay large salaries, and they therefore make excuses for keeping people that aren’t working out.
“Placing the wrong person in the wrong job and then keeping them there,” he says, “is a big issue. You see this a lot in non-profit organizations and churches. They think that they cannot aspire to anything other than mediocrity, but there is research that shows for many people, salary is secondary to recognition. Cast a vision, grow your people, recognize what they are doing, and use mistakes as an opportunity for training. An employee in that environment will stick around.”
Ultimately, he says, you have to fire the wrong people, hire the right people, and develop your workforce, because the end result is on you, the leader.
“You cannot keep an organization effectively going and producing without your employees. That’s why you hire. But if those employees are not healthy, then you have a problem. The problem may be you – the leader.”
He is not one to mince words, but his advice rings true. As leaders, we need to be on the guard against our own pride, make sure to cast a vision and communicate well, and get the right people in the right jobs, then develop them for greater success.
If you want to learn more about executive coaching, or hear more about Candido’s work, check out https://foresightmdp.com/
Quick Hits
- The European Union has reached a deal with Elon Musk to authorize SpaceX to launch their satellites.
- Carl Truman explains the fundamental hypocrisy of pro-Hamas progressives in the current war, and gives a warning to Christians.
- The United Autoworkers Union expands its strike.
- The Gospel Coalition contends that Gen Z is well-positioned to experience spiritual renewal.
Netflix continues its attempt to enter the video game industry.
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