At a recent peer group meeting in western Kansas, we were taking a tour and learning a bit about the history of Foster Farms. In the early 20^th century, Benjamin Butler Foster owned lumber yards in Kansas City, and he began to buy farm ground in western Kansas and eastern Colorado during the Dust Bowl era (talk about a confident entrepreneur! Was anyone else on earth accumulating farmland during the catastrophic Dust Bowl?). He eventually had over 30,000 acres of farmland – a huge operation even by today’s standards. Ben Foster died in 1961, and Foster Farms was sold in 1965 to a partnership that included several family members. The partnership dissolved in 1969. The Foster family was incredibly successful by anyone’s account, and yet their family-owned business didn’t make it much beyond the death of the founding entrepreneur.

The amazing arc of Foster’s business success prompted an insightful question from one of the peers, Luc Valentin. Having observed entrepreneurial successes in both his native France and here in America, Luc asked the question, “If it’s true that family businesses go from shirtsleeves to shirtsleeves in three generations, what causes this?” We kicked the idea around for a few minutes and came up with a few reasons on which we could both agree. Luc is incredibly bright (a Ph.D. in ag economics plus a very successful professional career), and since he thought our reasoning was sound that gives me the confidence to introduce it to a wider audience. We found three primary reasons a family owned business tends to fail within three generations.

1. Lack of shared vision. This sounds like a nebulous, “consultant – centric” concept, but it most certainly is not. Founding entrepreneurs like Ben Foster, whether they go to the trouble of writing it out or not, have a driving, compelling vision for their future success. As more people – family members, strong-willed nonfamily managers, and outside advisors – get added to the vision conversation, it becomes harder and harder to get everyone on the same page. Even for the largest, most successful family company, resources are very limited, and executives and owners must debate on and decide how best to allocate those resources. If one family faction advocates for expanding the lumber business, another advocates for investing resources in the agriculture business, and still another advocates for getting into a new line of business entirely, resources get stretched to or beyond the breaking point. Only by focusing like a laser beam on a shared, compelling common vision can groups of executives make decisions consistent with long-term intergenerational success. Finding multi-generational families in business together who genuinely have a common vision is exceedingly rare.
2. Entrepreneurs are quite rare. We spill so much ink advocating entrepreneurship and lauding successful business leaders that we assume a huge cohort of the population must be entrepreneurial. It’s not! Even if people happen to share the bloodline of a successful entrepreneur, the odds of them having the same drive, energy, ambition, and talent are very low. The conventional wisdom is that the children of successful entrepreneurs are more managerial than growth and innovation oriented; that is, they work harder to preserve the creation of the founder than to continue to expand it.
3. Complacency. Pat Riley is the legendary basketball coach and NBA executive behind the successes of the “Showtime” LA Lakers and Miami Heat. Riley doesn’t use the term complacency. He refers to it as the disease of “too much. ” In sports, a talented young person works incredibly hard to excel in high school and college, and, if his dreams come true, he makes it to the exalted ranks of the pros. As a professional athlete, he continues to work to improve himself and his team until finally he reaches the pinnacle – a world championship. At this point, an athlete may have worked 20 years or more to achieve this singular goal – just as an entrepreneur has worked 20 years or more to become “an overnight success” in business. For an athlete or a business owner, it’s at this point where the accolades come rolling in. An athlete receives a huge contract, endorsements, lucrative invitations for speaking, and celebrity notoriety. A family business leader receives trade association or media attention, invitations to be on church, bank, or hospital boards, hearty attaboys from his professional advisors, and monetary rewards that allow for fine homes, vacation homes, automobiles, and an enviable lifestyle. All these things add up to what Riley calls too much. Once an individual, family, or management team has enough – however they happen to define the term – what is their incentive to do the backbreaking work and endure the increasing complexity necessary to continue to grow the enterprise? At some point they decide that it’s just not worth it.

I once believed that the cliché about shirtsleeves to shirtsleeves was a falsehood concocted by professionals to justify ever more complex planning for family businesses. After almost three decades of seeing family firms enjoy meteoric rises and predictable returns to earth, I am now convinced there is a good bit of truth in the conventional wisdom. Sustaining a family business across the generations is an incredibly difficult thing to do!
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