89. The 3rd generation

Dear Gerard

Innovation is not the objective of a company and innovation is more than just entering a whole new market or developing a new product. There is also innovative product improvement and other innovative efficiency advantages. I am concerned here with the bigger picture which an entrepreneur has to consider in order to be able to recognise and respond to innovation, competition and trends. In addition, self-reflection is an issue which should not be forgotten and the question here is: Is the entrepreneur or his successor best able to continue or expand the business?

In family businesses, which are a major pillar of the economy, this is a particularly important issue. Many of the current medium and large family companies started at a time when there was a transformation from an agrarian economy into a society in which industry and services play a bigger role. Globally, the car factories which sprung up in the 1930s and the aircraft industry developed rapidly. If, at that time, you had the opportunity to set up a company that could meet the needs of such businesses as a logistics service provider or industry supplier, you had the possibility to grow rapidly.

With hard work and smart adjustments, you could start a successful company in the market. It was then usually the sons of the founder who took over the running of the company. Under the watchful eye of the founder in the background, the company could grow in a healthy way. By the time the third generation came along, the problem of succession arose. Would the 3rd generation be capable of operating within the power struggle of competing companies to stay afloat and grow? The answer for 90% of companies is negative. The exceptions are companies such as Heineken, Philips and Ahold which had sufficient checks and balances and were built to continue.

The 3rd generation is not usually raised under the same circumstances as the first two generations and is often raised in luxury. This can mean that this generation is generally not as perseverant and does not have the ingenuity to respond to opportunities and has insufficient ability to lead the business. It is therefore important that the 2nd generation is quickly engaged in succession planning, i.e. choosing the right candidate from the outside to steer the company, taking into account such factors as the culture of the company’s growing business. Whether the third generation should have a role in the family company depends on their specific qualities, but typically they should be more in the background. My advice for the 3rd generation is: find your own way and try to give your life purpose in your own way. Do not try to take over the business or to obtain a board seat without a good reason. I will discuss the development of various family businesses in the next article.

Yours sincerely,

Jan Stam