The third-generation curse

Like most family-run enterprises across the globe, only 13 percent of those in Singapore survive till the third generation, according to a March 2017 survey of 100 firms done by KPMG and CPA Australia.

Though statistics vary, the fraction of such Filipino family businesses is likely similar, bolstering the so-called three-generation curse, where the first generation creates the business, the second one maintains it, the third one fritters it away.

The top concern is hiring and maintaining star employees, say 56 percent of the respondents. About 43 percent of founders and successors cite professionalizing the business as a problem, while retaining family control a major concern for 41 percent.

In previous columns, we have discussed how to deal with non-family employees, who place a premium on fairness, compensation and advancement.

Interestingly, for 80 percent of the respondents, business trumps family. “Continued profitability is more important than family legacy,” says Straits Times economics correspondent Chia Yan Min.

“Family legacy, though important, should not be allowed to get in the way of business growth and profitability.”

A family business is still a business, and successors need to be prepared not just as owners but also as managers of the business. If no family member is qualified to take over, half of the respondents say they will turn to professional executives—but only until such time that family members have already been trained to lead.

Meanwhile, 38 percent say they will force their children to enter the family business, while 13 percent would rather sell the business if no family member wants to take charge.

How can the younger generation be enticed to do well in the business?

“Family business owners can empower successors to make independent decisions, provide challenging assignments and increasing responsibilities while incrementally letting go of control to focus more on mentoring,” Melvin Young of CPA Australia tells the Straits Times.

Third gen runs Elsie’s Kitchen

Families can learn from Singapore food business Elsie’s Kitchen, which is being run today by the third generation: Elsie’s nephew Reuben Ang is managing director, his sister Rachel is human resources head, and their cousin Job is food and beverage head.

A foodie at heart, Reuben grew up in the family restaurants and took a business degree. When the older generation contemplated retirement, they invited Reuben to join.

He steadily professionalized the structure, including modernization of food preparation and the cashier system. He also spearheaded the rebranding of heritage foods and prioritized innovations to meet modern tastes.

Today, five members of the older generation are still on the board, but they have generally passed on the reins to Reuben, Rachel and Job.

“Out of respect, I still update [the elders] on what we plan to do,” Reuben tells The Straits Weekend correspondent Tay Suan Chang. “They are open to ideas, but when it comes to spending money, it is only natural that they are still cautious.

“Automation cost us a lot of money, but I told the second generation upfront that it is hard to find manpower and with automation, we would be more productive. They agreed with that.

“Sometimes we can be arguing one minute, but the next we would be having a happy family dinner. That’s the thing with working with family, we have a common purpose. We can’t stop thinking or talking about work. Every meet-up, outside of the factory, is a board meeting.”