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Advisor

Family businesses 3 generations and done

   I read about family businesses rarely surviving 3 generations.  Grampa starts it off, works hard and brings his son (dad) into it and they make it thrive.  The grandson walks in when all is well and good.  Maybe comes back to it after a college education.  He thinks he has better ideas, skims money off the top, or just plain don't know what he's doing.  I thought about this and the farms and other businesses around here.  It seems to be true in many cases.

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Senior Contributor

Re: Family businesses 3 generations and done

I have found that those heirs that have no knowledge or experience with hard times usually do not continue it. It takes a great bit of balance for the heir to get the new spouse to understand that the farm is no ATM. How many really know what makes profits larger in a business? They see the prices on the CME and forget that there are expenses that take a huge chunk out of that price. Government subsidies should not be relied for secure income in the future Farm Bill given the CME prices and public outcry over spending. Most people coming back from a wage earning position try to maintain that amount from the farm. Price volatility prevents many to make a budget that can be followed. The unknown produces fear and failure.

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Senior Contributor

Re: Family businesses 3 generations and done

I went to a Cooperative conference while in FFA in high school.  I remember three things from the trip.  One was what I thought was a very boring speaker at the time explain to us that most businesses don't make it past one generation but the ones that do generally fail in the third generation.  The title of his speech was Three Generations from Shovel to Shovel.  He basically explained it as the first generation is going to work their butt off building something worthwhile.  They will struggle immensely getting started.....its the nature of business but will end up with something very worthwhile.  The second generation rarely does something with that advantage.  They ride on the coattails of their father's familys work.  Its even more rare for the third generation to come in and do something more productive.  They in general either run it into the ground or they take it in an entirely different direction away from their core profit centers and bankrupt the business.

Which generation is everyone in their respective farms?  I used to farm with my dad.  I've got an economics degree from the Brain Factory. My grampa went out on his own shortly after he started farming so he was a first generation shovel.   I had no intentions of being a third generation shovel.  Me and dad couldn't get along.  So now I'm a first generation and I've got about a dozen employees and the largest pastured poultry operation in the United States.  Will I be smart enough to get our operation to go to the next generation only time will tell.  And what about beating human nature in the process?

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Advisor

Re: Family businesses 3 generations and done

Depends upon whether you count farming as an enterprise that is situated in one place or not.  My family has scraped by farming in NC and VA since 1626, Mike's since the 1630s.  I think I am officially eleventh generation on both sides, daughter would be twelfth. 

If you count it on one farm, then Mike and I would have been fourth on our family homeplaces, if I recall right.  Hard to document when the courthouse records burned in 1834.  Various changes in the land use itself (one a zoning issue, the other a conversion of farmland ot mining) made it impossible to keep in hog business viably there. 

We thus bought this place, too, and set up shop here.  Maybe that makes us a good first generation enterprise, in that respect.  I would like to hope so. 

For hog farming in NC, it is almost a much a matter of what regulation comes down the pike next will make you say, "To hell with it."  I am actually looking forward to teaching that side of it to the next generation...as it is very challenging some days.

Daughter is not ready for all of that yet.  She, like her father, is excellent with the animals.  They make me deal with the humans. 

We have no grandchildren yet, so do not know if there will even be a third generation...or, if you count along the lines in our first case, thirteenth.  Certainly hope so, but that is not our choice to make. 

One thing about a lot of rules:  If you let them dictate your mindset, then they will be self-fulfilling prophecies. 

Also, saying that coming home from school with new ideas is a death sentence for the family business is not necessarily true.  If not for my education, I think we could never have coped with what we have encountered in our circuitous route to this farm...and I was trained to be a kindergarten teacher.  Come to think of it, maybe that prepared me better to deal with local government....

 

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Senior Advisor

Re: Family businesses 3 generations and done

I'm the 4th and will be the last because none of my kids are interested in farming.  I bought the farm so maybe I'm not really the 4th but the first?

The beginners often take big chances.  For example, I'm the first to use insurance much.  Even my dad, 3rd generation, self-insured.  But, the risks are different - or is it just me who is different?  My predecessors were never the first or the last to adopt a new practice.  but, they all had a good eye for the main issue.  They didn't get distracted by secondary interests.  It was the farm 100% of their existence.  They all did well.

I know I'd be farming much differently now if I had a child to take over.  I'd be much more aggressive and growing.  So, as I know I'm a dinosauer, I am taking a more laid-back approach.  Not chasing land to rent or buy, not buying bigger equipment.  When I go out, it will not be with a shovel but to retire to other interests.

There is no doubt that a business much reinvent itself periodically to be sure it is where it needs to be.  New products, new methods, new technologies, new markets, whatever is necessary to be profitable.

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Advisor

Re: Family businesses 3 generations and done

  I am in a similar boat Jim.  If I buy ground it's for retirement purposes rather than risking it in a stock market I have been following for 30 years and still don't understand.

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Senior Advisor

Re: Family businesses 3 generations and done

Perhaps, the blame on the third generation is because we have too high of expectations. Our grand fathers & fathers lived their lives doing what they wanted to do. They farmed, it was their life. We have as well because we want to build for ourselves and our children.

 

Then comes the next generation and they have different expectations. They want to live their lives as they choose. My son would probably farm but he has a good job and he enjoys it. The daughters or the husbands are not interested. The grandkids are growing away from the farm enterprise. I doubt they have any interest other than one ambitious capable grand daughter.

 

So forget about building an empire for the future. That is your dream not theirs. They only have a few decades like we did and they best do what stirs their interest

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Senior Advisor

Re: Family businesses 3 generations and done

"So forget about building an empire for the future. That is your dream not theirs."

 

Many would agree with you and suggest that the kdis are better served by letting them start on their own, like you did.  In other words, sell the farm and spend the money before you die.  It's for your kids own good.

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Veteran Contributor

Re: Family businesses 3 generations and done

Technically i am third generation farmer, but my dad didn't take over his dad's farm rather grandpa sold out and dad started out on his own after teaching for a few years, so i would consider myself a 2nd gen. But i could really see how third generation would be fallout. When i first started i had all these great ideas and changes that we should do to make our farm "better" Back when i knew everything right. Even just a few years down the road and gaining expierience alot of those ideas have gone by the wayside. I understand where we are and what we need to do to make it into the future. I think alot of that was how my dad got me into the operation. I was never paid a salary to work for dad, Instead dad allowed me to rent one of his fields that he was renting. Instead of a salary at a young age i was tradeing equipment usage for labor, then having to pay fuel and fertilizer, seed, rent all on my own. Doing it that way it didnt take me long to realize how things really worked. I feel like if dad would have given me a salary i never would have seen the risk of what we were doing. I would be doing fine with my salary and probley doing things in a manner that they shouldnt have been done. If dad were to quit and i took over i would have no idea where to start.

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Advisor

Re: Family businesses 3 generations and done

   I don't believe in making them struggle.  I was fortunate enough to inherit a start in life.   Whether it's an education at college level or a farm to have income from I believe in helping the kids gain a start in life.

  That being said, I startrd this as a discussion on family businneses not surving the 3 rd generation due to shortcomings or whatever of the 3rd in line.  In farming something that hasn't been said yet is bringing non-farm spouses into it.  I also have heard of sister in laws not getting along.  Then how do you split assets fairly and continue the farm enterprise?  When 1 thinks about it, it is a miracle some do survive.

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