American business is at a unique pivot point in history. With the tidal wave of retirements by Baby Boomers upon us, and the influx of Millennials beginning to shadow the doorways of businesses across the country, at no other time in the history of our economy has the potential existed for a transfer of wealth on a scale we have never seen. And yet with all the promise, the daily busyness keeps us from asking the deeper and more profound questions we as business owners should be asking—what legacy are we leaving, and as importantly, to whom? Show me the money According to an Accenture report (Jun,’12), the total wealth that will be transferred by 2045 is in excess of $30 trillion dollars. Further, according to another study by the consulting firm Fair Market Valuations, this wealth consists of 7 million companies, owned by Boomers between the ages of 44 – 62. The Family Firm Institute concludes that only 33% of those companies will successfully transfer their business to the next generation. The implication is 67% of you will not succeed in transferring your business to your kin, and will be left fighting for buyers the open market. Businesses are no different than real estate—when the supply is high, the prices are low.
Under the hood of the demographics Millennials, born between 1983 and 2001 (aka Generation Y), represent the largest demographic wave, (~80M) to enter the workforce since the Baby Boomers (~76M), born between 1944 and 1966. As many of us have experienced, Generation Y is wired very differently than those preceding it. The majority of Gen Y have never known a time when instant access to information has not been at their finger tips, and has created a culture that is demanding, ambitious and creative, yet dismissive of the hallmarks of success highly regarded by their parents. The definition of the American dream is literally being redefined and the influencers are no longer contained within our communities or even this country.
Getting to legacy Within this dichotomy of experiences and values lay both the challenge and the promise of success. I have had the opportunity to facilitate a number of family business successions and the consistent challenge in the process regardless of the industry, size of business or background, is the inability between the exiting and entering generation to define common ground. This “value gap” is further compounded by the myopia on means, namely money and control, versus the vision, values and legacy impact the family wealth will ultimately have. In our family succession engagements, (of which by the way, I do in collaboration with qualified wealth advisors. I have worked with Pilot Wealth Management, www.pilotwm.com, and have found Jason and Nick to be outstanding in their focus on creating value for the client), we focus on the big picture by asking three key questions: What legacy do you want to leave? I love this question because it is the most difficult for business owners to answer (let alone most anyone else!). Yet this is what it’s all about—creating legacy. While the dictionary defines legacy as a gift or inheritance, we like to look at legacy more broadly—the impact the wealth will leave on successive generations. The longer the impact, the greater the legacy. To whom do you want the legacy to benefit? Simply put, this is about being clear in who is being granted the responsibility for stewarding the legacy, and what the frameworks and support mechanisms are required to ensure it sustains. How will the legacy be managed? This is the leap of faith most of you will struggle with. The reality is, unless the incoming generation is given the opportunity to co-create the vision and values, you will never find peace in letting go and allowing them to steward the resources. If you are like most business owners that find all kinds of reasons not to begin these conversations, then put down the smartphone and start asking the questions. You are in a race to see who can preserve and sustain the legacy of your hard fought efforts. Don’t let yourself be left in the cold with the rest of the 67%!