I have had plenty of opportunity to observe both success and failure in family businesses. Here are some of the keys to success I've learned in my 38 years of practice.
First, train the second generation. If you don't, your business is more likely to fail. For example, a father shelters the members of the next generation and doesn't allow them to make decisions. Without experience, the second generation makes mistakes that can prove fatal to the business.
But don't confuse training with book learning. Formal education is good, and it gives family members an excellent base on which to build their management experience. However, real-life experience, or what pilots call "stick-time," is the best trainer. You don't learn how to "fly the business" until you have actual experience. You can read about management, but until you experience the decision-making process, you can't become an effective manager.
An internship with another operation is one of the best training opportunities available. About 53 percent of today's college graduates complete two internships or a cooperative education program by the time of their graduation. Thirty-one percent of all college graduates complete at least one internship. Follow the same rule-of-thumb for your dairy. Otherwise, the younger generation's experience will be defined by the older generation's world if they don't encounter management from another perspective. An internship on another operation creates a priceless opportunity.
Communicate succession plans
Second, be careful in selecting the family member to be the next-generation manager.
I recall a situation where the eldest son wanted to return to the farm. Unfortunately, there wasn't enough cash flow to allow the son to return. Ten years later, the scenario changed. The farm grew and the father was drawing Social Security. However, a younger son was given an opportunity to return home instead of the eldest son. The operation held together until the father was out of the picture, then family in-fighting caused the operation's liquidation.
Unfortunately, the father made decisions for both the family and the business without communicating with his family.
The father had definite reasons for his choice. His fault lay in failing to share those reasons. A series of family meetings with all of parties may have saved the business. The eldest son was already established in his career and likely did not want to return to the farm. However, the father didn't give his family the opportunity to accept or understand his decision, and the seeds of failure were sown.