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Generational Differences

Generational Differences in Family Business Decision Making

It is well known that a family ownbusiness is different than a non-family ownbusiness. There are numerous examples such as divorce, estate planning tax issues, sibling rivalry, (etc). New Generational Differences research has shown family ownbusinesses make decisions bason what generation is in leadership at the time.

First Generation

This is the founder, the entrepreneur of the family firm. Entrepreneurs are unique individuals. They can sometimes be a little quirky, and can be similar to an artist or musician as they create a new product or firm. They have a reducperception of risk. This allows them to follow through on their creative endeavors. Many entrepreneurs are self made individuals. They are successful, and believe in running their business as they always have. By making the vast majority of the decisions (up to 75% in one study). Entrepreneurs often make decisions by intuition, or they just know what the decision should be. They are private and do not discuss the inner working s of their firm with outsiders easily.They Generational Differences often have a hard time describing their decision making process in words.

Second Generation

Consisting of the founders children (a sibling partnership), the second generation has a tremendous sense of respect and admiration for the first generation members, and do not want to blow it! They have a heightenperception of risk, and do not like to make decisions without a large amount of information. Are not comfortable utilizing their intuition. Make their decisions by utilizing a consultative approach with other people either inside or outside the firm. If the decision involves a high perceivamount of risk or is financially expensive, the decision process is slowwhile they search for more information and knowledge and try to lower the risk.

By utilizing the more democratic voting process, the third generation family firm is more rational in their decision making processes than the preceding two generations, and is becoming more professional.

Family businesses make business decisions differently than their non-family counterparts bason the leaders generation.

Third Generation

The third generation of a family ownbusiness is often made up of cousins (cousin consortium). The amount of cousins may be numerous. In order for the family business to function, the cousins utilize a consensus approach to decision making. Often it is decidby a vote, or majority. Generational Differences Some firms require the decision to be unanimous. By utilizing the more democratic voting process, the third generation family firm is more rational in their decision making processes than the preceding two generations, and is becoming more professional.

Family businesses make business decisions differently than their non-family counterparts bason the leaders generation. Each generation has different needs, wants, desires, and goals, which all play a role in their willingness to make certain decisions that affect the family firm.

Keanon Alderson PhD is an assistant professor at California Baptist University in Riverside CA. He teaches an undergraduate class on family business management. As a second generation member of of a family ownbusiness for 17 years, and a first generation member of a family firm with his children and wife, he is uniquely qualifiin the area of family business. He is an author, and speaker on family business issues. His new book entitlUnderstanding The Family Business, will be publishin January, 2011.

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