Net Enterprise Value (NEV) is a true measure of success in a family owned business. 

As shown in the chart, NEV increases during the first generation - when the priorities for "Mom" and "Pop" are survival, stability and growth.  During this period, "Mom" and "Pop" keep a careful watch over debt load, to ensure survival. 

However, during the second generation, the focus and priorities often shift to maintenance and reward.  The second generation, enjoying the fruits of past efforts, lead a better lifestyle than "Mom" and "Pop" did.  At the same time the size of the family being fed by the company increases.  Therefore, overhead and debt load increase.  NEV peaks, then decreases and probability of business failure increases.

During the third generation (if the business is still viable) the priorities typically shift even more into reward.  Family members often lose their teamwork focus and fail to work together for the advancement of the business.  NEV deteriorates.  The company may not be able to carry the now heavier load of a larger, more financially needy family and assets must be sold to augment cash flow.  Once this situation occurs, recovery is remote.

Family-controllable factors that decrease and destroy Net Enterprise Value include:

      (1)          Absence of a clear, well communicated Vision for long range focus

(2)         Ineffective succession planning or succession structures

(3)         Insufficient business planning or commitment

(4)         Growth of family needs exceeds the company’s cash flow capability

(5)         Next generation entitlement, versus setting the example

(6)         Sibling rivalry and conflicts

(7)         Use of the “entitled” versus the “best qualified” in key positions

(8)         Need for personal identity, at the expense of business priorities

(9)         Insufficient accountability and structured metrics

(10)     The company’s business complexity outpaces external resources

(11)     Nepotism, Narcissism and Greed, for example:

·        Spending the previous generation’s assets

·        Using company resources for personal gain or looting the company

·        Ostentatious, unearned, extravagant lifestyles

·        Taking credit, placing blame

·        Jealousy and mistrust versus empowerment

If any of the above factors are affecting your family enterprise contact us for experienced, committed, professional, family business coaching to:

Just as it takes focus and teamwork to win a sailing race, it takes family members working together to make a family business prosper and survive for generations.