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A Food Processor's Most Magnificent Deal

Prepare the next generation to take over the family business by buying it from you.

By Tom Deans, Author

Never in the history of civilization has so much wealth been created inside businesses – equity now sitting as cash, inventory, receivables, intellectual property and goodwill. This wealth represents a lifetime of risk-taking by owners of food & beverage processing companies who bobbed and weaved their way through and around adversity to create enterprises that have beaten the odds.

They didn't just survive, they actually thrived. But lurking around the corner is a question that confounds and frustrates the brightest business minds: "Who will own my business when I'm gone?"

The problems confronting aging business owners today have their origin back in the 1960s, '70s and '80s, when these owners elected to have smaller families than their parents did and when college enrollment skyrocketed. Many children born during these decades heeded their parents' advice to follow their own passions and ended up in professions completely unrelated to food processing.

For owners whose children have followed them into food & beverage processing, all the traditional challenges that visit and define family businesses mean that owners are running out of time to resolve the big question. Here's the kicker: that question is not "Who will lead my business when I'm gone" but rather, "Who will risk their capital to buy my business when I'm still alive?"

Never before have business owners concentrated so much of their wealth in one stock – their own company. And they're doing so at a time when retirements will be longer and vastly more expensive than for any previous generation. Ask aging business owners to take all of their wealth outside of their businesses and invest it in one stock and they'll preach the power of asset allocation and diversification. And yet across the street at Family Food Business Inc. this concentration of wealth feels perfectly normal.

The comfort of control often masks the real threats to a business owner's net worth: Market forces and life events often come out of left field and strip a business of its value with blinding speed. Reflect on Lehman Brothers. One of the single largest investment banks in the world is now remembered as the single largest bankruptcy in the history of civilization – $691 billion.
The carnage among family-owned and -controlled food processing businesses is no more or less impressive than in other industries. The success rate across all sectors of family businesses transitioning to the second generation is only 30 percent. And of those, only 10 percent will survive to the third generation.

So if you are the founder of a food processing firm, you have a 3 percent chance of having your grandchildren own and operate your business. Long odds, indeed. You wouldn't go to Las Vegas and gamble with those odds – and yet lost in the desert is where most family-owned and -controlled food processing companies are with their succession planning.

Cast an eye across the Atlantic to Europe's most successful and enduring dynastic enterprises and you'll see conglomerates. The undisputed heavyweight champion is the 250-year-old Rothschild dynasty, a broad-based global financial services empire. At the very epicenter of their family business DNA is the clear and unwavering ideal that their family, not their businesses, is their greatest legacy. The Rothschilds never confuse their love of a business with their love of business – the Rothschilds teach their progeny to love commerce.

Successful dynasties seldom "gift" operating businesses to their children. Instead, they pass cash and ask their children whether they want to purchase the business. This simple technique serves to trim the family tree by moving control to the siblings who are prepared to risk their inheritance to purchase the business.

When business owners can begin a different kind of conversation within their families and make their plans less about themselves and their life's work, they'll take the first step toward cementing the last, most difficult, but vastly most rewarding deal of their lives.

The temptation to make a business the centerpiece of one's legacy will continue to shred families – their wealth and their relationships – from the inside out. It is the self-aware, introspective business owner who sets the family free of his own creation that sows the seeds of a truly great and enduring dynasty.

A family business is not a building; it is not a company name. Rather, it's a set of values that puts risk and reward, humility not hubris, creativity, innovation and entrepreneurship at the center of the family and the business. Paradoxically, this is how the next food processing dynasty will carve out its place in history – precisely by nurturing the next generation of risk-takers to step up to the plate with their own cash.

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