Shirtsleeves to Shirtsleeves In Three Generations

featured-image2The aphorism in the United States is shirtsleeves to shirtsleeves in three generations. In researching the history of this phrase it is one of the oldest and most widely used around the world about generational family business success or failure.

Clogs to clogs, kimono to kimono, rice paddy to rice paddy, shirtsleeves to shirtsleeves it just depends on the culture. The basic story is the first generation builds a successful business because some adversity instills the values of hard work, frugality and persistence. The second generation which doesn’t remember the hard times when they were younger has more affluence, less adversity if any and becomes more important in social circles. The third generation, with no adversity in memory, no need for hard work, frugality or persistence consumes the fortune. The fourth generation is back to shirtsleeves.

In reading articles in the Harvard Business Review as well as other sources it seems the best statistics are 65% of businesses don’t make it through the second generation and 90% don’t make it through the third generation. That seems to prove why that aphorism is used worldwide.

What are the potential causes?

Each generation is normally bigger so more “overhead”, opinions or in-law interference.

The founder won’t turn over control “soon” enough for the next generation.

The founder wants too much money out when retired.

The children thinking their salaries are too small.

Hiring based on nepotism instead of expertise.

Changing values from frugality to increasing lifestyle.

The succeeding generations feeling entitled instead of the values that made the founder successful.

All of those plus a hundred more including, lack of planning for retirement, disability, education, experience and leadership.

One that is often overlooked and may lead to many of the others is; the first generation sometimes has the motivation that their children and grandchildren shouldn’t have to go through the some hardships they did when they had to grind it out and live frugally to make it work.

Therefore there is no adversity, problem solving under intense circumstances or maybe being down to your last dollar and gutting it out.

But is that what’s needed? You could make the case that a mature business needs different skills then a start up for example.

Each business and family is going to be different. The capabilities, values and succession planning will need to be thought thru long in advance so that they can be taught, nurtured and grown before they are needed.

About Dave Shepherd, ChFC, CFP®

Dave is the founder of Shepherd Wealth & Retirement in Tucson, Arizona. Dave is a Chartered Financial Consultant (ChFC) and Certified Financial Planner™ practitioner (CFP®). Have a financial question? Click Here to contact Dave Shepherd.

Investment advice offered through Shepherd Wealth Group, a Registered Investment Adviser doing business as Shepherd Wealth & Retirement.

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