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Keys to a successful family dairy business

Farmers pride themselves on being part of farms that have been passed on through multiple generations. States give out awards for century farms. This is a major accomplishment because not many businesses succeed for multiple generations.

According to the Family Business Institute, only 30% of family-owned businesses transition to a second generation, 12% to a third, and 3% operate into the fourth generation or beyond. It is best for the vitality of our country and even more importantly for our rural communities if farms and other small businesses thrive. In the United States, family-owned businesses employ 60% of workers and create 78% of new jobs.

Family Business International analyzed family-owned businesses throughout the world. They discovered four traits consistently found within thriving and successful multigeneration family businesses: good governance, the ability to identify and develop family and non-family talent, an orderly succession strategy, and “family gravity” — described as an ability to capitalize on what makes their business special. Even though the businesses analyzed were not farms many of the keys to success are the same. 

Good governance

The businesses studied had governing boards and were operated in a professional manner, not mixing business decisions with family dynamics. These businesses did not have family members with hidden agendas but made business decisions transparently. They believed this led to sound decision-making and management practices.

Common traits of unsuccessful family businesses included family members with hidden agendas and preferential treatment favoring certain family members, which can result in irrational business decisions. 

Identified and trained future leaders

The Family Business Institute observed that this is an area in which most family businesses could improve. Often not much time or thought is invested in identifying a leader that has the skills to maintain or grow the business.

Future leaders of the most successful businesses evaluated future leaders on skills, potential, and the value they brought to the business. The most important trait business owners looked for in their successor was shared values, vision, and a good cultural fit. These traits, along with a desire to change, learn new skills, and having the vision to adapt to the changing industry, were important. These future business owners and leaders worked within the business for several years and were provided training to be set up for success. All family members that joined the business were expected to add value to the business.

“Family gravity”

This term encompassed six key elements that successful companies aspired to implement.

  1. These businesses had clearly defined values that united family members and built strong relationships. This gave these businesses a moral center that helped sustain them in the face of challenges and difficult decisions.
  2. The businesses had a clearly defined vision for the future, which was communicated and was the basis for the family’s business decisions. This is important in a rapidly changing business environment. This allowed the businesses to set goals and determine priorities.
  3. Excellent communication ensured that everyone could carry out his or her responsibilities and be a positive force for the business.
  4. Family members had a mutual understanding of respect and support. This allowed for a healthy exchange of ideas and discussion of key and delicate issues. This determines how resilient the family will be and how it will respond to change.
  5. Good family governance and a commitment to professionalism helped ensure that decisions were made and authority exercised to minimize conflict. This also allowed the business to attract and retain superior employees.
  6. Family roles were clearly defined for all members.

Not only were businesses that exhibited these traits more likely to end up in a successful transition, but they were also more financially successful.

University of Minnesota Extension and Minnesota Dairy Initiatives have been offering a four-session class that focuses on many of these principles called “Planning Your Dairy Farm Future.” We will again be offering this class in several locations in 2022. If you want to learn more, send me an email at salfe001@umn.edu or give me a call at 612-360-4506 and I can share more details.

Author: Jim Salfer, Extension dairy educator

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