Unity, drive, talent, grit, asset growth and future planning are key areas to focus on to sustain the family business through the next generation.
Written for Progressive Dairy and originally published March 13, 2025 here.
I’m sure you have heard the adage that the third generation loses the farm. This is not unique to America, and this saying has existed in almost all cultures over hundreds of years.
Sustainability is a buzzword we often hear, but what about the sustainability of the family farm? What does it take for a farm to sustain itself generation after generation? Why does it seem so hard?
I recently read a survey of members from a farm organization about their concerns about passing on the family farm. The number one concern was estate taxes. These are undoubtedly important and should be part of a succession plan, but do they get too much of our attention?
Think about farms that failed to sustain themselves and failed to pass on to the next generation. In your community, there are likely farms that fit this category. Instead of a tax bill that couldn’t be paid, the most likely issues were that a farm did not scale fast enough and could no longer compete, a family couldn’t get along or the next generation just let the farm slide for lack of management.
In observing farms that have sustained themselves over many generations, we see they all have three key elements working together.
- Unity
- Talent and drive
- Asset growth
These three elements were not left to chance. Instead, the families were intentional in strengthening these areas.
1. Intentional unity
Unity isn’t usually a challenge in the early years, but over time, siblings grow into adults, marry and find their place in life and work. People chart their own courses, so families moving apart over time is the most natural progression. This natural progression doesn’t help sustain the business.
Unity in a family business is more challenging than a non-family-owned business. Often, there are blurred lines between where the family roles end and business needs begin. Let’s look at some areas to focus on for building family business unity.
Unity is not:
- Everyone always agreeing with each other on every topic
- A full consensus on all decisions
- Family members being each other’s best friends
- Equal in pay, ownership and responsibilities
Unity is:
- Asking for everyone’s perspective and talking about it – even if you don’t want to hear it
- Getting good at using conflict to debate topics that then produce better results
- Once debated, agreeing on a course of action and getting on board with the decision
- Having each other’s back when the chips are down and not having to ask
- Agreeing on clear expectations for roles and compensation
- Setting clear expectations of how family members treat each other
- Agreeing, well in advance, how the next generation enters the business as workers and owners
- Agreeing, well in advance, on how the senior generation exits their role(s)
- Agreeing on a clear vision for the business (what does success look like?)
- Spending time together outside of work and building personal connections
Intentional unity over generations might be the number one reason why family businesses are sustainable. They talk about it, work up agreements, carve out time to stay connected and sometimes argue. But they never assume unity.
2. Family talent and drive
Family farms are often started by the sheer grit and the dogged determination of the founder. Many of these people were larger-than-life characters who tamed the West, broke the prairie sod and came over penniless on a boat. Learning how a farm started and who started it is always interesting, as few farms today are first-generation.
The first few generations on the new farm were tough, with few rewards, perks or comforts. But over time, wealth accumulates, and there is still plenty of work. It’s natural that family members fill these roles, and it’s enjoyable to work beside our children. But over time, a couple of complacency traps can crop up.
Drive: Doing hard things
The early generations worked very hard and sacrificed much. They had a singular focus on work. It’s natural that subsequent generations don’t have to push as hard. But lessening the work ethic and drive too much hurts the farm. Sustainable family farms can’t exist long with low-drive owners or owners who don’t bring high levels of value to the business. The most sustainable farms expect each generation to prove themselves with drive and commitment before becoming owners. Each generation must prove they really want to be there and are willing to do the hard things required from an owner.
Talent: Stop the brain drain
It takes more than drive and work ethic to sustain. It takes smart, talented individuals who are challenged by the farm.
Do all employees have the same capabilities? Do they all have the same ability to lead? Do all employees have the same desire to learn and increase their skills? Of course not. That doesn’t mean these individuals are not important or not great people. It is just tough to build a farm team with lower performers.
It is the same with family members and owners. This is sometimes hard to hear, especially as parents, because we love our children equally. But, if we are honest, we realize not every child has the same ability or skills.
As an industry, we need to create farms that are attractive and stimulating places for our talented kids to work. Sustainable farms encourage each generation to learn skills that will be needed in the future, not just those that were necessary in the past. Sustainable farms are learning organizations where improving skills are encouraged and expected at each generation.
3. Family asset growth
Farming is a capital-intensive business. This is no big epiphany. What is hard is keeping family assets growing over generations. Let’s look at a couple of areas where family asset growth falters.
Estate and retirement planning
Estate planning involves transferring assets from one person to another, typically at death. Estate plans can scatter assets between family members. A farm that has to buy back assets with every generation or buy out the generations above them to fund retirements is at a disadvantage. It is entirely possible to build an estate plan that keeps family business assets together over multiple generations while still providing liquidity for those heirs who want out and funding stable retirements.
Net profit growth
Sustainable family farms, especially those that want multiple generations working on the farm, grow profits. The focus is more on increasing profits – instead of a lifestyle farm where profits are secondary to enjoying the work and lifestyle. Granted, enjoying the lifestyle is good, but profits create opportunities for the talented next generation to return.
Let’s think about this a bit. If three kids come back to the farm, that’s three more households the farm must support. How much bottom-line net profit must be generated just to maintain household income for everyone?
Net profit allows the farm to expand and bring in enough net income to sustain the farm and the families. Maybe too often, we see farms that have too many family members pulling income out to live on and not having enough profit growth and reinvestment back into the farm. This is math and accounting; not a judgment call on my part. To use an old adage, we need to keep our golden goose healthy and reproducing
Intentional sustainability is key
One of our clients recently told us that his goal was to not become terminal. He said he looked around and saw his friends and neighbors who have great farms today, but they aren’t sustainable past the current generation. He didn’t want this to be his farm.
Some farms aren’t concerned about creating a sustainable future for the farm, and that’s their choice. However, for those farms who desire a sustainable future, it takes intentional effort. It is not easy, but it is possible. Several farmers have confided that passing on a sustainable farm was the hardest thing they ever did, but it is also their proudest achievement.
What do these farmers all have in common?
None of them left farm sustainability to chance.