As the years passed, the Takakuwa family wondered who would take over its landmark Liliha Bakery and Coffee Shop, which was founded in 1950 by Roy and Koo Takakuwa.

The popular bakery is known for its Coco Puffs, pancake mix and chantilly cakes. The 24-hour counter service also draws a variety of people looking for a cook-as-you-watch breakfast, plate lunch or sandwich.

The Takakuwas didn't want to let all of that go. But as it became clear that there was no one in the family willing to it take over, they knew it was either sell the business or close up and fade away.

Former Liliha Bakery president Fred Takakuwa said the decision was made last year to look for a buyer.

"Basically, no younger generation was willing to carry it on," said Takakuwa, 61. "Since there was nobody, it was a pretty obvious decision to sell. We didn't want to close. It's a pretty profitable business so we would like the formulas, the quality of items, to be carried on."

After an exhaustive search, the Takakuwas turned over ownership of the bakery on April 1 to local restaurant entrepreneur Peter Kim, who owns the Yummy Restaurant Group. Kim has announced plans to open more Liliha Bakeries here and on the Neighbor Islands and Takakuwa wishes him luck.

"If he can figure it out, that's terrific because that's really bringing it to the next level," Takakuwa said. "We did think about it, but with the limited management pool we decided not to go that route."

Takakuwa said he is just glad to see the Liliha Bakery legacy live on. He dreaded seeing the hard work of his parents and his family go the way of many mom-and-pop businesses that seem to be closing more often these days as owners have problems finding a successor.

THIRD-GENERATION TEST

Many of these family-owned companies started after World War II when first- or second-generation immigrant families needed work. Unable to find jobs, many opened their own businesses.

The children of these "mom- and-pops" often grew up in the business, whether it was a corner grocery store or a small construction company. Because they were exposed to the business and often worked for their parents, these children were able to take over operations as their parents began to age.

Many of the companies continued to do well under the second generation, but getting the third generation involved has proved to be a challenge. About 30 percent of family-owned businesses survive into the second generation, while 12 percent are still viable into the third and only 3 percent are still operating at the fourth-generation level, according to a study by the Family Business Review.

Some small companies also can't survive the competition from large chains or big-box stores and fail financially.

That wasn't the problem at Liliha Bakery, where business was brisk and the company profitable, Takakuwa said. The issue at the bakery was neither Takakuwa nor his older brother had any children and the offspring of their siblings were not interested in taking over the bakery.

"Most of us did work at least part of the time at the bakery in our adult life. I'm the second to the youngest and the youngest is a pilot on the Mainland. So basically we ran out of people," Takakuwa said.

John Butler, director of the Family Business Center of Hawai'i at the University of Hawai'i Shidler College of Business, said the Liliha Bakery story is quite common. He said surviving to the second generation and beyond is a problem for most family-owned businesses, even large ones.

Most of these businesses are started with a lot of sweat and hard work, and younger generations don't want any part of that, he said. Some parents also want a better life for their children, sending them off to school so they can get a higher-paying job.

"There's a saying: 'The first generation starts the business. The second generation builds the business. The third generation squanders the business,' " Butler said. "I've heard it in Thailand and I've heard it in the U.S. and everyone acts like it's their own story."

NEED TO HAVE A PLAN

The Family Business Center was established in 1995 to help families survive the rigors of the business world. The center holds monthly and quarterly meetings for its members to discuss succession planning, estate planning, choosing professional services and understanding family conflicts.

Butler said one major problem is business owners often do not have a succession plan and don't think about who will take over until it's too late. He said this is an issue with many family businesses regardless of size.

"A lot of CEOs in big businesses don't think anybody can replace them and they don't look at succession early enough," he said. "Many managers are very poor at grooming successors. They think of it at the last minute and do it in a haphazard way."

Butler said small-business owners need to determine early on what will happen to their company when they're gone. He also said families must get together and talk things out.

"Have a succession plan. Have a family meeting at least once a year. Discuss what people want to do with respect to the business. Deal with issues about wealth — people working for the business and getting a salary as opposed to people who are working somewhere else and not getting a salary but have an ownership stake. These things are better discussed early," Butler said.

One family-owned business that seems to be on the right track is Watanabe Floral Inc., which was founded in 1946 by Ernest and Shizue Watanabe. The company is run by three of their children. Several grandchildren work for Watanabe Floral and appear to be interested in taking over.

That sits well with Russell Watanabe, the third of Ernest and Shizue's six children, who is president of the company. Two other siblings, Leland Watanabe, 54, and Susan Lo, 51, also are officers in the firm.

"We do have members of the third generation who have worked and presently are working and certainly our hope is that there will be someone who's both qualified and willing to continue the family tradition," said Russell Watanabe, 58. "I'm confident someone will."

He believes he has an advantage over the leaders of other small companies because he has friends who had their business fall apart. He said many of those companies were headed by a third-generation family member and he's learned from their mistakes.

One lesson, he said, is "fair is not equal" and family members don't always make the best employees.

"When you get to the third generation, the reason I think you have the most problems is you no longer just have siblings. You've got nieces, nephews, cousins and you have the in-laws of this next generation that are positioning their children for a prominent place in the company," Watanabe said. "One of the things I tried to do, and it's so hard when you're a family business, is you cannot have family members in management positions just because they're family members. You have to have the discipline to separate that out because in any business you need the best people to be your managers and your executives."

Watanabe said employees, whether they're family or not, need to buy into the values that were set by the founders of the company. He said because his children and his siblings' children have worked in the company, they understand this concept and he believes there's a good chance one of them will step forward when it comes time to choose a successor.

"Whoever I groom to replace me, I'll put as much importance on their understanding and demonstrating a commitment to the family values, more so than their ability and skills in administration, because I can work alongside with them and help them with that," Watanabe said. "I can hire good accountants. I can hire good floor managers, but I gotta have somebody who's totally committed to the traditions and culture and character of the family and the business. You cannot teach that."

WILLING TO SHUT DOWN

Many small-business owners are careful to choose a successor who will protect the reputation and quality of the family's business. For some owners, they would rather see the company go out of business than sell it to someone who may not do a good job.

That's the situation that Stanley Matsumoto is in. Matsumoto, 56, is the second-generation owner of the M. Matsumoto Grocery Store, home of the famous Matsumoto Shave Ice.

Matsumoto runs the popular Hale'iwa landmark with his wife, Noriko, 43. They have three teenage children, but so far none has expressed interest in joining their parents in operating the store.

"A couple are in high school and one is in college, so I want to see what they want to do first," Matsumoto said. "You want to let them try to pursue what they want to do first because they know how hard this kind of store is because there are only three days that we take off a year and the rest of the days it's just work."

Matsumoto said he and his wife are young enough to keep the store running for a while, but he knows eventually he'll have to come up with a succession plan. The store was founded by Matsumoto's parents, Mamoru and Helen, in 1951 and is a must-see for visitors to the North Shore.

The popularity of Matsumoto Shave Ice has drawn interest from people wanting to buy a franchise, but Matsumoto said he's not interested in giving up control over the Matsumoto brand.

"It's not the money," Matsumoto explained. "It's just to keep it unique."

He said he's hopeful that a family member will eventually take over the business. But if that doesn't happen, Matsumoto said he's willing to allow the store to shut down.

"For my dad, he worked so hard to make it what it is today. I wouldn't want to sell it to just anybody," Matsumoto said. "I remember growing up and how hard it was. My parents struggled and we were poor. As much as possible, I want to keep it within the family because if we sold it, you don't know how they're going to run the business, or if it's going to lose its reputation. That's what you kind of worry about, whether they're going to keep it the same or make changes."