What Makes a Family Business Work?
This past week, I had lunch with Christopher Wolfslayer, a colleague fromSovereign Bank who is in charge of Business Development, and the subject of family businesses came up. Both of us have had a lot of experience working with families that work and live together and we shared some of our perspectives.
Passing the Baton
At Chief Outsiders, we often talk to second and even third generation family businesses. Many second generation CEOs have approached us because they needed to grow. When the business first started, it grew rapidly and the family prospered. However, as more family members came to work in the business, revenue did not grow proportionately. Several businesses we have worked with had basically flat revenue for ten years or longer. So, when the second Live Long and Prosper/third generation took over, they knew that change was needed. If something didn’t happen, the business might not be able to survive. If they wanted to expand, it would be hard to get funding. If they wanted to sell the business, there would not be a good market for it. If they wanted to keep it, they wanted to put their own mark on it, to leave a legacy bigger and better than the one they received.
Families Can Be Tough
Family businesses come with their own set of dynamics. Oftentimes, there is a patriarch or matriarch who started the business, worked very hard in it and wants desperately for the children and grandchildren to continue the business successfully. The parent and CEO often assign roles to the various family members. The oldest will be the president, the middle child will be COO and the youngest will be in charge of marketing and sales. However, everyone will eventually have an equal ownership in the business. The CEO/ parent closes his or her eyes to any difficult family dynamic and is sure that everyone will get along.
Clueless or Cautious
I read a recent article from Michael Sanders. In it he stated, “There are two kinds of family businesses. There are the clueless and the cautious. The clueless either can’t or won’t see where and when family issues are doing damage and they certainly don’t address them. The cautious appreciate the difficulties and the potential problems but they are also proactive. When the issues arise, they deal with them compassionately but definitively.”
An Outside Perspective
It is so difficult for family members to look at each other and themselves objectively. Sometimes, because they have been together for so long, both personally and professionally, having an outside person come in and take an objective view can produce significant results. Oftentimes, an outsider can help persuade the first generation owner on the need to change marketing strategies in a way that doesn't cause conflict within the family.
- Several family business clients who wanted to sell their business in the future didn’t realize they needed several years to prepare for this. Oftentimes, in family businesses, the income is understated because the family is employing different strategies to keep it low. This doesn’t make it attractive to a private equity group for investment or a banker when approving a loan.
- Some of our clients wanted to retire but did not have anyone ready to take over. Providing guidance, mentoring and support to potential buyers or non-family successors from a seasoned marketing professional has made a difference.
- And for the family businesses that wanted to continue, to grow and prosper, working with an outside expert who is able to take a hard, objective look and help develop marketing strategies provides the needed framework to grow.
My banker friend and I agreed that the businesses that continue to prosper are the ones that aren’t so insular. They rely on outside counsel and advice. Many participate in local CEO groups like Vistage, YPO and ACG. They share their problems and concerns and work to change them rather than acting like ostriches and sticking their heads in the sand!
What do you think?
In your opinion, are family businesses more insular and less willing to ask for outside help? Please put your comments below: