Growth Insights for CEOs

Special Challenges for the Family Business: Scale, Skills and Succession

Posted by Beth Somplatsky-Martori



Second in a Two-Part Blog Series

cutcaster-901671961-Disagree-And-Agree-Keys-For-Online-Poll-Or-Voting-smallIf you are an ardent reader of business news, it was hard to escape the sordid tales this past year of the epic battle over family-owned Massachusetts-based grocer Market Basket.

It was cousin against cousin as Arthur S. Demoulas, who gained control of the board of the $1.6 billion company, ousted popular CEO Arthur T. Demoulas – causing an outcry that alienated consumers, rallied employees and nearly destroyed the business. Only through a highly-leveraged buyout – and the restoration of “Arthur T.” to the C-suite – did Market Basket ensure its survival – at least, for now.

Though the exact details of the feud are up for debate, the changing retail marketplace, competitive pressures and the need to consider new financing and cost-cutting measures, all undoubtedly played a role in igniting the powder keg at Market Basket.

It is when the road becomes bumpy – or needs to be repaved – that old rifts can become business-threatening fissures. In the second of a two-part blog series regarding the unique challenges of family-owned enterprises, I talk with Brian Carroll, CEO of Carroll Enterprises, about how family businesses can weather such events – and how his company – a multigenerational, 45-year-old family business – has managed challenges of its own.

Beth Somplatsky-Martori: Have your growth plans ever included taking a risk to enter new unfamiliar markets or market segments where you needed to allocate a significant amount of resources (people and dollars) to implement this growth strategy? How was it to fund -- or not fund -- the new direction? 

Brian Carroll: For our business to survive the long view of planning, we are required to take risks often into new markets, new technologies and new product offerings. Each risk is expected to generate either a new cash flow to leverage an advantage we have, or a replacement cash flow for a declining piece of the business. Funding most commonly comes from internal free cash flows. If these free cash flows are insufficient to fund the venture, then the risk is often not taken. Our retained capital is managed for growth only if it can be used for acquisition or property purchase. Debt is frowned upon. We don’t want to be owned by a bank.

BSM: Have your growth plans ever involved taking a risk to enter new unfamiliar markets or market segments where you needed to develop a new set of internal capabilities? If yes, how did your family-based ownership make the decision to take or not the risk?

BC: One example when the family was brought into the planning discussion was when it became apparent that we lacked expertise in a new technology solution. Getting the family management to agree on a subject like this can take weeks, months or sometimes, even years. For example, it took us three years to install e-mail because one family member believed face-to-face is the best way to get something done. Not wrong -- but not relevant either as time went on. On the other hand, it took us only a few weeks to decide to hire a new internet software team when we spotted an advantage we had. Any decision is easy when family members have the competency in the subject.

BSM: If you did undertake the risk, how did your company acquire the new skill set to move in this new direction?

BC: Acquiring new skills is always tricky because the family might not have the competency to identify who is even qualified to add a new skill. In addition, the new talent who has the skill might not want to work in a family business. This action can lead to offers made with some ownership sharing involved or salaries paid well above market rate to offset the risk for the new skilled worker. Sometimes I’m sure my dad wishes he had more kids who knew computers!

BSM: Do you have a board of directors/advisors? How do you use them to greatest advantage?

BC: We started a board of directors with outside paid members more than 20 years ago. Its purpose then, and now, is to aid in succession planning, estate planning, senior management accountability, compensation review and formal budget approval. The board consisted of family and non-family members of the business community. It’s important to select a director who has some affinity with the family. Over the years, we chose many retired business leaders who, at one time or another, did work with our family business.  They knew who we were before they started on the board of directors. They are paid and they vote -- both two critical requirements for a professional board. Minutes of votes and meeting discussions are kept.

The board of directors has remained constant in its form since inception. We are now evaluating meeting three times per year as the second generation has matured in the business and succession-planning issues are less relevant. 

BSM: You are a second-generation CEO. What factors influenced your successful transition into your role? Do you think that the same factors will apply in the future for the next generation? If not, what might be different, and why?

BC: The million dollar question -- why work for a family business, especially as a second generation? As with many second-generation members, my career didn’t start with the decision to work in a family business. Having a desire to make my mistakes on someone else’s dime was a big motivator as I entered the postgraduate workforce.

Plans don’t always work out, because being in a family with a business creates connectivity. In my case, when my father suffered some health issues, I was asked to come into the business and begin helping out. My story is not unique. Many of my second and third generation family business friends have found their entry into the family business through the illness of a managing family member. 

Success comes as each generation and each sibling work for a common good -- perhaps making a quality product or making the customer happy. Each family member can have his or her own way of expressing a path toward this common good, but the measure of success comes as the common good is realized. The family members then celebrate the success, or pick each other up if we stumble. Giving each family member their own unique function has worked wonders: I’m sales and marketing; my father is public relations; my sister is back office and other family members serve in roles suited for their skills. 

What are your thoughts on the special challenges for a family business on creating long-term, business growth?

Author

cmo-beth-martori-smBeth Somplatsky-Martori is a CMO at Chief Outsiders. Contact Beth  at 609.203.4588, or email her at bsomplatsky@chiefoutsiders.com.

Topics: Family Business