Constributing author: RoLynne Hendricks, Partner
Originally written for and published by Progressive Dairyman
“Family quarrels are bitter things. They don’t go according to any rules. They’re not like aches or wounds, they’re more like splits in the skin that won’t heal because there’s not enough material.”
F. Scott Fitzgerald
A family business can provide incredible opportunity to the founding generation and to successive generations. However, in our time consulting with family owned and operated dairies, we have seen many instances where the business irreparably damaged the family relationship. This is truly unfortunate as this does not need to be the case. Furthermore, study conducted by the Family Business Consulting Group shows that 30% of family businesses make it through the second generation, whereas 10-15% and 3-5% make it through the third and fourth generations, respectively. This is a difficult statistic to deal with when so much effort has been invested in making the business successful. By understanding when to involve a business advisor you may be able to avoid damaging conflicts and maintain the familial harmony that brings so much joy to life.
Through our experience working with dairies, we have seen many different organizations incorporating many different management styles. Although an advisor should be consulted in many instances, we would like to highlight two critical areas where it is imperative to retain an advisor. These are: 1) when a generation wants or needs to either join or exit the business; and 2) when there is a lack of clarity in the organization regarding the direction the organization should go and who should be in which position of leadership.
Business problems tend to begin with the founder and compound through successive generations. Entrepreneurs are risk takers, hard workers, and exhibit a disciplined dedication to all things business. Often times they sacrificed personal comforts, wants, and desires to become successful. When successive generations are brought into the business, they rarely have the same emotional attachment to the business or understand what the founder has seen, tried, experienced, or suffered through. The new generations may have ideas that, they are sure, will revolutionize the business and make it modern and more profitable, while Dad, Mom, Grandpa, or Grandma may have become cautious in order to maintain what they have shed blood, sweat, and tears over to ensure they leave a legacy for generations to come. Although both mindsets should have a place in the organization, there needs to be mutual respect and understanding between the parties.
Passing the Baton
When bringing in a successive generation prior to the exit of another generation, personality, education, goals, aspirations, leadership capabilities, and financial expectations should be assessed to ensure the correct individual from the successor generation is stepping in to the correct area of responsibility. The first born does not necessarily need to or often should not lead the business. Equally, entitlement felt by successive generations should not determine either the position held or the amount received from the business. What is good for the business needs to come before the sensitivities of family members.
Successful businesses have very clearly defined roles and positions for each member of the organization. Each seat on the bus is occupied by an individual with specialized skills and personality to excel at their assigned task. While this may seem intuitive, family operated businesses have strong forces pushing against this type of management style. Family members may feel entitled; a parent or grandparent may want to help a struggling child or grandchild; or management may not have the resolve to tell a family member that they will either not be hired, let go, or required to change positions. An advisor will be able to assess the personalities, skills, and education of each family member and determine where they best fit for the ongoing success of the business.
One example is of a local bike store. The owner had five children; three boys and two girls. Neither of the girls were interested in owning the business, however, each of the three boys expressed interest. The oldest son was educated as a nurse, never rode a bike unless he had to, and wanted the business for the lifestyle it could provide. The second was an avid biker, had a relevant college education and work experience, and wanted the business for all the right reasons. The third son was too young at the time of transition to be considered. Thankfully, the father chose to let the second son purchase the business despite strong opposition from the oldest son and his wife.
While this is a simple example as there was only room for one son in the business, the principle applies to all organizations. Make sure the correct family member is in the correct seat regardless of personal desires, birth order, or other arbitrary qualification. A business advisor will be able to approach the situation objectively and provide a business based recommendation.
Unfortunately, we have seen businesses continue to struggle after retaining an advisor due to both ineffective execution and failure to execute the plans created during the consultation. Buying a self-help book and keeping it under your pillow hoping to improve will do absolutely nothing but give you a kink in the neck and less money to spend. An advisor should provide ongoing consultation to ensure the business effectively implements the plan. This will provide motivation to and demand accountability from management, helping to ensure the changes decided on are actually implemented. Make time, set aside resources, and commit the effort to execute and implement the plan correctly, otherwise, the experience will leave you frustrated and with less money to spend.
Clear and effective communication takes both a speaker and a listener, and each, individually, need to perform both functions. Emma Thompson once stated: “any problem, big or small, within a family, always seems to start with bad communication. Someone isn’t listening.” Bringing in a business advisor provides the business the opportunity to have all opinions and viewpoints expressed. This brings clarity to the goals and aspirations of all generations, paving the way for a comprehensive plan that will help the business operate healthily and smoothly. This process incorporates the caution and desire to provide of the older generation with newer technologies and operational efficiencies that the newer generations want to implement.
If a business doesn’t evolve with a changing environment, it will become stagnant and die. However, evolving too quickly or without adequate restraint will kill a business just as quickly, if not more so. A business adviser will be able to bring clarity to an organization by saying what needs to be said to help each generation understand what is best for the business. Focusing efforts and resources, making sure leadership is pulling together and in the same direction, and setting forth a comprehensive plan that takes the business from the start-up, first generation stage into a sustainable business model.
Working with family is not easy, and many organizations put family sensitivities before the business, ultimately damaging both the business and the family relationships. However, if managed correctly and guided by an outside adviser when bringing in successive generations or when clarity is needed, a family business can provide incredible fulfillment and satisfaction. More importantly, ensuring your business has good leadership and an actionable development and succession plan that will actually be followed will help ensure your business does not become a statistic.