4 Keys To Family-Business Success
Originally published: 03.01.12 by Heather Onorati
Contractors who work with relatives need to maintain healthy operations and relationships.
Most of the time owning a family-run contracting business is rewarding. You get to work alongside people you know, trust, and love. You can build an organizational culture that matches your family’s values. And, you have the added pride of leaving a legacy to pass on to future generations.<>On the other hand, you have to consider all of the emotional and relationship issues associated with co-working family members — all of which can complicate decision making, hiring, expenditures, and more.
In fact, statistics show that one third of family-owned businesses do not make it to the next generation. How do you avoid failure in a family-run contracting business?
Family businesses have to deal with all of the same business issues that a non-family business faces — and then they have family dynamics to manage, says Ted Clark, executive director of the Northeastern University Center for Family Business, Boston. Although there’s no one right way to run a fam- ily business just as there’s no one right way to run any business, there are keys to maintaining both healthy operationsand family relationships: succession planning, family meetings, strategic planning, and instituting a board of advisors.
The transfer of leadership from founding generation to next generation is a major hurdle that family-run businesses must clear, says Doug Box, an independent advisor to the Family Enterprise, Box Family Advisors, Dallas.
“Most family-owned companies will not successfully make that jump,” he warns.
There are two reasons, Box says. One is that the second-generation family members don’t have the same persistence, vision, or “Midas touch” of the founding entrepreneur. The second reason is due to the complexity of a single controlling owner passing shares on to multiple children. It’s a breeding ground for conflict. This is the point at which business owners often ask Box for help.
Careful planning of who will succeed the founder — done well in advance — outlines how and when succession will occur and puts in place a process for grooming the next generation of management.
When multiple children are to receive the business, he often suggests to the family that the second generation choose the next leader among themselves because he has found that people are much more willing to support a decision that they have had a hand in creating. Not only does such succession planning curb conflict, it’s also important from a financial standpoint.
Clark agrees that succession planning is one key area that separates successful businesses. Owners who are counting on their business to fund their retirement need to plan ahead so that they can create something of value that can be hand- ed down or sold, he says.
Succession planning also instills confidence in employees that the business is positioned to continue.
Another key to running a successful family business is to provide a channel for the family members’ input. Often, people try to separate business from family. Although it may work for some, Clark and Box say that might not be the best approach. And, in fact, a 2008 survey conducted by Laird Norton Tyee, a Seattle-based wealth-management firm, found that family businesses that had established a distinct process to receive input from the family members on business decisions were more profitable.
Sometimes decisions that might be great for a non-family enterprise would mean disaster for a family business.
“If you look only at something from a business standpoint, it could be a mistake,” Box says. “Not always, but it could lead to a disaster because you have to take into consideration how a decision is going to affect the family.”
Better than isolating the two, Clark says aim to control the two.
“To keep them separate kind of implies that they don’t mix, but they do mix. They mix well,” he says.
He suggests holding regular family meetings to provide a constructive outlet for working through family issues that are overshadowing business concerns. A difference of opinion among family members doesn’t always result in discord, but emotion is the added dimension of co-working family members.
“Family meetings keep the communications and the relationships in tact,” Clark says.
Mark Pippin of HVAC contractor Pippin Brothers, Lawton, OK, says it’s important from a morale standpoint that employees perceive that family members are in agreement where business is concerned.
“If behind closed doors we don’t all agree, it’s important to come to some level of agreement so that the employees perceive that we are all in agreement,” Pippin says.
Bob Hamilton of Bob Hamilton Plumbing, Heating and Air, Overland Park, KS, says he holds family meetings when he notices an issue with the employees who report to managing family members.
“I think it’s really tough for a second generation coming in to actually earn the respect from the people that they’re managing, so I don’t get in their business,” Hamilton says.
Instead, he addresses issues directly with the family member. His daughter manages the service technicians while his son-in-law manages the installation department.
“I don’t step in and start managing their people,” he says. “I’ll guide them and step back. If I want them to do something different then I go through hem and they change it with whoever they’re managing.”
It’s no different with any other manager, he says. He does the same thing with the office manager who is not a family member. He feels it’s important for the employees to respect their managers, and in order for the managers to earn that respect, the employees need to know absolutely who their boss is, Hamilton says.
He has had several of his children working for him at various times, and sometimes issues have come up in the way of general disagreements. When that happens, he says he takes the mem- bers aside and reminds them that people are watching their example.
“I tell them, they’re looking at what you’re doing. Set the example, and don’t make it a bad example. It’s parenting,” he says. “For anybody that works here, I would do the same thing.”
While family meetings provide a forum to air family issues, strategic- planning meetings keep the business on track, Clark says. The Small Business Administration suggests that every business have a clear plan for accomplishing goals.
Pippin advises colleagues to have a business plan, defined job descriptions, and to make sure that family members and non-family members all know the chain of command and who is responsible for what.
Strategic planning should articulate the short and long-term goals for the company and detail the path to achieving each. It lays the path for determining the direction of the company. You should seek answers to the following questions:
- Where are your goals for the business?
- How will they be achieved?
- Who is responsible for what?
- What is the time frame?
The plan should also include scheduled follow-up meetings to evaluate progress.
Where strategic planning differs in a family-run business is that planning needs to take into consideration the needs of the business as well as the needs and desires of the family. That includes members who don’t own or run the business, but still could have influence or be
affected by the business’ ultimate success or failture.
Understanding and satisfying the needs of the family members can im-prove profitability, according to the 2008 Northwest Family Business Survey conducted by Laird Norton Tyee. (Despite strategic planning’s importance, the same survey conducted the year before by wealth-management firm found that only 54% of family businessess say they have such a written plan.)
Board of Advisors
Probably the most important thing a family business should establish is a board of advisors, Clark says. A board can provide guidance and advice on anything the family needs, he adds. To start, a board can help to articulate a long-term vision that is needed to define the strategic plan as well as how succession will occur.
The critical component, he advises, is choosing members who have complimentary skills — skill sets that you don’t have coupled with different viewpoints.
“You want somebody that can see the world from a slightly different perspective so that they don’t give you the kind of information that you already have.”
In addition, Clark says, you want to add people who have only the best interest of your business at heart. So don’t target your attorney or accountant, but an attorney or accountant. You want advisors who don’t have a dog in the race, Clark says. By selecting advisors not affiliated with your business in any other way than for guidance, you better guarantee that you’re getting unbiased advice.
When establishing your advisory board, it’s a good idea to agree on a term limit. The term limit offers both par- ties a way out if things don’t work out. It’s much easier to extend a term than to dismiss an advisor with whom you had no agreement in place, Clark says.
Operating a family business may pose unique challenges, but there are just as many unique ways for handling those challenges. Both anecdotal evidence and research show that the successful family run businesses will put in place a pro- cess for balancing the needs and goals of both the business and the family. There’s no one right way to do it, Clark says. Be open to the advice of others, and then establish what works for you.
Heather Onorati is former editor of HVACR Business and now works as a writer and editor in business communications.