It’s true: Family businesses are the heart of America.
In this country, family-owned businesses account for 89 percent of business tax returns, according to recent research. That translates to more than 82 million people (62 percent of the workforce) who are employed by family enterprises.*
However, while the numbers are staggering, the day-to-day practicality of actually working in a family business is a bit harder to swallow. There’s conflict, upheaval, management crisis, succession woes, productivity issues and more to deal with.
Such trials and tribulations take their toll on both the business bottom line and a family’s relationships, which is why only 30 percent of family-owned businesses survive into the second generation, and only 12 percent are still viable into the third.**
Family businesses are a way of life for the majority of PHC contractors. It is an industry conducive to family-owned firms because: 1) the time-honored aspects of the profession nurture tradition and learned skills; and 2) there are few boundaries to entering the plumbing profession (with enough ambition and a varying skills set, there’s little to hinder you from hanging out a shingle).
In an effort to assist so many of our readers who toil side-by-side with family every day, PM sought to uncover some of the common obstacles facing these types of businesses - especially conflict resolution and succession concerns - and offer a bit of insight into making things work.
'Stem To Stern'Many people become involved in their family’s business because it surrounds them from a young age. Sitting around the dinner table, hearing about the days’ events, you enter into the profession because it’s familiar to you.
Like the Bush and Kennedy families in politics, it’s what they know and what they’re comfortable with.
It’s engrained; you’re involved from stem to stern.
Wayne Rivers is the president and co-founder of the Family Business Institute, a consulting firm that provides help to family businesses to maximize their family and organizational success. He spoke with PM about the most frequent “family 9-1-1” calls he receives from his clients, and also offered his advice into resolving conflict among employees and family members.
“There are two kinds of clients we see at The Family Business Institute. One is in crisis: sudden death, divorce, financial, etc.,” Rivers says. “The other is not in crisis, and never wants to be. They’ve seen competitors go under because of conflict and want to avoid its pitfalls.”
Consulting firms like FBI offer objectivity, an outsider’s view. And most of the time, this objectivity is the most valuable thing for a tight family company.
“There are general patterns that all family businesses follow,” informs Rivers. “But there are 16 known personality types, and each interacts with the others in different ways.”
For instance, you get more than your good looks from your ancestors. Your family unit - regardless if you work in a family business or not - is where you learn conflict resolution. During high levels of stress or worrying events in the business world, you’re most likely to resort to “basic training,” or respond in a way you learned from an early age to fight with siblings or loved ones (i.e., yelling and screaming, avoidance, or silence).
“The emotional risk is more heavily involved in a family business,” says Rivers. “The stakes are higher.”
Very few of us have degrees in psychology and counseling, so when family businesses experience conflict and fail to have systems in place to deal with the issue, breakdowns in relations can occur. It becomes hard to separate the two worlds of business and family.
“Since work conflicts affect your family relationships (with brothers, sisters, in-laws, parents, nephews, etc.), when you get together for family events, your business consequences can follow you home,” Rivers says.
Generational approaches to obstacles are different as well. Today’s generation is less likely to respond to pyramid forms of hierarchy (what Mom or Pop says, goes). “Younger generations are much more ready to question authority and shake up conventions,” Rivers says.
According to a recent study of family business conflict resolution by The Family Firm Institute:
- 15 percent of respondents left
decisions up to the founder of the family firm.
- 20 percent reported that their families avoided
discussing conflicts altogether.
- 43 percent said their families overcame conflict through time and long discussion.
One way to resolve family and business conflicts is to undergo a process of self-awareness. “Without an advanced exploration of our own motivations, we are blind to problems we may be inadvertently introducing into our organizations,” according to Rivers.
Next comes team awareness, understanding the motivations of others and recognizing the communication preferences of others in your business and family. Back to those 16 personality traits - as a leader, or future leader, you must learn how to manage the myriad characters you have on staff.
And ideally, a single goal and coherent company vision should be in place to give all members involved a clear target to aim for:
- Company size.
- Market niche.
- Service area.
- End game.
Work to professionalize the business, Rivers suggests. Write out a vision or business plan together that labels directives and assigns responsibilities so everyone knows his or her job and place in the organization.
“Young people especially want a sense of participation and empowerment in their companies. They want to know they are really contributing and are really a part of the team.
“It’s ironic, but once visions are established, roles are clarified, budgets are developed, etc., family conflict seems to wither and disappear,” Rivers writes.
Succession Worries And WoesBut sometimes agreeing on a vision is the conflict. “It’s not me, it’s him,” is a complaint often heard. Leading the way in this finger-pointing match is disputes between parents and children with respect to growing the business.
Without a doubt, the generational gap is a large one to bridge.
While “junior” might be ready to take things to the next level, “senior” holds back, favoring the status quo.
“Each generation is different. Even the family structure is not approached the same,” says Rivers. “There is a huge schism between junior, who values personal time, and senior, who associates work hours as working hard.”
In times gone by, it was expected that the father work long, hard hours to provide for his family. Hours at work seemed to measure his success.
Today, family and personal time is important. Spouses want equal sharing of duties at home, and won’t put up with missed dance recitals or neglected little league games. Younger generations want a balance outside of the company.
The worries and expectations of Mom and Pop, as they grow older in the business, revolve around financial security for their later years. They also can’t seem to let go of day-to-day operations.
“Senior also has a hard time acknowledging that his child is now an adult. But even more than that, he’s a peer able to make his own business and family decisions,” Rivers offers.
Junior, however, could be worried about failure - tanking Mom and Dad’s business or screwing up their retirement. “He or she wonders, ‘Will I ever be good enough?’”
At the same time, the “youngster” also wants respect and responsibility: the power to make his or her own decisions, and grow in a new direction from the foundations of the previous generation.
Again, clearly defined guidelines that spell out each business member’s duties, titles, responsibilities and goals help create a sense of security within any organization, but especially a family business, where traditional authority perceptions are challenged.
For instance, Dad has been both boss and father for decades. But as he nears retirement age, his children take over more day-to-day decision-making. Now, that loss of authority shouldn’t reflect on his duty as a father, but experts say it’s difficult for many business heads to let go of the reigns and not feel threatened as head of the family as well.
FMI Corp., a management consulting company, reported results from its latest survey of construction firm owners on ownership transfer and management of succession. It found that 24 percent of respondents planned to sell their stock in their company and no longer be active in the business in less than five years. However, nearly 30 percent said they were not ready to transfer ownership, and another 20 percent were unsure or unaware of techniques for succession.
Hugh Rice, chairman of FMI, led an “Ownership Transfer and Management Succession” program last summer, and was not surprised by these findings.
“Many owners simply do not understand how difficult it can be to manage a successful internal transfer,” according to Rice, who says transferring a business internally can take eight to 10 years.
FMI reported that six out of 10 contractors cash out of their businesses through an internal sale to key employees or family. Yet, if the survey results ring true, almost 50 percent of contractors are not ready to face transfer of ownership.
Rice offered these five key components to the management succession process:
- 1. Defining objectives and parameters of the
2. Valuing the business.
3. Exploring and selecting appropriate ownership transfer techniques.
4. Understanding and addressing management succession issues.
5. Implementation and follow through.
Jaffe suggests that family businesses should use leadership as a stepping-stone to other challenges and roles still ahead. “A good family leader should maybe envision a 15-year run,” Jaffe writes. “After that time, most any corporate leader begins to get stale, or holds the next generation back.”
Our lifespan and number of active years has increased, and Jaffe believes family leaders should begin to think of their lives not as a “single ladder,” but rather a journey with several destinations. Those destinations could include mentoring and educational pursuits, community and political involvement, and even writing and travel.
Rivers concludes, “Above all, be patient with one another. Understand that transition is much harder than you think it would be, because you’re both approaching something neither has dealt with before without any experience to fall back on. Especially first-generation transitions.”
If a total ownership transfer is not yet ripe, to avoid financial risk, create a new company or division that can eliminate the financial risk for Mom and Dad, yet still allow the successors to venture out into new territory or business models, Rivers suggests. And with each transition, come to a consensus about the direction of the company.
The good news is resources for family businesses have exploded in recent years. Only 15 years ago, hardly any qualitative data was available. It was sketchy at best. Now with the Internet, information and help is just a click away, and families in crisis or with questions can get solutions and answers.
From family- and small-business organizations, universities and business schools, consultation firms, and magazines and trade journals, the ability to survive and succeed at a family business is within easy reach.
* Source: Family Business Review, September 2003
** Source: Family Business Magazine
Helpful LinksAspen Family Business Group
The Family Business Institute
Family Firm Institute