Inspired by the ‘Clicking Culturally’ session at the recent EuRA Relocation Congress in Warsaw we decided to look at what happens when we feel ready to pass our ‘baby’ on to the next generation. Will your company stay in the family or will you find that perfect partner who is willing to contribute to its growth after you say goodbye? And what happens after you have left? Will everybody be as happy as they once were? Will people ‘click’ with the new company culture?
'“We were at the stage in our lives where we looked at our two daughters and asked them ‘so what do you think?’ They just said ‘mum, we want a real job.” Beverly Dwiggens-Mayhew, Founder & President, Orientations Inc. '
Looking across the business world, approximately 70% of family-owned businesses fail or are sold before the second generation gets a chance to take over. A mere 10% remain active, privately held companies that continue to operate under the leadership of the third generation. In stark contrast to publicly owned firms (in which CEO’s hold the reins for an average of six years) many family businesses have the same leaders for 20 or 25 years, and these lengthy and established leadership tenures can make it harder to cope with shifts in technology, business models, and consumer behaviour. Today family firms in emerging markets face new threats from globalisation. In many ways, leading a family-owned business has never been harder.So what is the answer? Stay put or sell out? ReLocate has consulted the experts in both these fields and brings you the best ways to do either.
Tips for Growing a Family Business
Offering your offspring a fallback option
Many owner/operators of family businesses built their dreams on the idea that their children would work together with them, that they would create something lasting that would provide for their offspring in the years that follow their retirement or passing. In some situations this creates a positive and profitable collaboration as the child is familiar with the running of the business and knows the product or service back to front by the time that they take over. In other family businesses, where the business is quite successful from the beginning, the children are raised in a wealthy atmosphere and may indulge in more frivolous pursuits in their late teens and early twenties. So by the time they need to get serious and settle into their role of proprietor, they are unprepared for the task and due to lack of experience the business fails in the hands of the second generation.
Ensure essential screening and training is employed
Following on from the two situations explained above, ensuring that those family members that do join in the efforts of the family business are experienced, educated and qualified to do so, is essential to the continuation of achieving profits and developing the nature of the business. Simply being born into a family that runs its own enterprise is not qualification enough to take the lead, or even a management role. There are many family businesses that employ best practices such as ensuring their offspring have attained the proper education required of such positions (in the outside world) such as a diploma, degree or even masters. This is also coupled at times with enough relevant experience in a business outside the family business. Some families even go to the extent of having their family members apply for the vacant positions alongside non-family members.
“Everybody thinks about ‘The Succession Plan’. I had great ideas, but no successor.” Patrick Oman, Chairman, Irish Relocation Services
The family expands more quickly than the business
Quite interestingly, some families expand more quickly than the business does. Growing a business can take a few decades, and dealing with economic highs and lows, market dips and competition can take its toll. In contrast to a growing family, a business expands and shrinks with the flow of economic growth and decline. When a business founder has a few children, and each of those children take a spouse and have children of their own, each of whom are interested in taking on a role within the business, employee supply can outweigh demand. Ensure that you do not merely take family members on as staff to please spouses or continue interest from grandchildren. The business must continue to operate as a business and not cater to the emotions of growing families.
Plan for growth to include the growing family
The first two tips are about planning to avoid failure. You want to ensure there is genuine interest from family members, and that this is complimented with a solid education that meets the experience requirements from the hiring company (yours). This is about developing strategies to grow the business and create roles for the ever-increasing family members. For example: two brothers who took over the family business from their father anticipated handing leadership to their combined seven children. The brothers realised that their business would need to expand to accommodate their children to the extent that enough high-level roles could be created within the business. As their offspring completed their education and found the relevant experience to join the family business, the fathers employed the strategy of purchasing two other companies in the surrounding area with the intent of dispatching members of the next generation to run things in the other locations. This in turn generated the revenue required to support the newly employed family members as well as offering enough operational roles for them to fulfil.
Bloodline determining job function when joining the business
It happens quite often in family owned businesses: the tendency for parent and child to specialise in the same aspect of the business. This could be finance, operations, marketing or sales. However comforting this may be for the parent to teach the child their specialty and for the child to feel they are “stepping into the shoes” of the parent, this can cause problems within the business. The first issue this raises is by staying in specialised silos: managers in the next generation do not gain the cross-functional expertise required for overall operational leadership. Secondly, there can be negative consequences of close family members supervising one another. Personal dynamics come into play and this can interfere with coaching and the candid feedback that’s necessary for career evolution.
Engage the services of non-family mentors
A great way to avoid this situation is to appoint mentors that are not part of the family. Even in circumstances where the business is quite small and family members need to supervise one another, ensuring there is input from an interested external party means they can provide objective performance evaluation.
It is important to recognise that family owned and run businesses will always operate differently to publicly owned firms. There are many positive elements of working closely with your family, in an industry that could possibly define the character and nature of those family members. However, to survive the long-haul, family businesses must ensure that they adopt formal policy and strategy on employment, promotion, growth and investment interests. In that way they can ensure that the business continues to be passed from one generation to the next.
Tips for Mergers and Acquisitions
In the event that there are no family members to pass the business on to, or the next generation are uninterested, uneducated or unavailable, the inevitable decision to merge with another business or to sell your business on may have to be made. Or, it could be the case that you want to increase your stronghold in your industry or expand your business to include more family members and you want to acquire another company. In general terms, more than 50 percent of mergers and acquisitions fail and more than 80 percent fail to enhance shareholder value. Let’s review some ideas on the best way to ensure the upcoming change in your business is a positive one.
There is more than just one way to merge, or acquire. Depending on the unique characteristics of your business and the business you are about to engage with, you may want to consider the following:
A buys B
B buys A
A trades shares in A for shares in B
B as above
C is created and shares provided to shareholders in A & B
In all cases, there are a few points to consider and taking note of these before you take the plunge can help you avoid the pitfalls of a joining of enterprises.
What are your motives?
Growing the business for the good of your family is a wonderful motive for merging with or acquiring another business. Selling your business due to lack of interest or lack of family personnel to take over is also a solid reason. However, be honest with yourself. Is it a good time to make this change? What is the economic climate at present? Would it be a better choice to wait a few years to grow, instead of buckling to family pressure right now? If you need to delay due to a difficult market you could ask your children to take some more time to invest in their education or experience. Making a rash choice due to family concerns is not business-savvy. If facing a merger or acquisition your role in the organisation may change entirely, so you need to be clear with yourself what you expect and what you want to get out of the new union.
“We saw the industry changing and knew we’d have to make an investment in order to stay ahead of the curve. But making such an investment at our age had us asking ‘when will we see the return?’ The time was right personally and professionally.” Dean Foster, Executive Strategic Consultant, Dwellworks
You’re building something entirely new
Building your company from scratch is something sole proprietors should be proud of. You are used to making the decisions entirely on your own and taking sole responsibility for them. Taking on a new company with a history and operational structure of its own is a big task and getting two teams of people to work together and accept the new leadership structure takes some planning. You can consider the following to pre-empt any difficulties that may arise:
• From the get-go clearly define your new role: and the role of each member of the executive team. Clarity is crucial in the early days as this will prevent any niggling concerns and enable the team to focus on the big picture.
• Be exact about the new leadership structure: as you now command a larger team than previously, ensuring a representative from each area of the new business is involved in the integration of the two entities encourages cohesion and constant communication amongst team members.
• Pre-empt concerns: more people in the staffing structure means more feedback and possible complaint about decisions that need to be made. Being mindful of the reasons behind taking the chosen course of action and being able to readily explain them can take the sting out of criticism during the changeover.
“I was keen for Patrick [Oman] to stick around for a while and he was keen to stay too, but you have to lay out the ground rules of how that relationship is going to continue. There has to be clarity of roles.” Dan Sennet, Managing Director, Irish Relocation Services
It’s all about the integration of the two businesses. When those involved are too distracted by the completion date and possible payouts, the new entity itself loses focus and can fail right from the start. It can be a lengthy and sometimes dull process when ironing out the logistics of the deal, however losing sight of what the two business are going to become once joined is quite dangerous. Be clear with your staff, ensure they have no unreal expectations of how much better (or worse) the new working structure is going to be, and be honest – some questions they have may not be able to be answered for a while.
Preparation for change
Those staff employed in family run businesses (be it family members or non-family members) are used to a particular way of working. Just like a family, with its traditions and preferences for let’s say, a particular supplier or a brand of soap in the bathroom, a family business can become accustomed to a particular way of operating. When change occurs, this can be confronting for both family and staff members. Getting together with the leadership team and realistically setting out possible risks and downsides to the upcoming deal ensures you’re not caught out when having to face emotional responses to change. Have a plan and you will find those tricky moments are settled more quickly than you expect.
On the same page
Making sure not only the leadership team, but also the staff themselves are on the same page is crucial to what happens after the deal has been done. You have to look ahead to after the dust has settled and agree on common goals for the future of the business. Success is more easily achieved when everyone involved is aware of what needs to be accomplished. Set down some milestones and ways of measuring attainment of these goals. Short-term goals keep the energy levels up and push you onwards towards the long-term goals.
Find out more about what the EuRA panel had to say on their personal experiences in merging and acquiring their various companies by visiting the EuRA YouTube channel.