| Family
Businesses and how they survive
By
Evan Wise, Managing Director of Management One
Did you know that 177 of the S&P 500 companies are
family owned (FO) and run? The performance of these
companies shows a 15.6% ROI compared to an 11.2% ROI
for the non-family owned (NFO) companies. The FO companies
are growing revenue at a 23% clip while the NFO companies
are growing at less than 11%. When you stop and think
about it, aren’t the oldest businesses in your
own hometown the family owned and operated business?
So
what do the best FO businesses have that others don’t
have? Is there a formula for success hidden behind their
doors? Like most mysteries, once you define the right
question and see the answer, you will probably realize
that you knew the answer all along.
First
and foremost, the families of FO companies more often
share passion, agility, drive and decision-making ability.
These companies have a genetic team at the top and many
times, throughout the organization. They know that the
gold at the end of the rainbow is theirs. They recognize
that succession planning is important and often train
the next generation early in their career to work their
way to the top to learn the business. When they fail,
one of two problems can usually be identified. Often
they have a younger generation that is not capable of
taking over so there is conflict with the generation
in control about levels of responsibility and authority.
Just as often, however, there is a conservative traditionalist
at the top who doesn’t know how to share responsibility
and authority. They have a hard time trusting the younger
generation, even those that are highly educated and
very capable.
Most
often, family members have unquestioned loyalty. Many
FO businesses that experience conflict between generations
bristle when an outsider mentions that conflict. The
family run businesses seems to be able to make faster
decisions than other businesses. Even when the decision
is not the best, the loyalty and dedication to make
it work overcomes the obstacles.
Why
don’t all family businesses succeed? The reason
is leadership and teamwork. A family business has a
natural divide that must be bridged. It is impossible
for an outsider to become a family member unless, like
Robert Duvall as Tom Hagen the trusted consigliari in
the Godfather, you can become a part of the family .
How do you make employees who are not family, part of
the team? How do you instill loyalty and drive when
they know the road to the top is blocked by a family
member?
The
key is to make the employee feel like a part of the
family-- the business family. Include them on decisions
and discussions. Take their input and support their
ideas. In short, a good management process headed by
a good leader is the key. This is the same formula for
success that can lead to prosperity for every business.
It just works a little better when there is a whole
family of loyal, driven supporters.
Once
the team is established, a good leader can take the
team to places they never dreamed they could go. We
often see that in sports when the underdog wins the
championship. When the leader gets the team to believe
in themselves and lets the team become true partners
in setting the direction, all things are possible. What
happens when the leader tries to force the team to go
where they don’t want to go? That is dictatorial
and authoritarian and destroys the drive and energy
that are the keys to success.
How
do I know this works? We have been successful at bringing
40 affiliates from around the country into our business
family. Each one shares the goals, drive and enthusiasm
to move the team forward. Most are reaching goals that
they never dreamed they could reach. They are helping
their client businesses accomplish the same thing. The
Winning@Business™ process has been the key to
our success for our little family of 40.
Where have all the family businesses gone?
Used to be the men’s store in town was a small
family affair. The women’s store where your mom
shopped had been there for years. The shoe salesman
knew you by name. Ever want to shop at a place where
“everybody knows your name” just like the
Cheers song depicts? Most people answer a hearty, “yes”
to that question.
So
why are so many of the family run businesses that you
grew up with closing their doors? The answer is growth
or, more accurately, lack thereof. Today a successful
business needs to continue to grow. As competition increases
from big box stores, the Internet, catalogues and other
sources, there is more pressure to continually add new
customers. The competition puts pressure on prices as
well while at the same time, rents, goods and services
are all increasing in price.
Thirty years ago it was much easier to do business.
My father had a small men’s store in Ohio. He
would buy merchandise without much of a plan. If he
and mom saw it and liked it, they would buy a few smalls,
mediums and more larges. The business was based on selling
what they bought. If they had goods left over at the
end of the season, everything went to 20% off. If it
didn’t sell at 20% off, it was stored for next
year. (Somehow the aging process brought new life and
it was regular price next year)
The
prescription was pretty simple and it worked. There
was only one other men’s store in town so the
choices were few. Dad knew everyone in town personally.
Like many other family owned businesses, my brother
and I went on to other endeavors and when Dad died,
so did the business.
Many
family businesses are struggling to succeed but the
business model is different today. A successful business
must pick the goods that are right for the target market.
While relationships and sales ability are important,
they won’t help if the merchandise is wrong..
The quantities of each classification of goods must
be determined so that there is enough on the shelf to
satisfy demand. Excess merchandise is marked down at
the end of the season, which cuts into profits, but
all the merchandise must be sold because it will just
lose value by next season. Today, mistakes are more
costly.
I
have seen many businesses where the transfer of ownership
to the next generation was a critical issue. In one
example, the father retired but never let go. In theory,
his two sons ran the business but no decision went unscathed
by the father. This men’s store chain that had
35 stores at one time but they had shrunk to 23 stores
before we got involved in trying to get them to accept
current methods of inventory and business management.
During one memorable meeting, the sons argued to adopt
our methodology while the father screamed, “The
key is to work harder and buy blue button down shirts!”
Obviously, the succession to new generations brings
new insights to the business.
Another
example is a small packaging business in Chicago. The
father retired and left the business to his son. The
son bought new equipment, shed the large accounts and
reoriented to fill a fast turnaround specialty niche.
The business skyrocketed and is doing better than it
ever did. This scenario is more common than not. In
the 1960’s, Michael Smurfit took over a small
paper mill and box plant in Dublin, Ohio from his father,
Jefferson Smurfit. Michael grew the business to a $20
billion company before retiring and leaving his son
Tony with a major portion of the business. Tony will
likely move the business in other directions as well.
The
key is growth and change. In one instance, the business
was stuck in the past and failed. In the other examples,
the businesses continued to grow and there was a very
bright future. Unfortunately, many of the small family
owned businesses in your hometown are stuck in 1985.
The competition is changing continuously and that tells
the tale.
The
truth is that as the market accelerates and competition
thrives, everyone is looking for a “place where
everybody knows your name”. The impersonal shopping
malls are losing business to thriving downtown areas
that are being revitalized by small, family owned shops.
There is a huge future for small businesses with a well-defined
niche. The key is that they must keep a finger on the
pulse of change and have a strategy and management process
that allows them to adapt quickly. They need a team
of individuals committed to both customer and business
success.
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