FAMILY BUSINESS – Company Owner Needs to Attend to Personal Growth By ERNEST A. DOUD JR. Family-owned businesses can be sources of great satisfaction to their owners, and have many potential competitive advantages. Despite that, only 1 in 4 will last through the second generation; Fewer than 1 in 7 will last through the third. This column is dedicated to helping family businesses beat the odds. In a previous column I discussed the responsibility of founders of family-owned businesses to share their visions, and to encourage other members of the family to share their’s. Another contribution the founder (or current leader) can make to ensure the success and perpetuation of the business is to focus on personal growth and development. In the early years of most businesses, the founder is the business. He/she conceived it, created it, and worked hard to make it grow and prosper. In fact, the founder may well be the entire management team opening the doors in the morning, running the operations, making the sales calls, negotiating with suppliers, doing the banking, meeting with the accountants, managing collections, supervising the entire work force and closing the doors each night. When customers and suppliers have business with the company, they see one person; the Founder. Payables, receivables, payroll, and bookkeeping are done nights and weekends by founder and spouse at the kitchen table. When all this hard work finally pays off, the business survives this difficult first stage and starts to grow. While some of the early headaches become less severe, new ones emerge to take their place. On the plus side, the cash flow improves. Meeting the payroll and paying suppliers are no longer crises. The founder may even start earning a living wage. One the other hand, the business is faced with a fistful of “mores”: more employees, more customers, more suppliers, and more capital needed to support its growth. Because the business is larger and more complicated, management and operating systems need to be more formal; and more technical expertise is needed. These are signals that the founder no longer can run the business singlehandedly. However, because that is the way the founder has made it work, he/she often continues trying to be everything to everybody much to everyone’s frustration (including the founder’s). To understand why, we need to know what makes the typical founder tick. Consider the following statements: -“This business is my ‘baby’ my pride and joy. It needs my touch.” -“I like things loose and informal. Formality is the kiss of death. If I had wanted a formal organization, I would have kept working for that big, formal company I left.” -“The employees are ‘my people’. They count on me. It won’t work to put someone else between me and them.” -“I was good enough to get the business this far, and I’m still good enough.” -“It worked this way before, and it can continue to work this way.” These popular attitudes can become deeply entrenched. However, in the long run they just don’t work. Brien’s First Law of Business states: “At some point in the life of virtually every business, its ability to succeed in spite of itself runs out”. Experience suggests that Brien is right. As businesses grow, their needs change. Some of the attributes that made the founder so indispensable can actually get in the way. It takes real courage to admit that some of your skills and some elements of your management style may no longer be the ones that are best for your business. It takes extraordinary insight to know which of your skills and styles you can change and which you cannot. Family businesses which are struggling are very often saddled with founders who resist change, putting their personal “comfort” above the needs of the business. Which role will you play? Completing a comprehensive, objective assessment of your family business is a good way to begin the process of personal growth and change. The assessment should include the following: (1) the operating effectiveness, financial health and competitive position of the business; (2) the management systems and methods employed in the business; (3) individual management skills, management styles, and “bench strength”, (4) the management systems and methods employed in the business; (5) the dynamics of the family/business relationship; and (6) your plans for management and ownership succession. Ernest A. Doud Jr. is the managing partner of DoudHausnerVistar, a consulting practice focusing on assisting clients to successfully manage family/business dynamics. Steps in Making a Transition Which Will Keep Order Letting go is tough, particularly in the transition from first to second generations where there are no examples from previous generations to guide you. However, if you are serious about business continuity you have an obligation to your family and your business to deal with management succession during your lifetime. Here are some steps to follow to accomplish an effective transition: 1. Face Facts. Transitions are inevitable in both the life of your business and in your personal life. Just recognize that no matter how carefully you plan, there will be some tough decisions to be made along the way. 2. Start Sooner, Not Later. Transitions take time. The most effective ones are evolutionary. Instantaneous transitions rarely work well, and place undue strains on both the business and on family relationships. 3. Start With Your Own Transition. Determine how you can best support the business in a less active role; one that makes a real contribution to the business and is personally satisfying. Develop non-business interests you find personally rewarding. Once your own transition is planned, develop a written management succession plan. 4. Get the Family Involved. Achieving consensus among family members will make this a better experience for everyone. Ernest A. Doud Jr.