"How To Safely and Successfully Mix Blood and Business"

by Ronald C. Reece, Ph.D.

In the beginning there were families, soon there were family businesses. Matter of fact, the real story of Adam and Eve is that they had a chain of 75 fruit stands. The Cain and Able trouble was a succession transition gone bad. Well not really, but as early as that family businesses have existed. Today there are some ten to twelve million family owned businesses. Seventy percent of those businesses are not just owned by family, they are managed by family. Family businesses in this country provide 55-60% of the work force a job. And family businesses contribute approximately 50% to the gross domestic product. Family businesses are a powerful economic force.

Often, when you say family business, people think of mom & pop organizations. This little place and there's mom, there's pop, maybe some kids running around. Truth is 30-35% of Fortune 500 companies are family owned. Michelin, Levi Strauss, Mars Candies are family owned businesses. Not too shabby.

A serious challenge facing family businesses is that approximately 43% of them are expected to change hands within the next five to ten years. Actually in the next 15-20 years, it is expected that the largest intergenerational wealth transfer in history will take place. Some eleven trillion dollars in worth will move from one generation to the next. What happens to family owned businesses if we have such a high number of them that are expected to move from first generation to second generation or maybe even from second to third? What we know is that less than a third of those businesses will survive the transition from 1st to 2nd generation and only 13% are likely to transition to the 3rd generation. How can that possible be? Why? Why loose such a powerful economic force at a transition point? There are two primary reasons: lack of planning family emotional conflict - Mixing Blood and Business. As a family business consultant, I have seen the power of that concoction. I have watched warring brothers. I have observed the impact of secrets and greed and have watched, listened, and tried to help a brother and a sister learn to talk to one another after not speaking over their business for ten years. I have seen tremendous success. When family business comes together, it is a powerful force.

The most important element here is that family business is never just business. I have had entrepreneurs, the head of the family, the head of the business look me in the eye and say: "it's just business," and I look him back and say: "you know that's not so." Family owned business is never just business. As Roger Enrico of PepsiCo says: "the soft stuff is always harder than the hard stuff." If that's true for PepsiCo it is doubly true in family owned businesses.

So what do we do? Well, whether it is a recipe for gunpowder or a recipe for soufflé it's a matter of which ingredients and how we mix them. The ingredients and the mix determine whether or not we get explosion, failure, or great success. That's the secret.

So, what will we mix? We are going to mix three primary ingredients if we want blood and business to work. Those three ingredients are:

Regular planned family meetings

A strategic business plan

Outside Board of Directors

Families in business are notorious for talking about business anytime they get together. Over the dinner table, at Christmas, at Thanksgiving, or spontaneously when you go over to a family member's house. Those informal meetings of the family often turn out to be conflictual because we are mixing business conversation at family time. Regular planned family meetings are the key.

The second ingredient is a strategic business plan. Every company is supposed to have one. But small businesses are notorious for not having them. Small businesses have them in the founders' head. Maybe he or she knows where the business is going and occasionally tells somebody else in the family, if their lucky. Therefore, a strategic business plan is critical to the mix. Because as you develop it you gain consensus, you get involvement, you get a more unified direction of the business and a measuring stick.

The third ingredient is an outside board of directors. Outside directors bring experience, knowledge, and objectivity to the mix. However, most family owned businesses do not like outsiders in their business. They are private, close to their chest, and really don't talk much about the inside workings of their business. But, the fact of the matter is, the chances for survival increase when boards are in place.

Of course, the foundation ingredient that goes along with the three primary ingredients is communication. The willingness to listen and the willingness to talk. Not like one entrepreneur told me, "You know around my family business we communicate real well. I talk they listen." Probably a common occurrence.

As I move a family through mixing the ingredients, new awareness arises about how they interact, what they really want, what they think they can or cannot do. We come up against road blocks that we have to navigate around or through with the primary goal being to help the family and the business exercise their own best judgment. Giving pat answers is not a good idea as a consultant. Pulling it out, working with, adding to the mix is what ultimately makes it stronger and better. From conflict resolution to consensus and moving to a new vision, the process helps the family business see the future much better.

Along the path though, as we mix these ingredients we have to pay attention to leadership development. You have a younger generation that is saying, "I'm ready for this business." I watched my father and my brother dance in our family owned business. My brother saying all right give it to me, its time, move on dad. And my dad saying I built it, I'm not letting go until I'm good and ready. Through that tug of war, there has to ultimately be an agreement that the business will transition. The younger generation must work to demonstrate that they have the desire, knowledge, and skill to do the job. Of course, the older generation must let go.

Most of the time, all of this happens by osmosis instead of having a real plan. I often hear the recommendation for a written succession plan. I would just like for there to be some succession conversations. To openly exchange ideas about how best to make it work. There are other necessary actions that make blood and business strong: good estate planning with proper risk management; the family retreat and family council; family member employment policies; incentives for non-family employees, etc. Again, it's a matter of mindfully mixing the right ingredients. When we do, blood and business can mix safely and successfully thus creating the "wealth of we" in a thriving enterprise.

© Reece & Associates, P.A.