5 keys to success in any family business
Running a business is hard. Family life can be hard. Running a family business can seem impossible at times. In addition to the difficult decisions you must make every day for the company, you must also manage a complex network of family employees, shareholders who don’t work in the business, opinionated in-laws and spoiled nephews.
I ran across all those issues and more in running my third-generation family business, Fortifiber Corporation, a Reno, Nev.-based manufacturer of waterproofing materials for the construction industry. This is a collection of my hardest-learned lessons in family business: ways to guide your next generation, manage shareholders and steer your company on to greater success.
1. Your children are like tea. Let them steep a bit to get stronger. In our company we had a rule: Relatives cannot join the family business without at least three years of outside experience. As a young man graduating from college, I had a hard time appreciating this rule, but in hindsight I now can see the wisdom.
Working for an outside business is a perfect training ground for your future leaders. They get an opportunity to experience life outside of nepotism. It is a chance to earn something on their own without questioning if it was given simply because of their last name. They face the prospect of failure, which can be a greater teacher than you ever will be.
As a benefit to the company, young adults can pick up new practices, techniques and ideas that would otherwise not enter the insular ecosystem that can be all too common in a family business.
2. People outside your gene pool have good ideas, too. Develop an independent board. Far too many businesses I have worked with do not have any independent oversight. If they have a board, it tends to be made up only of family members and employees. The power dynamic in this situation is typically imbalanced, where all the people in the room are beholden to an individual who runs the meeting unquestioned.
A truly independent board provides both oversight and insight. They bring an unbiased review of the current strategies and the power to question decisions. You always want someone who can tell the proverbial emperor if he has no clothes on.
3. Something that is given for free is often considered to be worthless. Each family handles inheriting their business differently. Some family businesses sold to the next generation, some are given in equal measures, and others still use a combination of the two. I always recommend some sort of ability to earn a larger share of the company for those willing to work for it.
Equal distribution, regardless of the children’s involvement in the company, devalues the efforts of those working in the business every day. Create bonus structures that reward hard work with a bigger slice of the pie. Those who earn it will feel a greater connection to that ownership knowing they were compensated for their endeavors.
4. An educated owner is a good owner. As businesses grow with the generations, it is not unusual to have several family members who are shareholders but not involved in the day-to-day operations. It is common for conflict to arise from these outside owners, who question the priorities of the business and demand distributions to fund their lifestyle.
When these owners are not kept informed about the strategic decisions, is it any wonder they do not understand or prioritize those initiatives? Shareholders must be kept informed through quarterly updates, annual family meetings or other mechanisms so they can appreciate the cash needs of the business and how you are investing in future growth.
5. Be like Kenny Rogers; know when to hold ‘em and know when to fold ‘em. The idea of selling a business that has been run by your family for generations can be an emotional one. There are many reasons to keep a family business going: the prospect of the next generation taking over, economic security and pride in your family’s legacy. At the same time there can be many reasons to consider selling a family business: the prospect of the next generation taking over, economic security and pride in your family’s legacy.
My point is, the positives and negatives come down to your perspective, and you should do your best to review each of them in turn. You will not be able to fully separate your emotional attachments in evaluating an offer, but work with your outside advisers, family members and spouse to think through the best path for you.
As I said, running a family business can seem impossible at times. It can also be the most rewarding endeavor of your life. Following these rules can help tip the balance to a happier, healthier and more productive family business.
Chris Yount led his third-generation family business to new heights before selling the company in 2018. He now shares his wealth of experiences by serving as a board adviser, angel investor and author (www.ChristopherYount.com).