Let’s explore family businesses

Featured in The News & Observer November 21 2010

By Henry Hutcheson — CORRESPONDENT

Family businesses form the backbone of the economy in North Carolina, the United States and virtually every country of the world.

The Family Firm Institute estimates that more than 70 percent of all businesses are family businesses. At the same time, family businesses historically have accounted for the largest portion of new jobs created, a significant percentage of the GDP, and a good chunk of Fortune 500 companies.

What is a family business exactly? Some define it as simply two or more relatives working in the same company. Another school of thought attributes family business status when there is significant family influence. Many think that “family business” simply means “small business.” But the billion-dollar companies of Ford, Wal-Mart and Cargill would disagree. The best definition I have encountered comes from Carmen Bianchi, the director of the Family Business Center at San Diego State, who says, “A family business is any business that considers itself to be a family business.”

There are also definitions of the generations of a family business. The first is referred to as the Founding Generation, the second as a Sibling Partnership, and the third as a Cousins’ Consortium. I usually refer to the fourth generation as “Wow, isn’t that amazing,” as only a small percentage of diligent and forward-thinking family businesses ever make it that far.

All shapes and sizes

Family businesses come in many shapes and sizes. Most family businesses begin with a single founder, who either saw an opportunity or simply took action to make ends meet. Maybe it was both. However, this can quickly turn into a husband-and-wife team, or two brothers or sisters.

Then the next generation comes along, grows up among the hustle and bustle of their parents trying to build a business, helps out where possible, and one day finds that they are working in their parent’s business. Then the kids get married and bring in-laws into the business. Trusted and capable non-family employees are picked up along the way.

Regardless of the definition or form, there can be no greater joy than working with the people you love the most.

Which brings us to another great statistic of family businesses: Many studies have shown that family businesses actually outperform nonfamily businesses. The reasons for this phenomenon are plentiful. Yes, people try harder when the family name is on the sign. Yes, family businesses have a longer-term perspective than the quarterly driven publicly held nonfamily businesses. And yes, you can use your kids as slave labor and get away with it.

But the top factor that enables family businesses to rise to the top must be the level of trust. Each member of the family knows every other member is doing their best to move the company forward.

Warren Buffett, arguably the world’s greatest investor, touched on his passion for family businesses in his 2009 letter to shareholders: “Our long avowed goal is to be the buyer of choice for businesses – particularly those built and owned by families. … We have a decided advantage, therefore, when we encounter sellers who truly care about their businesses.”

Facing the odds

Unfortunately, there is another more sobering family business statistic. According to research, more than 66 percent of family businesses don’t survive into the next generation.

These are not good odds. The reasons for failure abound: The up-and-coming son or daughter is not willing and able; dad refuses to let go of the reins; business mismanagement; inter- and intra-generational conflict; liquidity demands from non active shareholders; lack of preparation; entitlement; drug and alcohol abuse and their enablement; mental illness – the list is endless.

Help and advice

Fortunately there is help: publications like Family Business Magazine and Family Business Journal, and many books. University-based family business centers around the country do research that family businesses can join, including those at Wake Forest University and UNC Asheville.

There is also the Family Firm Institute, the global governing body of professionals who serve family businesses. The institute is dedicated to being a resource for family businesses and providing education and certification to those who serve family businesses. And then there are of course family business consultants who assist these businesses with their issues, like my firm, ReGeneration Partners.

ReGeneration Partners was born in 1995 from the idea that family businesses can benefit from getting professional help. I grew up working for my family’s business, Olan Mills Portrait Studios, the predominant provider of family photography around the United States and in many countries of the world. The company was founded by my grandfather, Olan Mills. My two uncles took it over for the next generation. At one point, I decided to make my own path by pursuing a career with IBM. My brother, Jim, stayed on.

When differences of opinion arose about the direction of the company in the 1980s, we sought the help of a family business consultant. Seeing the benefit of such help, my brother and I realized that our backgrounds in psychology, MBAs, business experience, and experience working in our family’s business qualified us to help family businesses. Our third partner, Mary Ann Zimmerman, grew up working in her family’s business.

ReGeneration Partners has helped more than 130 clients around the country cope with the various issues facing family businesses like succession, conflict, communication, governance and business optimization. We have written articles on the various dynamics of family businesses, and Jim even has a book recounting his days at Olan Mills.

We have presented to various industry and professional groups around the country, and sit on some corporate and professional boards relating to family businesses. I am a board member of the Carolinas chapter of the Institute of Management Consultants and reside in Raleigh. But most interestingly, we are actually a family business helping family businesses.

With this new column in The News & Observer, I look forward to reaching even more family businesses by discussing those issues most important to them and highlighting some of the best practices in handling problems.

And I am eager to hear and address many comments, questions and concerns of those of you working to make your own family business a success.

Read more here: http://www.newsobserver.com/2010/11/21/813919/lets-explore-family-businesses.html#storylink=cpy