Family. Business. For many, those two are the most important things in life. But what if they merge into one? There are an estimated 5.5 million family businesses just in the U.S. According to the results of a survey in Australia, 70% of businesses are family owned. Of those businesses, 41% intend to pass the business on to the next generation. Only one generation is involved in 36% of them. In 59% of them, two generations have contributed to keeping the family business going.
Family business that involves three or more generations are rare, and account for only 5% of family owned businesses. One example is Honora, a family owned jewelry business. In an interview, CEO of Honora, Joel Schechter, talked about some of the benefits and challenges of being part of a family business. One of the benefits he pointed out was the advantage of having both nature and nurture. Children of entrepreneurs have the opportunity to witness the practical application of the entrepreneurial spirit every day. According to Schechter, “I can tell you as a son of the owner, you really get to know the life that your parent leads. You really understand the trials and tribulations, and what it took them to make a living for you.” Such understanding goes a long way in cementing family loyalty.
He points out that another advantage of a multigenerational business is that each generation grows up learning skills specific to their generation. For example, the current generation is far more computer savvy than the previous one. Multigenerational business utilize both the valuable business experience and industry expertise of the older generation, and the new technological and media skills of the younger generation. The previous generation provides the valuable virtue of patience learned before messaging was instant, while the current generation thrives on market research and speedy results. That mixture of qualities is a powerful business combination. Also because the business is already developed, resources can be used more effectively.
Concerns of Family Businesses
Two of the major concerns expressed by family owned businesses was maintaining control of the business for future generations and being able to compensate family members adequately for their work. Another major concern was that of balancing personal versus business issues within the business. While the degree of trust and loyalty of family members is usually higher than that of outside employees, family conflict can become an issue. In fact, Schechter reported that in the beginning, there was so much conflict that he quit the business three times within the first year and a half. That example just demonstrates that with family, any conflict can usually be resolved while maintaining a familial relationship. Today, his own sons work in the family business as well.
Succession of the family business is another issue with potential for creating conflict. Issues of authority and the assignment of responsibility have resulted in 34% of family business creating formal board structures. An additional 28% of them have a family council, in which all members can express their ideas, ambitions, needs, and concerns. A lot of them even have a family constitution to reduce even any appearance of favoritism or members with more authority being viewed as having more rights. It’s also beneficial to have a succession plan in place in the event of retirement, accident, or emergency, as well as giving option to family members who may want to opt out of the business to liquidate their share. Finally, retirement planning is much more important for family businesses since they don’t have employer provided pensions or 401k investment accounts.
The degree of commitment of family members to the success of the business for the benefit of everyone usually includes making occasional sacrifices to make that possible. One example of that comes from arborist family business from Brisbane, where Glenn Walton, current owner, took over the business from his father as soon as he was legally able to do so. While this sounds impressive, it’s also fair to say that he got plunged into a world of business and serious decisions while his peers were partying and living the easy, college life. Of course it all payed off, but family business asks for commitment and loyalty, and sometimes, you have to give up on a slice of your life to get the whole pie later on.
In closing, there’s a good piece of advice that Schechter offered for those who employ outside workers as well. To avoid difficulties, he advised that family members be expected to work harder, that family arguments never occur in the workplace, and that whoever has authority exercise it fairly, with outside employees and family members alike. Despite the challenges, in today’s economy family businesses are giving “family values” a whole new meaning.