Many of the small businesses I deal with are either a family business or have the aspiration to become family businesses. I have worked in a business that was owned and managed by a fifth generation family member and the sixth generation was already working in the business. However, taking on the family can be a huge risk for many business owners, so what are the considerations when looking to bring in a family member.
While the majority of family business owners would like to see their business transferred to the next generation, it is estimated that 70% will not survive into the 2nd generation and 90% will not make it to the 3rd generation. (Family Firm Institute).
As Benjamin Franklin is supposed to have said, “If you fail to plan, you are planning to fail”. If you are looking to bring in a family member into the business then get the planning right. This should include: getting to know the business, how to deal with family conflicts, business skills, values, legal and ownership issues. It is not enough to rely on “family osmosis” that knowledge of the business has somehow seeped in during childhood and hope for the best. Those family businesses that I know that have succeeded throughout generations like Black Sheep brewery set up by Paul Theakston a fifth generation brewer where his sons are now running the business day to day and Barrett Steel based in Bradford have ensured that any transition has been characterised by long-term planning.
2. Get to know the business in detail
It is important that the family member gets to know the business from the bottom up. They may have heard many “war stories” over the dinner table but sometimes the best way is to get their hands dirty on the coal face and see how the business works on a day to day basis. What challenges it faces and what staff has to deal with every day. It can also raise the profile of the family member and increase their credibility by demonstrating their willingness to do “the dirty work”. Again from personal experience, this has happened with the family member working on the Sales desk and in the warehouse before eventually running a small site and progressing to a bigger one and so on. They will also get a feel for the culture of the organisation and where the pressure points may be.
3. Business Skills
It is no use bringing in a family member if they don’t have or do not want to acquire some basic business skills. They will need to know how to read accounts, what the numbers mean, business planning etc. There are a number of ways this can be done, by attending and observing board meetings, formal education like a degree or MBA, attending courses, having a mentor (maybe not another family member), a business coach? Whatever is decided, it needs to be included in the plan and monitored.
4. Family conflict
Most families have arguments and fall out from time to time and some thought should be given on how any conflict, should it arise, should be dealt with. Having said that, one of the strengths of any family and family business is that inherent loyalty both to each other and the business which can be a great strength and help get through any difficult situations. I’m sure that between generations there is usually a difference of opinion, often in a good way and the trick is to use this difference to help drive the business forward. One example is again at Black Sheep where Paul Theakston would not put his beer in cans, only draft and bottle but his sons identified that there was a market that wasn’t been tapped and has now developed a Black Sheep Bitter in cans. Whilst I’m sure Paul was not too pleased with this at first, it has proved to be a success and hasn’t affected the brand in terms of quality as he feared.
5. Legal Stuff
As dry and boring (allegedly) as this may be, it is an important consideration if the plan is for family members to become joint or full owners in the business. How the business is structured in terms of shareholders, Directors etc it is important that these instruments are kept up to date and proper advice is taken when drawing them up. This will help any transition in ownership when the time comes.
Last but not least is as part of the plan is to make sure that any family member coming into the business is aware of but more importantly, lives and operates by the values of the business which will have been developed over the years and maybe explicitly written down or just embodied in the culture of the business and the way things get done. It is important that any family member, like any employee or stakeholder in the business, lives by the values in the business.
So helping to bring a family member into the business can be done but if it is to succeed and follow the example of the Theakston family and the Barrett family and survive into sixth generations, good planning for the long term is essential.