Segueway to Success
Listen at – “Generational Change in the Family Business- Segueway2Success”
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By: Brent Hamachek and Tom Kuchan
Our “Segueway to Success” show, talking about our blog, airs each Wednesday at 15:00 CST. Find today’s show and the archives on our web site: www.seguewaysolutions.com/Articles-and-Events.html
One of the most fundamental elements of the privately owned business is that of family succession; business being passed from one generation to the next. It is an American tradition that is really at the heart of capitalism and the rights inherent in private property. What can make a business founder/owner more proud than passing on the business they built to their progeny?
With that passing, however, comes great transitional risk. It is commonly known that the third generation of family ownership often spells peril and doom for the company. The experience of Segueway principals suggests it doesn’t need to wait until the third generation for problems to surface. Difficulties can, and usually do, surface as soon as generation number two takes over.
There are a variety of reasons for this. One of the most common is that mom/dad might be passing along the day to day operation of the company but they are not necessarily financially independent. A large number of business owners never actually hide away enough money to completely retire. That means they have a need for the business to continue to support them at some level. This is happening, of course, at the same time that the business needs to fully support the next generation running it. Absent a very profitable, growing company, this can pose a simple problem of inflows not being enough to service outflows.
Then we have the matter of siblings. Segueway has extensive experience with succession companies being torn apart by the disagreements of siblings. These problems can take on many forms.
First is the case where two or more siblings are essentially made co-in-charge of the company. Let’s assume for the moment that each sibling is of equal intellect and drive (rarely the case). This means that each dedicated new manager has different dreams and aspirations for the company. Absent clear delineation (usually not present) of who has the ability to make a final decision, gridlock normally ensues. Gridlock is good in government as it stops the behemoth from taking away more of our liberty. In business, gridlock is a recipe for death.
More often the case is that the siblings are not of equal contribution to the business. This is a problem because the departing parent(s) often make no provision for disparity in handing down the company. The story of the prodigal son comes into play. So often the sibling who is the “deadbeat” of the group is afforded a level of tolerance not witnessed in any other business environment. That sibling might be the one who the family always had to make special allowances for from the time they were little. Since the family has “carried” them for so long, continuing to carry them seems to be a natural extension. Unfortunately, businesses are not welfare offices or rehab centers. Those types of operations run as not for profit. The family business will quickly become a not for profit if it tries to carry a non-productive family member (don’t forget they might still be carrying mom and dad to some extent, too).
Another problem arises when the heir-to-the-throne offspring works in the company while mom or dad are still there. The new arrival wishes to make his or her imprimatur on the business while their parents might not be ready to yield control or accept the change. This can create a conflict. On occasion the children can seek a coup d’état and attempt to usurp their parents’ position/authority. This is an obviously hostile situation and can lead to the disintegration of families.
One of the questions that Segueway often asks of family members in a family business situation is “How important is Thanksgiving dinner to you?” The question might sound trivial but it is not. Sorting through family business issues, especially with siblings and parents, can create hostilities that transcend the office very quickly. Sometimes it is simply the case that the family members are unwilling to do what is necessary and sensible from a strict business perspective simply to avoid conflict at home. The mafia phrase of “it isn’t personal, just business” never holds true. Everything is personal, especially in the family business.
The solutions to these problems are not complex. First, there needs to be clear, unequivocal communication about what is expected from the next generation. If certain conditions, no matter how non-contributory they are to the business, are a given then make it clear they are a given. Second, try to recognize the realities of what the business can sustain in order to remain viable and competitive. Remember that when you take the last dollar out of a company it is the last dollar.
Finally, for the parents yielding control, do not assume that the business you built will always look the same or be run the same. While the business might represent your life’s work it is not a painting. Its image and shape can and must change over time to reflect the changes in the marketplace. Do not hold your children to the way you used to do things (and, children, be mindful of the way your parents did do things; not every practice is obsolete just because it has time accrued to it. In fact, the exact opposite is often the case. Duration and effectiveness are often correlated).
Join us this week when John Jensen of Jensen IT located in Des Plaines, Illinois joins us as a guest to discuss transitioning the family business. John is second generation in a company started by mom and dad. He has entered new markets and products since joining the firm and has the long-term growth and success of the company in his hands. He will share his experience and the challenges he faces in living a professional life with parents.
Segueway Solutions – http://www.seguewaysolutions.com/
+1 (847) 778-9474
Brent E. Hamachek spent the first 15 years of his professional life in banking, working in 6 different sectors including audit, credit and 9 years as a commercial banker.
After commercial banking, Brent formed Segueway Solutions in 2000 in order to assist privately held companies in transition. To date, he has worked in 40 different industries and has served in the capacity of CEO, CFO & EVP Sales for clients. Brent is a sought after consultant, speaker and trainer offering national and foreign expertise to clients.
brent@SeguewaySolutions.com
Tom Kuchan is a proven leader in global business expansion and effectiveness, risk management, finance and operations with experience in both Fortune 50 and entrepreneurial environments. He has a proven record of defining strategic objectives, translating them into operational tasks, and leading their implementation in diverse geographies and cultures across the globe.
Tom has lived overseas for over twenty years, including Switzerland, Germany and the United Arab Emirates, and has worked extensively across Europe, Latin America, Africa, the Middle East, and Asia.
tom@SeguewaySolutions.com