What Do We Want To Be When We Grow Up?
My father-in-law, my wife, our family business consultant (my wife’s uncle), and I met almost every Tuesday for breakfast while I worked in the family business. We would eat then get to business: put out fires, analyze metrics, and identify problems and opportunities. This exercise, popularized by Michael Gerber’s The E-Myth, would be called working in the business. Stuff to keep the wheels churning, sales coming in, and keep the lights on. But this morning we were going to work on the business. Not just the business, but the ‘family’ part of that business.
The waitress brought an entire carafe of coffee, and my father-in-law and his brother an entire pitcher of unsweetened tea. Maybe they sensed we would be there a while.
We frequently had these conversations, even before I joined the family enterprise. Why? We were attempting to align our business aspirations with our family goals. What type of company did we want to run? What size business did we dream of operating? How fast did we want to scale? Who’s on the bus?
As Travis Harms of Mercer Capital has written previously, the meaning of a family business is a function of both family and business characteristics. The meaning of the family business, in turn, influences the dividends, investing, and financing decisions of the company. What our family values are will define our business.
Some may say “Why bother?, Why not just run, run, run in the business? Revenue cures all ills!”
According to a Harvard Business Review article, some 70% of family-owned businesses fail or are sold before the second generation gets a chance to take over. Perhaps there is more to family business sustainability than just beating next quarter’s estimates.
What our family was doing, collaboratively, was nurturing a business culture conducive to our family’s values, and one that meets a key objective: family wealth continuation.
“Shirtsleeves to shirtsleeves in three generations” is an oft-quoted adage warning of the typical rise and fall of family wealth. “Family wealth is not self-perpetuating” is the very first sentence of Family Wealth: Keeping It in the Family by James Hughes Jr., a sixth-generation counselor-at-law, and astute family wealth preservation expert. Or in modified Yogi-ism: What is the quickest way to get one million dollars? Run a family business and start with two million.
How does someone align the goals of the family with their business? Here are a few practices I picked up in my family’s business, and ones we still practice.
Understand Your Family’s Values
What does your family value? What gets people up in the morning? Make sure you are having conversations within the family to determine what drives your family’s bus and where you want to go. Do not just assume because you are driven by landing the next big client or profit chasing that the next generation will be also. Entrepreneurship generally is not passed through the bloodstream. Remember, if your goal is family business continuity, crafting a value structure that reflects both incumbent leadership and future leaders in your family is essential.
A value that was important to our family business was to work hard and have fun. Simple and perhaps hackneyed, but we worked intentionally to live it out. After a long few weeks on an acquisition, my wife and I were in the office on a Sunday afternoon as the closing approached. We had been working when my father-in-law walked over and said “Let’s go rent jet skis.” He knew that while we could have kept working, making sure we break away to enjoy ourselves was equally important.
Work On the Family, Not Just In the Business
An article that has made a lasting impact on my outlook came from an opinion piece in the New York Times: The Myth of Quality Time. The author makes the case that we cannot capture deep familial bonds and friendships in a quick outing or weekend-sized bite. The “quantity” of our time, as opposed to “quality,” is what spurs connection and deep friendships.
The same lesson applies to our family businesses. Working on our family values and understanding what the family stakeholders deeply want and need does not come from a weekend skiing in Beaver Creek (I really wish it did). Continuously and frequently having conversations about family values and where the business is going allows for easier shifts when you steer off course or want to change directions. Think like a cruise ship: the captain will start making turns miles away from shore before coming into port. If you are trying to turn close to land, you are too late.
A well-respected founder of a wealth management firm and friend offers a key principle regarding his firm’s investment strategy: Don’t Eat the Goose! What he warns his clients about is the excesses of greed and taking just a little too much from “the Goose” (or their diversified dividend paying portfolios).
For family businesses, while we want to ensure family values and objectives are aligned, we also need to consider the effect on business operations and business continuity. Perhaps you run a small local phone company that generates $250,000 in free cash flow annually. Your son, however, after spending time in Silicon Valley, has the idea to start-up a streaming-entertainment business utilizing the family business’s cash flows. Making sure to hear and understand the values of family stakeholders and their dreams, while also being realistic, could help you to craft a strategy workable to both the family business and value structure for the long haul.
While aligning family and business objectives can seem daunting, or even counter-intuitive, we know there are numerous multi-generation family businesses throughout the United States with wide ranges of family stakeholders. We are fortunate enough to get to work with many of them daily and learn from them. Understanding your family’s values, maintaining a healthy process of inculcating these values on your organization, and keeping your feet on the ground can all help to align your business goals with your family goals. Mercer Capital professionals can help you think about your family business’ next move. Feel free to give us a call.