Advice on running a family-owned business without causing a rift in the family.
When five o’clock strikes and you gather your belongings to leave work for another day, you want to relax and above all else, leave work at work. But what if you work and live alongside the same people? The challenges of operating a business elevate when you run one with a family member.
You have done all of your homework when it comes to financing and insurance and accreditation. You know how to run your business. But do you know how to successfully separate your work and home lives? We spoke to three successful O&P family business owners to find out what works for them: Cynthia Minelli, CPO, co-owner of Cocco-Enterprises in Trenton, N.J. who works alongside her husband since purchasing the business from her father in 1996; Séamus Kennedy, CPed, and co-owner of Hersco Orthotic Labs in Long Island City, N.Y., who works with his brother Cathal at the business they purchased from an unrelated family; and Gregory Gruman CP, president, chief operating officer, and fourth generation owner of Winkley Orthotics and Prosthetics which has locations in Wisconsin and Minnesota.
According to the Family Firm Institute, more than 30% of all family-owned businesses survive into the second generation, 12% into the third generation, and 3% of all family businesses operating at the fourth-generation level and beyond.
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“The failure rate if you do nothing but look at the statistics tells you ‘we’re not going to make it; the odds are so stacked against us,’” James Hutcheson, founder and president of ReGeneration Partners told O&P Business News
. “So knowing [the statistics], how do you improve them?”
Going into the family business seems easy enough. You know your family members better than you could know anyone else sending in a resume. As it turns out, it is this knowledge that could be detrimental to a healthy working relationship.
David Javitch, PhD, founder and president of Javitch Associates and faculty member at Harvard and Boston Universities suggests filtering out past experiences as best you can to get off on the right foot with family members in the workplace.
“They have to have the ability to look at the family member as another employee, and that is hard, but that is the basic code for survival,” Javitch said. “And be aware when those boundaries get blurred. They get blurred awfully easily because you have spent a large part of your life with these family members.”
These unclear boundaries can lead to key communication or other problems in an effort to spare personal feelings. Hutcheson explained that emotional confusion could result.
“You don’t know if you are dealing with a business issue or a family issue,” he said. “When you are in a family business, there are more consequences to decisions. If you are working with family, you make a decision that impacts the family and you don’t just turn it off on Thanksgiving.”
One of the most important steps in preparing for the challenges that working with family inevitably presents is to be honest about their existence.
“Don’t run from the conflict,” Hutcheson said. “Deal with it and realize that is a part of the ups and downs.”
In the long run, these challenges present learning opportunities and chances to push one another.
“If there is no healthy disagreement, you are not really challenging each other, so we don’t worry about that,” Kennedy said about his working relationship with his brother. “We disagree on things…but we have never [blown] up over an issue.”
Patience and communication are necessary not only in the beginning of a new working relationship but throughout the tenure of that relationship as challenges do not wane over time.
“Be patient,” Hutcheson said. “There will be ups and downs. It is not a linear, smooth growth where everything gets better day after day. It will get better and it will get worse…but you will take three steps forward and one back.”
Owning a family business that can be passed down through the generations is an exciting chance to leave a legacy. It is not, however, always the case. Giving family members a choice in the matter is important for continued success. If they do wish to stay on, preparing them as best you can is also vital.
Make difficult decisions
Many business founders have poured hours of hard work into creating a company that they can one day pass on to a child or other family member. Although this enthusiasm is healthy for the business, it can be stifling to an intended heir, especially one who does not share the sentiment.
“Allow the children the freedom to come to the conclusion about what they want to do with their lives,” Hutcheson said.
He went on to explain that too often this idea is an unspoken expectation of business owners. Additionally, it is hard for them to understand why a family member would not share the same love and passion for the business.
“Just because you, as the founder, love what you do does not necessarily mean that your heirs are going to love what you do,” Hutcheson said. “It needs to be a clear and conscious choice for the heirs to join the business.”
Allow children or other family members to choose the path for them. If their hearts are not in the business, it might be better off in the hands of someone else.
Prepare a successor
Assuming the intended heir is on board, Hutcheson recommends releasing them to the rest of the working world before they come to work at the family business.
“You may want them to come to work for you right out of college but allow them to go through the interview process, get hired…and produce somewhere else…to see how other entities work,” Hutcheson said.
Knowing that you have been successful in a capacity unrelated to your family is a good self-esteem boost before heading off to work for mom or dad. Also, taking some chances before the stakes are too high will be a welcome learning experience for the challenges that will come when taking the reins of a business.
“Without real risk, without real consequences, you will never develop the kind of individual who will take the mantle of leadership and run with it,” Hutcheson said. “You will be protecting them from failure and sometimes failure is a good thing.”
At some point, the business owner needs to begin to let the intended successor onto the inside track.
“At a lot of family owned businesses the owner tends to know everything and do everything and not necessarily share a lot of that information,” Frank Washelesky, CPA, JD, CVA, PFS, director of Ostrow, Reisin, Berk & Abrams Ltd., said. “It is important that you get others... involved in the real operations of the business and understanding what the owner is doing so they can do it themselves.”
A transfer or sharing of authority is necessary long before the transfer of the decision-making and moreover, the business itself takes place.
It may take some time for the owner to become comfortable with the idea of sharing information.
“That comes from the mindset of most people who run their own businesses. They think that they are invincible and that they know how to do it and no one else can,” Washelesky said. “That is a hard mindset to get past. It is… going to take some time.”
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Lay a good foundation
Proactive steps can help businesses get off to a smooth start or calm the rifts that have developed over time. It is important, however, to keep in mind that you cannot plan ahead for everything.
Hutcheson recommends an “appropriate governance structure” to avoid an undemocratic situation.
“Accountability is a good thing and governance is one of the ways you put accountability in place,” he said.
This governing body, however, should not be comprised solely of family members. An outside perspective, especially during sensitive talks, will be helpful in the boardroom.
“The way that you make that smooth transition is you put a couple of truly independent, competent people on the board. It is okay to keep the family members on there but you want to make sure that it is balanced,” Hutcheson told O&P Business News.
The “board” does not have to be an extensive board of directors. Smaller family owned O&P companies, however, should ensure that there are some independent decision makers in place for when that perspective is necessary.
An even easier way to lay a solid foundation is to promote open communication and create a type of code of conduct.
“You draw up a code of conduct or rules of engagement and…at the end of the day it is going to be simple,” Hutcheson said.
Create simple rules
Creating simple rules for family conduct may sound absurd, but home behaviors can often spill into the workplace. Discussing and sharing feelings about cell phone usage, interrupting or speaking out inappropriately toward one another, or about being treated like a child in the workplace rather than as a respected employee are all issues that should be covered during this time.
“All of these things are pretty common sense unless you are dealing with your own family,” Hutcheson said. “[Creating rules] is very cathartic.”
Javitch goes one step further and suggests allowing each person the power to step out of a situation where personal issues are being discussed on business time.
“Give each person the permission to say ‘time out, what we are arguing about is not about the business, it is about the family,’ and that should put a halt to that discussion,” he said.
These ideas sound simple, but saying them out loud to family members and having these discussions long before any problems arise can be helpful down the road toward the resolution of them.
People who have had successful outcomes from working with family members share their advice about the journey and, ultimately, how to better appreciate the ride.
“Make sure that you are compatible in terms of work style,” Kennedy said.
Work habits vary in the same way personalities do. Before you set out on a business venture make sure that you are compatible working together. This does not necessarily mean you have the same work habits, but that you can respect and live with the differences.
“Define the person’s role...an agreement between the family members with the expectations known upfront,” Gruman said.
He also advised making a 3- to 5-year career plan, much like a business plan, that can help to bring a possible successor up to par. This plan could include specific schooling and training that he or she would need to move up to the next level.
“You define those roles up front and make it very clear,” Gruman said. “If they are outlined ahead of time, the expectations are much more easily met and they don’t create problems.”
It is not enough to say you want to succeed, Kennedy said. You must put it in writing like you would a business plan. To reach your goal, you must map out a course of action.
Know your strengths (and theirs)
“Whatever your strength is, that is where you should be in your business,” Minelli said.
Sometimes that means relinquishing duties to others who possess different strengths. But for your business to thrive, these kinds of compromises need to be met. You cannot do it all yourself.
Learn from the past
In a business that has years of family succession, heirs have both the blessing and the curse of being on the inside track of the establishment.
For Minelli, the family business where she has been working since the age of 17 was intertwined with her upbringing. She was a first-hand witness to the tolls that a business can take on a family and watched her parents’ marriage dissolve as a result.
With this in mind, she took steps to make sure that the same fate was not in store for her family.
“We make sure we take vacations that are non-business oriented and make time for our kids. We made sure we were involved in their activities afterschool,” Minelli said.
Juggling life this way brought other challenges that they learned to work around and eventually hired additional practitioners to carry some of the workload.
“It was tough working full time when my children were in school and feeling torn between changing my hours so that I could work around their schedule,” she said.
Gruman recalls the hardship endured by his father when he took over the business. As a lab supervisor, employees resented him for not having to work his way to the top, a ladder that Gruman was pleased to have to climb when he joined the company.
“He didn’t have a chance to learn the field and work his way up and earn the respect of the workers, so he was determined that when I started, he and I would have little contact and that worked extremely well for me as it turned out,” Gruman said. “I was sweeping floors at the end of the day and I had to empty the garbage and clean out the plaster traps…all the dirty jobs that nobody else wanted to do because I was the new guy and that is where I started.”
We concentrate so much on the challenges and statistics associated with family businesses that it is easy to lose sight of why we go into these businesses in the first place. Our success stories shared their thoughts with us.
All of our sources agreed that there is no one else they could trust as much as their own families when taking on a venture as risky as opening a business.
“You can usually trust a family member more because they buy into the business more – literally and figuratively,” Javitch said. “And you know that person. You know that person’s strengths and limitations outside and you can project them inside.”
Gruman enjoys the commonalities that exist across generations, which have only come about through the family business.
“My father is 85 years old and my son goes over to visit him and they talk business... and there is 60 years between them,” Gruman said. “You come up with a way to deal with the situation that makes sense for the business, but you do that as a family.”
“There is no better place to spend your professional life than surrounded by people you love, that love you, and doing something you truly enjoy,” Hutcheson said.
As a result, Gruman earned the respect of his coworkers and was viewed as more than just the boss’ son. This is the same practice he currently uses with both of his children who are employed by Winkley and working their ways through the ranks.
Kennedy takes pride in the retelling of the history of his business, although he and his brother came into it without a connection to the previous owning family. They are determined to carry on the respected legacies of which they are now a part with a personal touch. A strong lineage has a history of both success and failure. Navigating the two forces can be difficult, but is necessary to decide what is in store for the future of the business especially taking into account the new challenges that will arise.—by Jennifer Hoydicz
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