Kicking off our weekly video blog series, Video Blog Friday’s, Paul Karofsky will reflect on lessons learned from his career working with family businesses.  Each Friday, we will provide a new story with a unique topic – so stay tuned!  We hope you enjoy the first in our series, aptly titled “Begin at the Beginning”.

 

Father: Rick, I  newthought this project was going to be completed yesterday.

Son: Well, Dad, I tried to, but there were just so many things going on.

Father: I understand there are lots of things going on, but you’ve got to get this done.

Son: I’m sure I’ll be able to get to it later today, but first I want to…

Father: Now, Rick, wait a minute, first I really want you to get this finished. And while we’re at it, it isn’t getting done the way it should be…

Son: Sure, Dad, like it’s not getting done the way you would do it, right?

Thousands of times each day, conversations like this one take place in family businesses across the country. Most people are surprised to learn that approximately 80% of all businesses in the United States are “family owned businesses,” defined as businesses which are principally owned or managed by two or more members of the same family, or businesses which have been passed on to at least one successor generation. And it is a myth to think that all family businesses are small businesses. Even one-third of Fortune 500 companies are family businesses. Family businesses account for a whopping 50% of the Gross Domestic Product and employ more than half of the nation’s work force.

But all the news is not so grand. The average life span of a family business is twenty-four years. This is because only one out of three family businesses survives through a second generation and one out of ten makes it trough a third! For some, there is no eligible heir, and for others there is insufficient financing.

But most experts believe that the overriding cause is the overwhelming complexity of family owned businesses.  Simply being in business today is tougher than ever before. The pace of technological improvement is increasingly rapid, competition is fierce, and the only thing that is constant is change. Demands exist for greater than ever levels of professional management pushing higher margins, faster inventory turns, and lower receivables; and don’t forget trying to satisfy the needs of the ultimate oxymoron, “your friendly banker.”

Add on to these problems those facing any family and you have a whole new set of issues. The topic of leadership succession, for example, can be an overwhelming concern to family businesses. For parents, it raises questions like:

• What would I do?
• When should I begin?
• How do I select the next leader?
• Can I get an outside board to decide, so the child who is not selected will not be angry at me?
• Should my child report to me?
• How should she/he be trained?
• How much should I pay?

Then there are questions about ownership transfer:

• Should I give away some of the ownership of the company to my children?
• What if one leaves?
• What if there is a divorce?
• What about my own security?
• What about the children who are not working in the family business? Do they get an equal share?
• How can I be fair to all my children?

Meanwhile, the new generation about to enter the family business has its own laundry list of concerns:

• Do my parents really want/need me, or are they just trying to give me a job?
• Am I really qualified?
• Do I need graduate school?
• Is this what I really want to do for the rest of my life? ?
• What else could I do?
• Are my siblings going to become my partners?

When we combine the two worlds, the two systems of “family” and “business,” the result can be overwhelming indeed. Simply stated, if families have never been less functional and if the same may be said of businesses, then clearly the impact on family business is exponential.

This does not mean that all family businesses are doomed to agony and failure. Writing as one who enjoyed twenty-two years working with my father in our family’s business, I would argue that when things go well, there is no greater reward than to share the extraordinary high of mutual success. But when the going gets tough and the business systems are operating at maximum strain, the family relationships are most in jeopardy and the pain most intense.

Frequently, effective communication is one of the keys to family business harmony. The miscommunication between Rick and his dad is based on a few points:

1. Dad’s priority for completing the project may not have been understood by Rick.
2. Rick had different priorities that his dad may not have known.
3. Dad has expectations about the manner in which the project is getting done that he has not previously shared with Rick.
4. Rick has different ideas about how the project should be done.
5. A lot of negative energy is building up in both Rick and his dad that is about to turn into a confrontation.

If we could turn back the clock a little, or live the experience again, there is an opportunity here to be proactive, to prevent this problem before it occurs. To do so, when first discussing the project:

1. Dad and Rick need to understand how this project fits into each other’s priorities.
2. They need to agree on a deadline for the project’s completion.
3. Both Dad and Rick need to anticipate that Rick will probably not do the project the same way that Dad would do it and if that is not acceptable, discuss it in advance so Rick will know what is expected of him.

This process may require a few extra steps, but anticipating how things can go wrong before they occur can frequently save more time in the long run.

 

Paul Karofsky was president of his family’s third generation business.  He completed graduate studies at Harvard University doing research in family communication styles.   He is the Founder and Chairman of The Peer Alliance and is a frequent speaker and resource to educational institutions worldwide.