January 30, 2014

Family businesses built on trust, but face challenges

Family businesses form the backbone of the economy in South Carolina, the United States and the world. It is estimated that more than 65 percent of all businesses are family run, managed or controlled.

Family businesses form the backbone of the economy in South Carolina, the United States and the world. It is estimated that more than 65 percent of all businesses are family run, managed or controlled.

Moreover, family businesses make up a large portion of new jobs, a major part of the GDP and about a third of all Fortune 500 companies. Family businesses are important.

While family businesses come in a wide variety of constructs, most family businesses begin with a single founder who either seized on a good opportunity or simply took action to make ends meet. The founder will then typically enlist their spouse, brother or sister. Meanwhile, the next generation grows up among the hustle and bustle of their parents trying to build a business, helping out where possible and turns around one day to find they are also in the business. The kids then get married and bring in-laws into the business.

Many studies have shown that family businesses actually outperform non-family businesses on a number of metrics. Yes, people try harder when the family name is on the sign. Yes, family businesses have a longer-term perspective than the quarterly driven publically held non-family businesses. And yes, you can use your kids as cheap labor! But the chief factor boosting family businesses’ performance is the high level of trust: Each member knows every other member is doing their best to move the company forward.

Indeed, Warren Buffet in his 2009 annual report to shareholders stated that “it is our goal to be the buyer of choice of those businesses built and owned by families.” If the Oracle of Omaha wants to buy family businesses, there must be value there.

However, many family businesses lose that trust. According to research, more than two-thirds of family businesses will not survive into the next generation. This percentage stays fairly consistent from one generation to the next. These are not good odds.

The reasons for failure abound: the up and coming son or daughter may not be willing or able, dad refuses to loosen the reins, conflict between or among generations, liquidity demands from non-active shareholders, next generation entitlement, or drug and alcohol abuse and their enablement. The list is endless. And for the family business leader, trying to navigate all the financial, tax, legal, wealth, insurance, ownership, leadership, management and relationship aspects involved can be overwhelming.

Fortunately there is help. Publications are available like Family Business Magazine and the Family Business Journal, and many books have been written on the various aspects running a family business.

Universities around the country perform research, and conduct programs for students and local area family businesses. There is also FFI, the Family Firm Institute, the global governing body of professionals who serve family businesses, which is dedicated to being a resource for family businesses, and providing education and certification to those who serve family businesses. And then there are of course family business advisors.

Our firm, Family Business Carolina, was born from the idea that family businesses can benefit from receiving professional help. Our goal in the succession process is to ensure two fundamental goals: preserve the wealth that has been built up in the business and improve or maintain family harmony.

The business is a wealth generator for the family, and the family is the base emotion support for each of its members. One without the other is meaningless.

Our background in psychology, many years of business operating experience, and education in business, consulting, and family business enables us to understand the family and the business. We have written articles on the various dynamics of family businesses and we have presented to countless industry and professional groups around the country. Personally I am a board member of the Carolinas chapter of the Institute of Management Consultants and a Certified Family Business Advisor.

However, it is experience with family businesses, including my own, that enables us to truly empathize and address family business issues. Just like many other family businesses, our family business encountered, and overcame, a variety of issues.

Olan Mills Portrait Studios is my family business. It was founded in 1932 by my grandfather, Olan Mills, in the throes of the Great Depression, and grew to become the predominant provider of family photography around the U.S. Perhaps you have a picture in your wallet or on your bookshelf.

With this background, Family Business Carolina has helped family businesses around the country manage through all the issues facing family businesses like succession, conflict, communication, next generation preparation, governance, business optimization.

With this new monthly column in The State, I look forward to reaching even more family businesses by discussing those issues most important to them and highlighting some of the best practices in handling problems.

And I am eager to hear and address any comments, questions and concerns to make your own family business a success.

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