Thoughts on Exit Strategies for Family Businesses

I read an interesting article the other day, discussing exit strategies for family businesses.  This led me to the following thoughts...

An exit strategy for a family business can be a very tricky undertaking. Is it the best way to preserve wealth? Will it satisfy the wants, needs and desires of the younger generation? Will bringing in a professional manager to run the business be the best thing to do?

Many family businesses started out because the founder had an idea, worked for someone else and didn't like how the employer was running the business and wouldn't listen, or he/she couldn't hold a job. Thus the beginnings of a family business.

As the family business grew and prospered, members of the next generation were welcomed in the business. Some thrived, while others did not do so well. However, the family business kept growing.

At a certain point, the founder decides it’s time for him to go. This is because of health or he/she is smart enough to realize things have changed and the next generation is many times better equipped to handle the changes. 

But other times, the founder doesn't want to give up the reigns. “What will I do every day? I hate Florida.”

There are other instances where the next generation just isn't up to the task of “taking the business to the next level.”  There are Big Issues that must be addressed sooner rather than when it’s too late.

A family business can be looked at as a vehicle to provide a lifestyle for the entire family. If there are issues/problems that cannot be solved any other way, then a sale is a serious decision to be investigated carefully.

·         Will the business go on under the present circumstances?

·         Should we bring professional management?

·         Is the value of the business as such that the family can continue on in the present lifestyle without all the stress and tension?

All valid issues that must be addressed trying to keep the emotion out of it. Not an easy task.

I have had this experience, and my final decision was to sell. 

What will your decision be?

Family Business: Which is It?

I’ve heard it said about many great businesses, that they treat their employees like family.  But in a family business, one of the best things that can be said is that they treat family like employees.

This is not just wordplay here.  This is strategy.  While businesses that treat their employees like one big happy family can be nice to work for, rest assured that they do not, as a rule, dish out the family treatment for everyone, regardless of their value to the business.  No, this type of treatment has to be earned, through dedication, loyalty, and most importantly, performance.

The same principal needs to be applied in family business.  Promotions, raises, added responsibilities should not – MUST not – be doled out based on bloodlines.  In a successful family business, all such rewards for family members must be clearly earned, utilizing whatever metrics are used to evaluate non-family members.  There must be demonstrable evidence of worthiness, otherwise company morale will fall.

Hard-headed family business owners might say, “The hell with that!  If I want to promote my kid to Manager, or VP, I will do it!  It’s my business, and if other people don’t like it, they can go work somewhere else.”

Yes, that is exactly what they will do: go work for someone else.  Taking with them everything they learned (the good, the bad, and the ugly) from your business.  Nothing like giving your competition some highly-trained employees!  Brilliant move, Dad.

Company morale is the invisible secret sauce behind most successful businesses.  With it, businesses are capable of great things.  Without it, the work is so much harder.  So when you bring in your kid with the newly-minted degree from the local college, and put him or her in charge over a group of employees with years of company service and industry experience, at least one person will be happy.  Your relationship with the kid probably got a boost.  But your business?  That hissing sound you hear is the air being let out of the tires that drive your business to success.

Having the same last name as the owner of the business may well serve a person in getting hired, but after that, he or she absolutely must be held to the same standards as every other employee.  Make that one of the guiding principles of your business, and you will have one less thing to worry about, which is the perception of nepotism. 

Look at it this way: if your kid is such a hot-shot, he or she will get to a position of responsibility within the organization based on the quality of his or her work.  Getting those kind of positions simply based on blood is not good for the rest of your employees, your customers, your vendors, or you.  And really, not for the kid, either.  (Born on third base, thinking he hit a triple.)

I know this is a sensitive issue, and it’s easy to take a hard-line stance on it when you have no skin in the game.  But therein is the value of a trusted business adviser, especially one who has run family businesses before.  Having someone that the owner can trust with such sensitive matters is invaluable in keeping the company grounded in its business mission, without the drama of the family dynamic interfering. 

Think about this a bit, and let me know if you want to talk it over.