Family Businesses - The World's Second Oldest Business Model
Family businesses are the backbone of the American economy. The Family Firm Institute of Boston cites these figures: Family businesses account for 78% of all new job creation, support 60% of U.S. employment, and contribute 50% of our annual GDP (Gross Domestic Product).
Family businesses from Wal-Mart to the mom-and-pop store in your neighborhood face unique challenges; after all, they are family and they are business.
The definition of a "family business" is broad, referring to any two members of the same family, whether blood-related or not, who own or operate a business together. It might be multi-generational (LL Bean is now 4th generation), or it might be a publicly-traded company (Ford Motor) whose principal stockholders are family members.
Publicly traded family companies face the possibility of outsiders buying in and taking over, a prospect the Sulzberger family, owners of the New York Times, confronted with a shareholder clause allowing only intra-family sales of family-held stock.
Family members working together is one of the world's oldest business models, but enduring operation is more elusive. While the average life cycle of a family business is 27 years, there are exceptions. Zildjian Cymbal Company of Norwell MA is America's oldest family business in continuous operation, having gotten its start in Turkey in 1623. For the first time it its history, the company is now run by two women, cousins descended from the original patriarch.
The Seaside Inn and Cottages in Kennebunk Maine, 4th oldest family business in the US, received their original land grant from King George, and the business is now run by the 12th generation of the founding family. Many national firms such as Benjamin Moore Paints and Levi Strauss are also long-term family success stories.
Here in Maine, 80% of businesses are family owned and many have world-wide cachet including LL Bean, Tom's of Maine (now owned by Colgate-Palmolive), Thos. Mosher Cabinetmakers, and even the Wyeths, whose family members produce and promote three generations of acclaimed artwork.
What are the unique challenges facing a family-owned business?
According to Tom Juenemann, Director of the Institute for Family-Owned Business in Portland Maine, the number one challenge is succession, a hand-off that is often particularly difficult for the founding generation. Figures from a Mass Mutual/Arthur Anderson study document that: Only 30% of family businesses are run by the second generation, 9% by the 3rd and 4% beyond that.
Founders are often deeply, personally, invested in the company they've created, and relinquishing control, especially to the kid they once diapered (even if he is now 50) is agonizing. Too, there may not be second (or third) generation family members who want to assume the company mantle.
Tom's of Maine, which essentially started and built the market for natural personal care products, exemplifies a classic solution to this dilemma. The company has always been known as a strong family business with deeply-held beliefs about its workers, products and its role in the community; but, running this highly successful business was becoming all-enveloping for the founding family.
An offer from Colgate-Palmolive definitively answered "Yes" to the two biggest concerns of selling any family firm: Would a conglomerate keep the essence of the small family business and the integrity of its brand reputation intact, and would this sale allow all family members to benefit.
The second major challenge for family businesses is sibling rivalry. According to Juenemann, the issues might be ones of birth order, gender, family roles (the prankster, the smart one), or even just a magnification of the childhood slights everyone suffers. When money and power are involved, old family issues are more likely to play out.
Dealing with the dynamics of control, equality, and affirmation issues as well as coping with boundaries, in-laws, and simple pettiness within a family business can require substantial time, energy, and sensitivity, all while trying to address the more pragmatic concerns of running any business.
Does it get any easier the more successful a business becomes? Not likely, as evidenced by an October 2007 article in Forbes Magazine. 10 Billionaire Family Feuds details the many ways in which "nuclear" really applies to the family whose business interests collide.
The third major issue that family businesses confront is that those companies are by their very nature, closed concerns. Most families have unspoken rules about not airing dirty laundry in public; that magnifies ten-fold in a family business where family members sometimes feel as those all their quirks and quandries are unique to their family, their company. Not true, so while loyalty is perceived as crucial, have a place to air grievances is also critical.
By far the most touchy family business situation occurs when it becomes clear that, for whatever reason, outside expertise is needed. This is particularly wrenching when the business is okay, and the family isn't. This is where a well-functioning board of directors, which should include some outsiders, is invaluable.
LL Bean demonstrated the long, hard thought that must go into a smooth, successful management transition when the company reins were handed on from Bean family heir Leon Gorman to Chris McCormick, now the company's first non-family CEO.
But what about the rewards of being part of a family business? A successful company can be an institutionalized reflection of the personal values of the founding family. While not always easy, it can be a privilege to both honor a legacy and expand a vision.
And family members, especially siblings who work and succeed together, often outgrow old family patterns and come to view and value each other as competent adults, a transition that is often seen as the most enduring benefit of a family business.
Where to find help with Family Business struggles?
Maine's Institute for Family-Owned Business like other family business centers nationwide, supports and strengthens family businesses though consulting, mediation, estate planning, many topical conferences, and especially by facilitating networking among member companies.
While there are over 100 Family Business Centers in the US, they are not in every state. Websites such as those at UMASS Amherst Family Business Center, Loyola University Chicago Family Business Center or Kennesaw State University Cox Family Business Center can refer you to your nearest center, or google "Family Business Center" to find one near you.
From the smallest, local, family-owned business to the Waltons who founded Wal-Mart, family businesses help strengthen the American economy, and those businesses offer founding families both unique challenges and unlimited possibilities. After all, they are family and they are business.