Next month we will be responding to any questions that readers provided in response to our articles on leadership
and values. In the meantime, here are some thoughts about hiring consultants for your family-owned business.
There is an old joke: Those who cannot do, lead; those who cannot lead, consult. Despite this questionable
wisdom, there are times when your business, especially your family business, needs an outside perspective. This is
especially true during times of transition or planning for transition.
The most significant transition that a family business can go through is succession from one generation to the next.
Seventy percent of family-owned businesses do not make it to the second generation, and eighty five percent do
not make it to the third generation. Even those that do make the transition often go through times of upheaval,
confusion, even conflict.
This upheaval is due to many factors. As the diagram below illustrates, successful closely-held multigenerational
businesses go through stages of development. Very often, the transition from the entrepreneurial to the managerial
stage coincides with the need to pass the business down to the second generation. The tension that this BUSINESS
transition generates obviously adds to the complexity of the task of succession.
At the same time, the older and younger generations of the Family are experiencing different stages of development
that can easily be in conflict. The older generation, usually in their 60's, 70's, or 80's, are in a time of reduction and
maintenance, with primary goals of safety and security. No matter how risk tolerant the founder/entrepreneur may
have been in his younger days when he started the business, he now is much more motivated to conserve; this
includes conserving all resources - time, money, energy, and, most of all, risk.
On the other hand, the younger generation is "feeling its oats". They want to make their mark in life; especially in
the family business. They want to match or exceed the accomplishments of their parents. They are highly
motivated to succeed, and are more than willing to take risks to accomplish this goal. These competing goals and
stages of development can underly many conflictful conversations regarding specific business decisions; these can
continue until the underlying issues are understood and at least partially resolved. This can obviously be a powerful
factor when the older
and values. In the meantime, here are some thoughts about hiring consultants for your family-owned business.
There is an old joke: Those who cannot do, lead; those who cannot lead, consult. Despite this questionable
wisdom, there are times when your business, especially your family business, needs an outside perspective. This is
especially true during times of transition or planning for transition.
The most significant transition that a family business can go through is succession from one generation to the next.
Seventy percent of family-owned businesses do not make it to the second generation, and eighty five percent do
not make it to the third generation. Even those that do make the transition often go through times of upheaval,
confusion, even conflict.
This upheaval is due to many factors. As the diagram below illustrates, successful closely-held multigenerational
businesses go through stages of development. Very often, the transition from the entrepreneurial to the managerial
stage coincides with the need to pass the business down to the second generation. The tension that this BUSINESS
transition generates obviously adds to the complexity of the task of succession.
At the same time, the older and younger generations of the Family are experiencing different stages of development
that can easily be in conflict. The older generation, usually in their 60's, 70's, or 80's, are in a time of reduction and
maintenance, with primary goals of safety and security. No matter how risk tolerant the founder/entrepreneur may
have been in his younger days when he started the business, he now is much more motivated to conserve; this
includes conserving all resources - time, money, energy, and, most of all, risk.
On the other hand, the younger generation is "feeling its oats". They want to make their mark in life; especially in
the family business. They want to match or exceed the accomplishments of their parents. They are highly
motivated to succeed, and are more than willing to take risks to accomplish this goal. These competing goals and
stages of development can underly many conflictful conversations regarding specific business decisions; these can
continue until the underlying issues are understood and at least partially resolved. This can obviously be a powerful
factor when the older
generation is assessing how much they can trust the younger generation to preserve the business, their most
valuable asset.
Underlying both of these developments is a central concept in the study of family-owned business, the
FAMILY/BUSINESS OVERLAP. Simply stated, when family members work together in or share ownership of a
business, it is virtually impossible for the business to function independently of the family, and vice-versa.
This mutual dependency is, in fact, one of the major reasons for families being in business together. Success
becomes a double success; growth of the business engenders family pride. Familiarity breeds trust, and family
members can spend time together. These positive overlaps alone may be the major reason for the preponderance of
family-owned businesses in the United States.
However, this overlap can also be a source of great stress. How do your tell you son or daughter, brother, sister,
or spouse, that they are not doing a good job? When a father and son clash over a strategic business decision, is
this based upon different views of their market, differences in management styles that are generationally based, a
good old-fashioned father-son struggle for power and control, or a mutual seeking of recognition, acceptance, and
even closeness.
Because of all of these factors, families and businesses, if they are to have successful transitions and orderly exit
strategies, must do two things effectively: communicate and plan. Unfortunately, family businesses avoid both.
They avoid communicating because they fear topics that may lead to conflict; they don't want to "open up a can of
worms". They also avoid potentially painful conversations; succession, after all, is related to aging and death.
When this topic is introduced, founders are often heard to say, "If I die".
Therefore, when a family business considers seeking assistance from a consultant, they need to focus on obtaining
help with these two functions: communication and planning. All too often, family businesses seek experts with the
"right answers". It is comforting and anxiety reducing to be told what to do. However, this falls short of the help
that is needed in two crucial ways: the family does not learn how to increase their communication or planning
skills, and they often do not follow through on the advice the expert has given. Therefore, we highly recommend
that a family business seek a "process" consultant when looking for help.
A process consultant, rather than give the family the "right" answers, will assist them in the following
ways:
The family business will learn more effective communication skills.
The family business will approach difficult conversations with less apprehension.
They will do three kinds of planning, each crucial to the transition that they are addressing; ownership succession
planning, management succession planning, and strategic planning.
They will produce an action plan which delineates what steps need to be taken to proceed, who is responsible for
each step, and a timetable to complete each step.
They will learn how to hold each other accountable without confrontation or major conflict.
What qualifications should a family business look for to identify the right consultant for them and their situation?
Education and experience - the consultant's degree may be in many fields, including psychology, law, accounting,
and others, but their post graduate education and experience should include a variety of disciplines.
Skills and abilities - they obviously should have both good communication skills, and the ability to teach
communication skills. Good listening is the highest priority. The consultant should also understand the
family/business overlap. He/she must be comfortable with the family/emotional side and knowledgeable about the
business/organizational side.
Personal qualities and fit - most or all family members should feel a sense of comfort and trust with the
consultant. If only one generation feels this, the consultant will be perceived as "taking sides" rather than as a
support for the whole family and the whole business. Therefore, it is ideal for all family members to meet the
consultant before they are hired.
Finally, when should the family bring in a consultant. There are three possibilities:
Crisis planning - since we never know when a health crisis or loss can occur, crisis planning should begin as
soon as you finish this article. It should focus on replacing all the functions of all the key managers as quickly as
possible.
Orderly continuity planning - succession is a process, not an event. Therefore, it should begin at least five years
before the older generation is planning to retire. This allows the time to pass ownership shares with reduced tax
consequences, assess, train and develop the next generation of leaders, and build a cohesive management team.
After the fact planning - occasionally planning is avoided until after a key person is lost. At that time, the family
will need support for their emotions of grief and loss. Simultaneously, the business will need input to avoid
confusion and standstill. It will be especially important to differentiate family and business challenges at this time.
Family businesses are precious to their founders, other family members, and dedicated employees. While it is not
easy for self-made entrepreneurs and their families to ask for help, hopefully the information that we have provided
will make this reaching out easier.
Barry Graff can be reached at (619) 516-1110 or barry.graff@rsmi.com.
valuable asset.
Underlying both of these developments is a central concept in the study of family-owned business, the
FAMILY/BUSINESS OVERLAP. Simply stated, when family members work together in or share ownership of a
business, it is virtually impossible for the business to function independently of the family, and vice-versa.
This mutual dependency is, in fact, one of the major reasons for families being in business together. Success
becomes a double success; growth of the business engenders family pride. Familiarity breeds trust, and family
members can spend time together. These positive overlaps alone may be the major reason for the preponderance of
family-owned businesses in the United States.
However, this overlap can also be a source of great stress. How do your tell you son or daughter, brother, sister,
or spouse, that they are not doing a good job? When a father and son clash over a strategic business decision, is
this based upon different views of their market, differences in management styles that are generationally based, a
good old-fashioned father-son struggle for power and control, or a mutual seeking of recognition, acceptance, and
even closeness.
Because of all of these factors, families and businesses, if they are to have successful transitions and orderly exit
strategies, must do two things effectively: communicate and plan. Unfortunately, family businesses avoid both.
They avoid communicating because they fear topics that may lead to conflict; they don't want to "open up a can of
worms". They also avoid potentially painful conversations; succession, after all, is related to aging and death.
When this topic is introduced, founders are often heard to say, "If I die".
Therefore, when a family business considers seeking assistance from a consultant, they need to focus on obtaining
help with these two functions: communication and planning. All too often, family businesses seek experts with the
"right answers". It is comforting and anxiety reducing to be told what to do. However, this falls short of the help
that is needed in two crucial ways: the family does not learn how to increase their communication or planning
skills, and they often do not follow through on the advice the expert has given. Therefore, we highly recommend
that a family business seek a "process" consultant when looking for help.
A process consultant, rather than give the family the "right" answers, will assist them in the following
ways:
The family business will learn more effective communication skills.
The family business will approach difficult conversations with less apprehension.
They will do three kinds of planning, each crucial to the transition that they are addressing; ownership succession
planning, management succession planning, and strategic planning.
They will produce an action plan which delineates what steps need to be taken to proceed, who is responsible for
each step, and a timetable to complete each step.
They will learn how to hold each other accountable without confrontation or major conflict.
What qualifications should a family business look for to identify the right consultant for them and their situation?
Education and experience - the consultant's degree may be in many fields, including psychology, law, accounting,
and others, but their post graduate education and experience should include a variety of disciplines.
Skills and abilities - they obviously should have both good communication skills, and the ability to teach
communication skills. Good listening is the highest priority. The consultant should also understand the
family/business overlap. He/she must be comfortable with the family/emotional side and knowledgeable about the
business/organizational side.
Personal qualities and fit - most or all family members should feel a sense of comfort and trust with the
consultant. If only one generation feels this, the consultant will be perceived as "taking sides" rather than as a
support for the whole family and the whole business. Therefore, it is ideal for all family members to meet the
consultant before they are hired.
Finally, when should the family bring in a consultant. There are three possibilities:
Crisis planning - since we never know when a health crisis or loss can occur, crisis planning should begin as
soon as you finish this article. It should focus on replacing all the functions of all the key managers as quickly as
possible.
Orderly continuity planning - succession is a process, not an event. Therefore, it should begin at least five years
before the older generation is planning to retire. This allows the time to pass ownership shares with reduced tax
consequences, assess, train and develop the next generation of leaders, and build a cohesive management team.
After the fact planning - occasionally planning is avoided until after a key person is lost. At that time, the family
will need support for their emotions of grief and loss. Simultaneously, the business will need input to avoid
confusion and standstill. It will be especially important to differentiate family and business challenges at this time.
Family businesses are precious to their founders, other family members, and dedicated employees. While it is not
easy for self-made entrepreneurs and their families to ask for help, hopefully the information that we have provided
will make this reaching out easier.
Barry Graff can be reached at (619) 516-1110 or barry.graff@rsmi.com.
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