A True, Sad and Inspiring Story About a Real Life Family Business.
"I can't stand working with you!"
"Well, I hate working with you too!"
"I want out of this business, it's just not worth it!"
Those words were uttered two years ago across a boardroom table. Well, 'uttered' may be putting it mildly....
I've heard words like that many times in my work with family-owned business over the years. It's not uncommon, but it is unfortunate. And sad.
Here’s how that screaming match happened.
Shawn and Karen (names changed to protect their identity), are brother and sister, both in their early 40's, and both working in the family business owned by their mom and dad, Carol and John (names also changed).
The family business had been operating for over twenty-five years. They had some good years, and some not so good years, but the company had survived to become a staple in the local community.
What hadn't survived was the family relationships.
When I arrived on the scene at the request of John, the family was in conflict.
Carol and John were getting along fine, but that was about it. Communication between Shawn and Karen was non-existent and the communication that both Shawn and Karen had with their parents was infrequent and often unpleasant. In fact, the family members mostly communicated with each other using non-family staff members as go-betweens.
How's that for a recipe for disaster?
And it was.
Morale was poor. Production was down. And the company was just barely breaking even. Worse, family dinners had become infrequent. And when they did occur, they generally didn’t end well.
So how did things between the family members get so bad?
Well, it didn't happen overnight. But the pattern is one that I have seen many times before.
In this case, as in many cases, the business owners, who happen to be husband and wife, work hard to build a business. At some point, their kids grow up and mom and dad bring one, two or more of their kids into the family business.
'This will be great', mom and dad think, 'we can all work together to really build a great business.'
And it’s here where the problems start. The honeymoon lasts for a few weeks or months and then the tension starts to build between family members and eventually that underlying tension leads to open conflict in the family.
So what's wrong with bringing kids into a family business?
Nothing. If you do it right.
The problem is that many families do just what John and Carol did. They bring their kids in with great intentions, but fail to set the family and business up for long term success by focusing on some key details.
Owners and parents like John and Carol forget about the details and the structure that is needed when adding family members to a business.
They forget to:
1) Consider the personality differences of their children.
If Shawn and Karen don't get along on a social level (and they sort of did, but sort of didn't), there isn't much chance that they will work well together as owners.
You have to take personalities into consideration. And be objective.
Sometimes, siblings just can’t or shouldn’t work together due to very different personalities, skill sets, traits and philosophies.
2) No internal structure or roles and responsibilities are created when kids are hired.
When it’s just mom and dad, roles and responsibilities aren’t that important. They have been married long enough and have worked together for years to know the who, what and how of their business.
But as soon as you bring other family members in, everything becomes more complicated.
Clearly defined job positions that pay attention to accountabilities, responsibilities and decision making authority must be clearly laid out.
I always say, “There is safety (for everyone) in structure.”
3) Careless words and empty promises.
This happens all the time. In casual conversation mom or dad will say something to the effect, “someday son/daughter, this business will be yours.”
The problem is that mom or dad say similar things, and make similar promises to more than one of their kids.
This is what happened in Shawn and Karen’s case. Over the years, John and Carol had indicated that each of them would eventually get the family business.
Thanks to the family rumor mill, Shawn and Karen discovered that they had both been told or promised that the business would be theirs. This created an unhealthy amount of sibling rivalry and was one of the reasons that Shawn and Karen were no longer talking.
4) No timeline or schedule is created or communicated.
Both Shawn and Karen thought that they would be running the business years ago. But mom and dad had held on well into their 60’s, and Shawn and Karen were smart and ambitious and wanted to take the business in a new direction.
Both became impatient and frustrated.
As you can imagine, this created stress and anxiety for both Shawn and Karen. Not knowing is always worse than knowing.
5) No Communication
This could be reason number one. Or it could be reasons 1-5.
Families just have a hard time talking about this stuff. So they don’t.
This leads to speculation, which leads to suspicion, which leads to insecurity. Insecurity creates the environment where everyone starts trying to protect themselves and their own interests.
If you have one take-away from this story, it would be to communicate and talk about the tough stuff.
If you don’t know where to start, get some help from a professional.
Not talking about something, is almost always worse than talking about it.
Back to the story.
When we left off, the family was in conflict. Shawn and Karen were not talking. In fact, they were openly hostile to one another. This hostility was often directed at John and Carol. Employees saw the tension, and even some customers did too.
Where do they go from here?
How do sell a business to your kids when the kids aren't talking?
Who do you sell it to?
How do you pick one child over the other?
Fortunately, the family agreed to bring me in and work with them to try and reach a resolution, before both the business and the family failed.
It took us three to four months to work through all of the issues.
That included business issues like finance and profitability because stress stems from money, or the lack of it. We all know that. So strategies had to be designed and implemented to get the company more profitable. It took about six months to start seeing improvement, but we did.
And the financial improvements have continued to today where the company has just set a record for gross revenue generated and the net profit earned on that revenue.
The really challenging part was working through all of the relational and emotional issues. Some of which had nothing to do with business, but went back to things that happened years before Shawn and Karen started working together.
I’m not going to say that Shawn and Karen are best friends today. But they both acknowledged that they love each other, they wanted to move on from the past and they wanted to keep the business in the family and try their best to make it work.
So once the emotional and relational issues were mostly diffused, I went to work to create an organizational structure that would minimize cross-over or overlap between Shawn and Karen. They each got their lane of responsibility and autonomy. And that has helped tremendously.
A Unanimous Shareholder Agreement was signed between Shawn and Karen that would provide a clear and clean mechanism for one of them to exit the business should things revert to the way it was before. Today, that seems unlikely. But it is always wise to include such agreements in any business partnership. And especially in family business partnerships.
And for the cherry on top. We were able to solve the business succession issue.
After making a partial lump sum payment, Shawn and Karen are purchasing 100% of the shares from John and Carol over a ten year period. This strategy worked well for Shawn and Karen as they didn’t have the cash to buy the shares outright. It also worked for John and Carol as we were able to minimize tax and provide a ten year income plan that would take them into their mid-70’s before they would even have to consider touching their retirement savings if at all.
So why do I tell you this story?
Because many family businesses are having the same challenges that this family did.
Statistics bear this fact out as only 30% of family-owned businesses can transition the company from the first generation to the second. And my professional experience confirms that family business is challenging.
So if you are part of a family business that is struggling, it doesn’t have to be that way. There is help available. But you need to take the first step to reach out and ask for support.
Wishing you all peace and prosperity in your family business.