Lessons Learned by Chopping into the Family Tree (Yours, not Mine)

I’ve been spending a lot of time recently on OPFP (other people’s family problems), which I have to say is much better than spending time on my own family problems. My interest in families is rooted in business, not psychology or counseling, but it’s hard to do one without the other two.

A family that is in business together and is a) happy; and b) financially productive is a beautiful thing. It’s also as rare as snow in Atlanta. It can happen, but it not so frequently that we find it routine.

More often, we find that either family is dysfunctional or the business isn’t flourishing to its full potential. Even more frequently, we find both circumstances. I’m not going to cast stones – I probably couldn’t do it any better. My point here is to raise awareness rather than point fingers. And why do I want to raise awareness? Because the root of so many of the problems is because people have their heads buried in the sand.

It's hard to talk about family stuff in the context of the business, and it’s even harder sometimes to talk about business stuff in the framework of the family. Most of the conversations that need to happen involve preparing for someone’s retirement or death, and no one gets excited about thinking along those lines.

Here are some random thoughts I’ve had over the past few months of digging deep with some consulting clients. All will not be relevant to you, but if your company is a family business, I bet some will hit home.

·       If there is more than one owner, there needs to be a buy-sell agreement to concentrate ownership upon someone’s death. You don’t want to be a couple of generations down the line and have a zillion cousins with fractional ownership. No company can survive that. But beyond simply having a buy-sell, it needs to be adequately funded with life insurance. If you did this some time ago, it’s entirely possible that the money from the insurance will not cover the purchase of the deceased’s shares. Do you want your partner’s widow (or widower) to be bankrupted purchasing the shares? Of course you don’t. Nor would you want your own spouse to be faced with this. But if you put it off to another day, you absolutely could end up in that situation.

·       If your transition plan is for your kid(s) to take over, you better make sure they are all-in long before you want to leave. And you have a responsibility to get them ready. Give them a real job – one that has a job description. Don’t tell them just to wander and learn from others. When they’ve mastered one job, move them into another with progressive responsibility. Plan it out. Don’t let it “just happen” because that kid will never get fully prepared.

·       If your kid(s) are not capable, be honest with yourself and them. Don’t set them up for failure. Either sell the business and let them inherit the proceeds or hire someone in over them to provide the leadership that keeps the company solvent. This is one of the hardest things for parents to do. It is not an easy conversation to have.

·       Even more difficult is the conversation about how much stock each kid is going to get in the generational transfer. Smart parents make the difficult decision not to leave the company in equal parts. That just sets siblings up for conflict later. Instead, the one with the best ability to lead the company should get a controlling interest. That doesn’t mean the other(s) are not capable. But where there is equal ownership there will ultimately be an inability to take meaningful steps forward. It’s easier to live in the status quo than to fight about it. You slip into complacency, and eventually your competitors eat you for lunch.

·       Failure to plan is planning to fail. That’s certainly true in generational transfer, but it’s also true for your business in general. If you don’t have a plan to grow your business, you are going backwards. When was the last time you thought about strategy – yours and your competitors’? Have you picked out two or three big areas that need improvement? Have you drilled down into what has to happen operationally to achieve those goals? In today’s rapidly changing environment that is full of challenges beyond anything generations before could have thought of, you must think strategically and filter those ideas down to the operational level. If you don’t you won’t make it to lunch. Your competitors will have you for breakfast.

·       You can look at family business from two perspectives. Either the business exists to serve the family, or the family exists to serve the business. You can succeed with either model, but the easier of the two is to let the business be primary. When you make decisions that are rooted in the interest of the business rather than the interest of the family, the business will obviously benefit, but in the long run the family will be better off as well. Making decisions for the business is somewhat neutral. Making decisions in the interest of the family almost always benefits someone in the family more than another. In time that leads to pettiness and jealousy because we are human. Avoid that path, and you avoid a lot of heartache for you and your heirs.

I often tell my clients that this work is very emotionally draining, and sometimes we need a break to process our thoughts and feelings – and perhaps have a beverage or two. There’s more I could share with you, but you might be emotionally drained (or perhaps I’m just tired of writing) so let’s call it a day.