Entrepreneurs face steep odds in terms of successfully keeping their business in the family over the long term. Six entrepreneurs share their experiences–often wrought with emotion–while imparting lessons learned.
Sylvia Wildfire, like many business owners with children, would love to pass her Thousand Oaks, California-based business, OnCallMedic, which supplies emergency medical technicians to weddings and big events like the Grammy Awards, on to her son, Michael. The only problem is that Michael, a 19-year-old college student who is also a registered EMT, doesn't seem to want it. "I am trying to set up a five-year plan where he would take over," says Wildfire, 48, a retired firefighter who founded her company in 1999. "This is a very successful business and I think that he could do anything with this under his belt. But, for now, he seems to want his own life."
The unfortunate truth is that few family businesses like Wildfire's ever get successfully passed to subsequent generations. In a recent study of 1,600 family-run businesses conducted by consultancy PriceWaterhouseCoopers, only 36 percent of the businesses surveyed survived passage into the second generation. And things only get worse from there, since only 19 percent of businesses survived into the third generation and a mere 7 percent continued into the fourth. The reasons for why such businesses struggle through successions include challenges such as the lack of proper succession planning, poor communication, power struggles and lack of interest – to say nothing about the challenges brought by competitors in the marketplace. In other words, entrepreneurs like Wildfire face steep odds in terms of successfully keeping their business in the family over the long term because, well, they have to confront the same kind of emotional and sometimes irrational situations that every family deals with.
To find out the secrets of how a family business might survive into subsequent generations, Inc. contributor Darren Dahl spoke with a sample of entrepreneurs who shared their experiences—both the good and the bad—of working in their own family's business.
Put a Succession Plan in Place
When he was a kid growing up in Delaware, Brad Winton worked at his family's popular dinner theater, which was founded by his grandfather and his grandfather's brother in the mid-1940s. Winton's mother was one of nine children in the second generation who gradually took over the theater's operations, which seated 1,000 and employed a total of 300 workers, as the founders, who had been circus acrobats in their youth, got on in years.
The problem was that the founding brothers retained 100 percent ownership of the business even as their kids and grand kids kept it going. That led to problems, as the founders continued to weigh in on every decision impacting the business, such as whether the theater should begin selling alcohol (they decided against it). "That created a lot of hard feelings because the business was never able to move forward because of the way it was structured," says Winton, who, at the encouragement of his parents, became a financial planner rather than work full time within the family business.
Because of its inability to change directions, the business unfortunately came to a screeching halt in 2008 when, with revenues falling, the founders decided to sell the business – putting their own children out of work. "After 30-plus years of working her tail off, my mother walked away with nothing," says Winton, adding that because they had worked for the family business their whole lives, his mother, aunts and uncles had specialized skills that made finding new jobs a challenge. "It makes everyone sad to think that the business didn't work out because they didn't do the proper planning."
Lesson learned: Good succession planning should also involve a transition in decision-making.
Put the Business Ahead of the Family
Jack Mitchell and his brother Ed were fortunate that their parents, who started a men's clothing store called Ed Mitchell's in Westport, Connecticut, in 1958, brought in an outside expert to help them best pass on the business to their two sons. As a result, when the Mitchell brothers inherited their parent's business in 1990, they had already been taught the value of good succession planning, which, given the fact they had seven sons between them, promised to be a challenge. After working with David Bork, a veteran family business consultant, the Mitchells, whose business has blossomed into The Mitchells Family of Stores, which earn some $100 million in annual revenue, decided to put three rules in place as part of their succession planning:
1. When it came to making decisions about the business, the interests of the business would come before those of the family.
2. Any family member who wanted to work in the business first had to work outside it for at least five years. Then, they would have to apply for an open position.
3. Communication would be a priority. That meant that every Mitchell working in the business would meet each and every Tuesday to discuss the business. Then, every quarter, the family would hold a retreat where every family member over the age of 14, including spouses and significant others, would be briefed on the latest news.
The plan has seemingly worked to perfection since not only has the business continued to thrive, six of the seven members of the third generation now work for the company. One of those is Andrew Mitchell-Namdar, who is now a vice president and heads up marketing for the business. After graduating college, Mitchell-Namdar worked for 10 years before deciding to join the family business in 1999 at the age of 30. "There was never an expectation or a guilt factor for me to join the business," he says. "But it was very rewarding for me to develop skills that I then brought back into the business."
The Mitchells recently made another significant shift, as Mitchell-Namdar and his brothers took over full ownership of the business from their parents, who still remain active consultants in it. "I get a great sense of excitement and pride when I see the boys making decisions that will impact the future of the business," says Mitchell. Challenges remain for Mitchell-Namdar and his brothers, though, since the oldest of the fourth generation recently turned 16. "We still have a ways to go, but the next generation has a massive spread in age where the youngest is 4," he says. "It's possible that what worked for my parents and grandparents might not work as well for us."
