SUCCESSION

Succession Stories: The Good, the Bad, and the Ugly

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.

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"In my business today, I see so many kids coming up in the family business who think they're ready to take over but they don't yet have all the skills in place," says Pete Walsh of Walsh Bros. Office Equipment in Phoenix.

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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."


Succession Planning Can Get Emotional

Pete Walsh loved working for Walsh Bros. Office Equipment in Phoenix, the family business his grandfather started back in the 1950s. By the time he was 36, Walsh had risen up the ranks to claim the title of vice president, where he reported only to his uncle, the company's president. But even though he was given the autonomy to run an important division, Walsh thought he was ready to run the whole show.

The problem was his uncle, then 55, had been running the business for 30 years and wasn't ready to step down. "My uncle told me he planned to run the company for another 10 to 20 years," Walsh says. " I told him that I didn't want wait that long." Feeling frustrated and disrespected, Walsh left the company to start his own consulting business, Peak Performance Coaching. That was 12 years ago. Walsh admits that his family was shocked and surprised when he decided to leave, but he now knows it was the best thing he could have done – especially after his uncle sold the business in 2009.

"In my business today, I see so many kids coming up in the family business who think they're ready to take over but they don't yet have all the skills in place," says Walsh. "That's when people get frustrated and resentful." Walsh now counsels family businesses on how to break free from the emotions that often can wreak havoc with life at work and around the holiday dinner table. "In most cases, as soon as things get emotional, they start avoiding an issue," he says, noting that bringing in an outsider like himself could have helped he and his uncle work through their own issues. "But if you don't spend the time to communicate and put a plan together, you can create forces that blow up and cause irreparable damage that can last for generations. What should be a source of joy becomes a major discord for a family."

Lesson learned: Make time to plan ahead and bring in an outsider to work through emotional issues.

Sometimes You Need to Let Go

Entrepreneur Irving Feld made a shrewd investment when he purchased the Ringling Bros. and Barnum & Bailey Circus in 1967 for a reported $8 million. But hiring on his son, Kenneth, three years later proved an even better business decision. The father-and-son team soon reinvigorated the 141-year-old circus, making it again worthy of its title as "The Greatest Show on Earth."

But the younger Feld didn't stop there after his father passed away in 1984. Under his direction, Feld Entertainment grew into the largest provider of live family entertainment in the world, where some 30 million people around the world buy tickets to the circus as well as other smash hits like Disney On Ice, which began in 1981, and motor sports events like Supercross, which started in 1997.

More recently, Feld, now 62, has taken a lesson from his father and welcomed his three daughters into the business: Nicole, 33; Alana, 31; and Juliette, 27. Before they were hired on, however, each of his daughters spent at least a year and half working outside the business before they returned. "It's tough to be the boss's kid," says Feld. "I think it's the hardest position in the company because the expectations of you are so much greater. I figured that if my girls worked elsewhere first, they would bring in valuable skills from the outside."

For daughter Nicole, that meant working for two years at People magazine before the call of the circus, which she now produces, brought her back to the family business. "There was never any pressure to come back," she says. "I decided to come back because I thought I could make a difference."

To put his daughters in the best possible position to succeed, he has recently taken a step back from taking an active role in decision making. "If this business is going to remain relevant by changing and evolving, it needs new blood," says Feld, who also hired a president and COO named Mike Shannon to whom his daughters report to. "It's conceivable that the business will continue to thrive another 60 years, most of that without me. I would rather have my daughters get their feet wet now when I'm around to offer advice and ask the tough questions."
 
It's Tough to Follow in a Parent's Footsteps

Cheri McBride, now 65, was just a kid in 1951 when her parents opened up a jewelry store called Nowlin Jewlery in Lake Jackson, Texas, a Dow Chemical factory town that sprung up in the 1940s. As she grew up, she saw how hard her parents worked—staying up late or spending weekends doing paperwork—to make it a success. That was why, when it came time to go to college, McBride, who goes by the nickname "Duckie," couldn't wait to get out of town. "I wanted to be the world's greatest artist," she says. "And I honestly think my parents hoped I would find a job with nice benefits."

But, after spending a few years pursuing artistic adventures, like filming a documentary in Alaska, McBride decided to come back home in 1973 and join her brother, a former engineer eight years her senior, in taking over the family business. The siblings worked well together and the store prospered. The third generation even got involved as McBride and her brother had four children between them. "My son, nieces and nephews would make deliveries and help with holiday wrapping," says McBride.

But either because of or in spite of their years helping their parents, the third generation of the Nowlin family told their parents they didn't have any interest in taking over the business. That's why four years ago, McBride and her brother decided to sell off their entire inventory and close the business down after 50 years of operations. "Nobody would have bought the business since it was only worth the amount of inventory we had," she says.

McBride recently decided to go back in business with her husband Glenn, as they now operate an art gallery in Lake Jackson called Duckie and the Grackle Studio and Gallery. When she thinks back to why her kids didn't want the family business, she thinks maybe it's because that in an era of big-box retailers, they didn't see how they could stand out. "I wonder if there is a fear in many children about whether they can be as successful as their parents," she says.

Lesson learned: Not every family business is suited to be passed on to future generations.

Keep on Churning

Few businesses can boast the longevity that Velvet Ice Cream, which was founded in 1941 in Utica, Ohio, can. Joseph Dager, an immigrant from Lebanon, started churning ice cream because he realized it was a true "American" food. Today, Velvet is a thriving enterprise that earns some $20 million in revenue from selling about 5 million gallons of ice cream to restaurants, groceries and institutions like hospitals and nursing homes each year. Another aspect that makes the company stand out is that Velvet is still a family-owned business where the third generation, brothers Joseph and Michael, have transitioned away from the day-to-day operations of the company to allow Joseph's three daughters to take senior management roles – something the family has come to call "misters to sisters."

While Joseph, 70, remains chairman of the board, his oldest daughter, Luconda, 41, took over the role of president in 2009 after working for the company for 15 years (sisters Joanne, 39, heads up food service while, Andre, 37, is in charge of guest relations for Ye Olde' Mill, the company's restaurant and museum that caters to 150,000 visitors a year). Luconda Dager says that she and her sisters were never asked to come work for their father. Rather, they were encouraged to go to college and get a job on their own outside the company for at least three years. Plus, when she finally asked her dad and uncle if she could join up, she needed to start at the bottom.

"I put together my own training program where I didn't even have a title for the first eight years I worked in the business doing everything from production to warehouse management," says Dager, whose grandfather made her father follow a similar path. "But by doing that, I think I got to really know the business from the ground up which now helps me make better decisions."

Dager says that two of the biggest keys to the continued success of her family's business is making time for planning and communication. "It takes a lot of effort to put things on paper," she says. "But you have to be open to communicating about tough issues, like my dad's goal to retire by 72. That's why every member of the family who works in the business gets together every quarter for an advisory meeting where we can talk through emotions or hurt feelings. It's not easy, but you have to do it - you have to plan forward."

That advice has become even more relevant as members of the sixth generation of Dagers have begun spending their summers working for the family business. "We don't want to influence what they do since they may want to be veterinarians or chiropractors," she says, referring to Justin, 19, and Devin, 17. "The only way to find out is to expose them to the business, give them an opportunity and let them make the final decision."

Last updated: Mar 29, 2011

DARREN DAHL

Darren Dahl is a contributing editor at Inc. Magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, NC.




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