Are Your Kids Good Enough to Run Your Business?
Even if you've never considered your company to be a family business, that question could be one of the most important you'll ever have to answer
Chances are, when you started your business you never envisioned yourself uttering to your children that classic family-patriarch line: "And someday, all this will be yours." You were too busy bootstrapping your new venture, sizing up the competition, and pursuing market share to think about what might happen to your company 10 or 20 years down the road. Heck, you probably still are. Well, wake up. If the current economic and demographic trends continue, there's a good chance that the hottest family businesses of the next century will look an awful lot like yours -- growth companies that didn't start out thinking of themselves as family businesses. In fact, nearly half of last year's Inc. 500 chief executives counted family members among their employees. What's going on here?
Cynics will point out that whenever times are tough, relatives seem to come out of the woodwork sniffing for jobs. True enough. For better or worse, family businesses have always served as safety nets. But what has changed in the past five years is that the family business has emerged as the career path of first choice for a growing number of young people. According to Nancy Upton, director of the Institute for Family Business at Baylor University, in Waco, Tex., there are now more than 50 family-business centers affiliated with university business schools. Nearly two-thirds of the centers offer courses in family business to students. (The rest are membership organizations that run workshops and seminars for local family businesses.) The courses, which cover such topics as understanding family dynamics, team building within the family, and succession planning, are largely a response to demand from business-school students who are prospective family-business successors -- the kinds of kids who, 10 years ago, might have balked at the idea of going to work for their parents. "What I see is students looking at their parents' company as a viable career opportunity," Upton says.
You can attribute that phenomenon to whatever you like: the scarcity of jobs and the realization that employment security in corporate America is a myth; the deglamorization of other professions, such as law and medicine; or the genuine belief that a family working together offers tremendous opportunities for personal and professional growth. Take your pick. If the trend continues -- and there's no reason to think it won't -- companies like yours may feel compelled to reinvent themselves as family businesses.
So why wait until your 22-year-old shows up at your doorstep, diploma in hand? Once you've opened your mind to the possibility that your company may be a family business in the making, it's never too early to start thinking about your children as potential successors. Witness The ABC's of Business, by Dr. Cynthia Iannarelli and Jodi-Lynn Iannarelli, an alphabetic journey into the world of entrepreneurship. (A is for advertising, B is for budget, C is for customer. . . .) The book is aimed at kids aged 3 to 10, says Cindy Iannarelli, the head of the National Education Center for Women in Business (NECWB) at Seton Hill College, in Greensburg, Pa., and "is part of the message we're trying to get out -- teach your kids early." NECWB also sponsors a one-week summer program for teenage girls called Camp Entrepreneur. Part of the week's agenda: teaching the girls how to talk to their parents (with emphasis on Dad) about business.
If you think exposing 10-year-olds to the rigors of business (D is for delegate, E is for equipment. . . . ) is excessive, consider the sins of your predecessors. We are now in the midst of what the family-business consultants call "a succession crisis." Companies that were started in the post-World War II years now have aging founders at the helm, many of whom haven't planned for succession and are faced with the prospect of closing up shop, selling out to the Wal-Marts and Home Depots of the world, or passing on their businesses to ill-prepared heirs. There are as many reasons for CEOs not to consider succession issues as there are family businesses, and you've already heard the standard ones: the founder can't come to grips with his or her own mortality; the founder doesn't want to favor one child over another; the company is too reliant on the founder to be passed on. Odds are, many of those owners didn't start thinking of their companies as family businesses until it was too late. Retirement has crept up on them, along with a host of unresolved family issues, not to mention estate planning. It's the stuff that keeps family-business consultants -- and their numbers have increased exponentially over the past several years -- in the money.
We're not saying that training heirs while they're still roller-skating and jumping rope will guarantee the survival of a company. But there's a growing awareness -- perhaps because of the current fascination with parenting skills among baby boomers -- that what you convey even to young children about your business and how you convey it will ultimately affect their desire to be part of that world. Sounds like common sense, but how many moms and dads have come home exhausted and grumbling every night for 15 years, and are then dumbfounded when their children reject the family enterprise? Likewise, your kids' rapport with one another will be the foundation of their business relationship when it's time to pass on the company -- battles that began in the playpen will ultimately be dragged into the boardroom.
While that's always been true, it's an axiom that's particularly significant today. According to Ivan Lansberg, a New Haven, Conn., organizational psychologist who has done a study of about 200 family-owned companies, sibling partnerships -- with ownership (but not necessarily management) divided equally within the next generation -- are on the rise and will be an increasingly popular succession strategy. That makes sense when you consider the swell of kids interested in family businesses and the growing prominence of women in business -- increasingly, daughters are players on the family-business stage and their presence has doubled the pool of succession candidates. Consider, too, that global competition and the demands of the information age are fueling a dramatic increase in partnerships in the larger world of entrepreneurship. The same pressures are being brought to bear on family companies -- it's getting harder and harder for one person to run the show. But shared ownership carries with it a whole new set of problems for the emerging family company: Mom and Dad's business may have provided a comfortable lifestyle for one family, but can it deliver financial security for two or more families? And while equal may be fair within the family, the same principle could prove disastrous in business: a 50-50 ownership split may be equitable, but is everyone also entitled to a job in the company? "We have a great deal of work ahead of us trying to understand what makes sibling partnerships work," says Lansberg. "I think of them as the bumblebees of the management world: they're not the ideal design, but they fly."
Sibling relationships are only one of the issues a CEO faces when it comes to planning for succession in a family business. None of the old internal problems have gone away: it's still hard to let go, family disputes still spill over into the business, and keeping nonfamily managers motivated is still a challenge. Add to those the external factors of tougher competition and the resultant turmoil in the marketplace, and the time to plan and execute a succession strategy may seem to evaporate. Take heart from the experience of one CEO, Billye Ericksen, and learn how she came to grips with all of those issues ("Pass It On," [Article link]).
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.