NFIB

Family Firms Face the Future
10/ 01/ 2002

Rising above the challenges of working with family

Hard to imagine a small business owner wanting to add a set of additional challenges to his or her work. Yet that's what family business owners face every day. On top of all the difficulties of running a small business, these entrepreneurs have layered the unique issues that come from working with your relatives.

From figuring out how to pass on the family legacy, separating bottom-line calculations from family emotions and even how to fire your brother, these challenges are enough to keep many family businesses from succeeding. A full 80 percent of family firms don't make it to the second generation, according to Northwestern's Kellogg School of Management. Only 13 percent of those make it to the third generation.

Yet it can't be all bad, or 90 percent of the businesses in the U.S. wouldn't be family owned. Many members of Congress come from family business backgrounds, including Speaker of the House Denny Hastert (R-Ill.), Rep. Sue Kelly (R-N.Y.) and Rep. Dennis Rehberg (R-Mont.).

Many of the unique difficulties that come from working with family members are balanced with just-as-unique benefits. "The beauty of a family business is your own personal family values do shape the company's culture," said Neil Koenig, a family business consultant for over 30 years and author of You Can't Fire Me, I'm Your Father! "So family values permeate the environment where people work. In non-family businesses, they have to do more work to shape their culture."

In the following article, MyBusiness takes a look at some of the most common challenges family owned firms face today, and offers advice from families that have successfully faced these difficulties. Because each family is unique, it's important to remember that there isn't one blueprint to prosperity.

"There are certain things family businesses can do right, but there aren't right answers to be plugged into every case," says Ira Bryck, director of the University of Massachusetts Family Business Center.


Succession struggle

Passing on the business when the founder retires or dies is one of the biggest stumbling blocks for family companies. And it's an issue that's seen more prominence in recent years as the owners of the wave of businesses founded just after WWII age. More than half of family businesses are expected to change leadership by the end of 2002, according to a 1997 survey by Arthur Andersen and Mass Mutual. "There's never been as many family businesses in transition as now," says Bryck.

Where most family firms trip up is in simply failing to plan for succession, or letting unresolved family discord confuse the issue. "Family members need to take time out from working in the business to work on the business," Bryck says.

Planning has made Linda Crawford's passing of her staffing firm to her daughter go smoothly. Started in her home 18 years ago, Delta Dallas Staffing, www.deltadallas.com, has grown to a staff of 40. Yet even before her daughter Debbie Trevino joined the business, Crawford was working on her exit strategy.

"My mission early on was having a business that could go on and operate daily without me," Crawford says. "I wanted a business with strength and leadership, that wasn't dependent on me."

By her fifth year in business, Crawford was already educating herself about the legal and financial basics of succession. In 1993, her daughter joined the firm, after working for an insurance business.

"I never intended to join my mother's business," Trevino says. "We've always been close and I didn't want work to affect our relationship."

After her mother asked her to handle Delta Dallas' accounting part time, Trevino ended up joining the firm full-time. Three years ago, Crawford named Trevino president and stepped out of day-to-day operations of the company.

Of great help in managing the succession has been the seven-person leadership team Crawford established early on. Trevino was a member of the team for four years before being named president. Also on the team are Trevino's younger brother, an executive vice president at Delta Dallas, and Crawford, who still works part-time at Delta Dallas.

Consultant Bryck notes that this sort of team is crucial to a family business' success, as it helps to bring perspective and prompt long-range planning. "Entrepreneurs often feel they make decisions from their gut, but that's not good enough," Bryck says.

Today, Crawford is enjoying her time away from the business both to relax and reflect on the company she built. "I've learned over the years that I do my best thinking away from the office and that's a great value right now," she says. "The reality is, we never know when life will end, and this way, there's less left to chance."

Intergenerational relations

Getting along with co-workers is hard enough, but when your boss is also your dad or sister, the potential for turmoil is multiplied.

"Separating the emotional from the business in a family firm is an artificial barrier," advises family business consultant Koenig. "Everyone is emotional about their work, and that's accelerated in a family business."

To keep sibling rivalries from spilling over into the workplace—and arguments over work from ruining a family get together—takes constant communication and a clear set of rules, according to Jacqueline Baca, president of Bueno Foods, which makes tortillas, chili powder and Mexican foods. For seven years, she worked under her father, Joseph Baca. At his death, she became president of the Albuquerque, N.M., company and today is the boss of four siblings involved in the 50-year-old company.

"Communication has really been the key," Baca says. Every other week, family members gather at Baca's mother's house to talk about family matters that are affecting the business. It's necessary to have a place to vent, as all the Bacas live within two miles of work and also socialize together.

Having a clear mission also keeps the brothers and sisters focused. Founded in a poor area of Albuquerque, Bueno Foods has always focused on providing jobs and giving back to the community. Today, it employs 240 and makes more than 150 authentic Mexican food products, for restaurants, retail and mail order, at www.buenofoods.com.

"Our purpose is to have a positive influence on people's lives," Jacqueline says. "That's what holds the business together, especially in times of adversity."

Also key to the company's success has been the establishment of business rules and processes, so if there is disagreement among siblings, it doesn't turn into a personal issue. "There's a discipline about our interaction with one another," Jacqueline says. "We also have a great deal of respect for each other."

Of equal importance has been establishing clear lines of authority for each of the siblings who join the company. "You don't want your employees to have to choose among the siblings in terms of direction," Jacqueline says. "We make sure there's no overlap of authority."

Letting family employees go

Getting rid of an employee is rarely an easy matter. When that employee also shares the table at family celebrations, it goes beyond a personnel matter.

"These are cases when having outside counsel can be so helpful," says Koenig, whose book focuses on the delicate subject of firing family members. "Many businesses already bring in a computer consultant; it's becoming more acceptable to realize you might need an outside perspective when it comes to family members."

That's what Gary Blasiar discovered as head of Alert Communications, a Los Angeles company started 52 years ago by his parents. Originally a telephone answering service, the company has evolved into a telemarketing firm, with four locations in California.

Under Blasiar's leadership, his brother and two sisters joined Alert Communications. However, he and his brother developed major differences of opinion on how the business should be run.

"It became much more of an emotional issue and much more difficult to deal with than if he had been just another employee," Blasiar says. "It took bringing in an outside consultant on our executive board to help remedy the situation."

With outside help they came to an amicable decision on the value of the brother's stock and ended the business relationship.

Personally, though, the decision took a tougher toll. Blasiar and his brother, who had a close relationship, became estranged, with his brother moving away to Louisiana.

Blasiar's lesson from the incident was that it should never be a given to hire a family member. Blasiar now requires any relative interested in joining Alert to spend two or three years in an outside position, to get formal job experience and figure out if the family business is right for them.
"If nothing else, you need to be sure it's a job the family member wants to do," Blasiar says. "It's not a given that a family business is going to be a good fit for every family member."

Changing tradition

Deciding what's best for the business is complicated when you're also considered the steward of family tradition. How many of you have tried to change an elementof a Christmas celebration and met with an outcry from other relatives?

Imagine NFIB Member Brent Denker's position. Fourth generation owner of the Blackhawk Bakery, he found himself at a crossroads in the mid-1980s as the market for his traditional, retail bakery in Paducah, Ky., was declining along with the population. The area of town where the bakery was launched in 1947 by Denker's great-uncle James Dickerson had changed considerably, and walk-in traffic continued to fall.

So Denker decided to focus on the Blackhawk's most popular product, its flake dinner rolls, and turned to wholesale sales.

"It was a hard decision, because this has always been a retail, family bakery," Denker says. "I still get two or three calls every day from people wanting cookies or a cake, and we haven't done those in 10 years."

But the dinner roll niche has proven profitable for Blackhawk.Today, its rolls are delivered to restaurants, hospitals and groceries in 16 different states, and also sold online at www.blackhawkbakery.com. The bakery has 20 employees, including seven of Denker's relatives.

"There's a lot of pride in the bakery," Denker says. Although he's reminded daily of the history of the Blackhawk Bakery—named in honor of the soldiers of the Blackhawk Battalion where James Dickerson served in WWII—he sees a greater legacy in gaining the bakery a national profile.

Government mandates

All small business owners face the intrusion of governmental mandates and rules. But for family business owners, one regulation in particular can be deadly: the estate tax, which is also called the death tax.

After much debate, Congress has approved an ultimate repeal of the federal tax on the transfer of wealth between generations. Their actions are too late for Lee Ann Ferris, a third-generation Idaho cattle rancher forced to sell the family farm because of the amount of taxes owed at her father's death.

"My grandfather and father worked their whole life to build this up," Ferris says of the Bar 13 Ranch. "We never would have sold it if we weren't facing the death tax."

In 1993, Ferris' father was killed in a farm machinery accident. He had grown the Bar 13 Ranch to 2,600 acres and 700 head of cattle, with no debt.

"My father's death was the most devastating event that any of us had ever gone through," says Ferris, who along with her brother and sister helped out with seasonal work on the ranch. "The second most devastating event was sitting down with our estate attorney after his death."

Ferris was told that when her mother dies, the death tax on the ranch—which brings in gross revenue of $350,000 a year—would be $3.3 million. After several agonizing years, Ferris and her mother decided to sell the ranch. Ending a way of life that had been in her family for over 60 years was far from easy. Today, Ferris and her husband have opened their own business, a kitchen and bath remodeling company in Ketchum, Idaho. But Ferris is so soured on the death tax, she is adamant about not passing the business on to her daughter.

"This is such a nightmare for any family," Ferris says. "I get so upset about it still."

Selling without sentimentalizing

Too many families become too closely associated with their business, making the suggestion of a sale akin to a death in the family.

"The business is an asset that will bring value to your family only so long as it is treated like a business," says family business consultant Quentin Fleming. "Once you sentimentalize it as a reflection of the family, you're in trouble."

To many, selling a family business makes it a failure. But when it's done for the right reasons, both the business and the family come out ahead.
Ed Carroll was the third-generation to work at Riverside Park amusement park in Agawam, Mass., when he started at age 14. He became the company's general counsel in 1996.

At the time, the 60-year-old park needed extensive capital to modernize its rides and stay competitive. That meant either taking on an equity partner or selling. At the time, Carroll and his brother Bill were both involved in the business, and both leaned toward selling.

"I didn't want to work 90 hours a week for somebody else," Carroll says.
For their father, the decision to sell was eased when he realized he would be making life easier for himself and his family. "He wouldn't have to worry about rain, or the electric bill, or the responsibility of employing all these people," Carroll said of the 55 year-round and 1,500 part-time seasonal workers at the park.

The Carroll's approached Premiere Parks, an Oklahoma-based company that was buying up regional amusement parks. Premiere bought Riverside Park and put over $100 million into the business. Premiere has since bought Six Flags and renamed Riverside as Six Flags New England.

Carroll went on to work for an executive search firm in Connecticut, and now visits the park regularly with his two children. His dad has taken up golf and bought a home in Tucson, Ariz., with his mother.

"My dad was Riverside and he had to deal with that," Carroll says. "Sometimes a family that's so identified with the business won't sell, based on family pride, but that's often not what's best for the business. Once my dad made the decision to sell, there was no looking back."

Opting out of the family business

It should never be a given that just because someone has the right last name, they get a job in the family business, Koenig cautions. The most successful family businesses treat employment as a responsibility, not a privilege. "There's got to be criteria for joining the family business," he says. That approach keeps the focus on what's best for the business and best for the family.

Stanley Windhorst Jr., known as "Bud," grew up assuming he'd join Ready Electric, the electrical contracting business started by his grandfather in Louisville, Ky., 53 years ago. "I was the first male Windhorst, so even through college it was, `Bud's got it made, he's going into the family business.' "

Bud's father, Stanley Windhorst Sr., took the precaution of ensuring that employment criteria for family members was in place. Bud knew that he'd have to work outside Ready Electric for a few years, then go through a five-year apprenticeship to become an electrician.

"I wanted to own my own business, but I wasn't sure it was Ready Electric," Bud says. After many discussions with his father, he decided to buy a dry cleaning franchise, Dry Cleaning To-Your-Door, which he launched out of his house four years ago. He started with one customer—his dad—and now serves over 550.

"I wanted something that was mine," Bud says. "I knew that in joining Ready Electric, I'd be seen as the owner's son and it would be hard to earn respect. Now, I go to my dad a lot for advice."

Bud's father is proud of his son and admits he steered Bud away from joining Ready Electric, which has over 200 employees and revenue of $20 million. "This is a completely different business with lots of obligations," Windhorst Sr. says. "It would be a real burden to strap him with it. Bud had a different kind of entrepreneurial spirit and this would have confined him somewhat."

As for the continuation of Ready Electric, Bud has several younger cousins showing an interest in stepping up to the plate. "It's nice to know there's someone out there to take over the family business," Bud says, admitting that has eased his decision to become an entrepreneur on his own terms.

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One big happy family

Family Firm Institute At www.ffi.org, is an international professional organization dedicated to assisting family firms by increasing the interdisciplinary skills and knowledge of family business advisors, educators, researchers and consultants. We fulfill our mission by providing continuing education and networking opportunities as well as programs designed to stimulate research in the field of family business.

Family Enterprise Institute A for-profit organization with chapters nationwide. Find out more online at www.familyenterprise.com.

NetMarquee A Web site at www.fambiz.com with a search engine of more than 300 articles by family business specialists around the country.

Making Sibling Teams Work: The Next Generation, by Craig E. Aronoff, John L. Ward, Joseph H. Astrachan, Drew S. Mendoza (Business Owner Resources, $16.95).

You Can't Fire Me, I'm Your Father!, by Neil Koenig (Kiplinger Books).

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This article originally appeared in the July/August 2001issue of MyBusiness Magazine, NFIB's member magazine.

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