Family first or business first? That is a trick question: Your answer should be “neither” and “both.” An entirely “family-first” family business won’t last. The business will be crushed under the weight of family demands.
A wholly “business-first” family business won’t last, either. It will shed its grounding in family history and legacy, pursuing narrower and simpler objectives under non-family ownership.
A “family-first” family business might exhibit these characteristics:
- Family members’ compensation is more related to what other family members make than what the market directs.
- Family members are employed because they need a job, not because their skills and talents fit family business needs.
- Houses, tuition or equipment are provided to family members unrelated to job performance.
- Little policy exists around family employment, ownership or expectations.
A “business-first” family business might exhibit these characteristics:
- Spouses of family members employed in the business get no unified communication about business goals and performance – except what is shared by their own husband or wife.
- Family values are not articulated or communicated, preventing business managers from deliberately living and sharing them.
- New family members are not educated about family history, business impact or how the business supports the family and the family supports the business.
- Profitability and business re-investment are pursued at the expense of shareholder returns and family priorities.
Neither a sole “family-first” nor “business-first” focus is sustainable. But either can be easy situations to find yourself in.
Consider the Fountain family business. Mom, Dad and their two children, Dick and Jane, all work in the business. Dad was diagnosed with cancer right as Dick finished college.
The business needed his help, and he had always wanted to farm, so Dick returned to the business as an employee. Jane finished school one year later. Dad was still undergoing treatment.
Dick had decided to raise the farm’s heifers, creating a need for more labor. Jane had gotten a degree in elementary education, but she had always enjoyed the calves and was needed by the business, so she returned as an employee.
At that time, there was no discussion about the role they would fill, how they would be compensated or what the future would look like.
Today, 10 years later, Dick and Jane continue to work with their folks. Dick has a family and three children, while Jane is single. To provide for Dick’s larger family, the business pays him more than Jane and employs his wife part time.
Dick’s wife did not grow up in a farming family and doesn’t understand some of the time constraints Dick encounters in his role as herdsman and feed manager. He leaves at 3:30 p.m. about twice a week to avoid flack from his wife when he misses any of his kids’ extracurricular events. Dick sees this as a natural way to balance family and business demands. He is, after all, there at 6 a.m. most days.
Because Jane doesn’t have her own family, she usually fills in and stays as late as needed to get the job done. Jane’s house is owned by the business – it’s right on-site so visitors and salesmen tend to stop there first. It’s just not a spot for a non-family employee to live – and wouldn’t be salable to anyone but the business.
Jane enjoys cooking in the little bit of spare time she does have. Because her salary is less than Dick’s, she’s gotten permission to remodel her kitchen. The project has gone a bit over budget, but she has the commercial stove, refrigerator and gourmet layout that will allow her to enjoy her cooking hobby.
She is, after all, a great cook – and often makes meals for the farm employees. Jane sees this as a business investment.
What began innocently enough – two children returning to the family business because they enjoyed the work and wanted to help their father – has evolved into a complicated stew of confusion, suspicion, hurt feelings and bitterness.
In addition, the business hasn’t been profitable enough to both provide for the compensation Dick and Jane receive and also create growth capital. So the business isn’t actually big enough to support three families.
In the founding generation, family-focused family businesses are the norm. Starting the business requires sacrifice and flexibility. As soon as the next generation enters, though, sustainability becomes more likely if the focus moves from simply providing a job for family members to setting the expectations around what it means to have a healthy business – one that happens to include family.
Contrast the Fountain family with the Ballard family. In the second generation, the three Ballard brothers own and manage the business. The brothers agreed, early in their partnership, that no wives would be allowed to work in the business. They observed family businesses in their community that included spouses and saw nothing but conflict and drama.
The five family members in the Ballard’s third generation are finishing college and have early careers. Because the brothers had different ideas around safety and appropriateness of young people’s role in their business, none of the third generation were employed as young people.
The business has been very profitable – and profits have been used for growth. Since 2010, year-over-year revenue growth has been 18 percent. Bottom-line growth has kept pace with revenue growth rates. Employee numbers have grown by 65 percent in the same time period.
The brothers run a very tight ship – and it has resulted in great financial success. To further support the rapid growth rate, all have chosen to take modest compensation. None of them have any money invested outside of the family business. And there currently are no successors interested in working within the family business.
What began innocently enough – minimizing family involvement to minimize conflict – has evolved into a terminal business. Without successors who have an emotional connection to the business and without assets outside those used to run the business, sale of the family business is being explored.
This approach will ensure that all of the senior-generation Ballards can be financially secure when they are no longer working full time in the business.
As demonstrated by these two examples, a balance between “family-focused” and “business-focused” is most likely to lead to strong family relationships and a healthy, successful business.
As I’ve shared in the past, developing the guidelines or policies that provide “enough” structure can feel overly formal – especially when you start early enough that it doesn’t feel like you have to make tough choices.
When Dad has cancer, though, it’s not an ideal time to put a policy in place. And successors in their mid-20s with no prior family business exposure aren’t ideal candidates to try and get engaged in the vision of the family business.
If sustainability of your family business is an important goal, it’s well worth the investment of time and energy to find the right balance for your family business. PD
Barb Dartt is a consultant with The Family Business Consulting Group. Email Barb Dartt.
