“How can we get Dad to agree to these great ideas my sister and I have for growing our business? He seems content to maintain the status quo and take a pass on all of the great opportunities that are out there for us.”
Those statements were part of a conversation I had with a brother and sister in a family business that their father had started more than 35 years ago. The father saw things differently.
“If I left it up to them, we would be in deep trouble,” he said. “All they want to do is grow, and grow quickly. They have no patience. They don’t understand that we need to grow slowly and conservatively in this business.”
This is not an unusual circumstance in a family business — two generations with two views of what the company needs to do and how it needs to do it. It is really less a matter of the path the company takes than the need for agreement between the owners (especially between generational owners) on which path to take. Without agreement, progress becomes mired in continual conversations and arguments that prevent decision-making.
Yet many family businesses have a strong aversion to any type of formal planning that could accomplish this. In a 2003 study of more than 1,000 family businesses by Mass Mutual and the Raymond Institute, only 37 percent of the businesses polled had a written strategic plan. That means 630 of the companies could be having conversations similar to the one I described.
Other interesting, although not surprising, findings from the study that indicate that family firms with written strategic plans tend to engage in other types of planning as well.
* They are more likely to have buy/sell agreements and formal means of share valuations, and they hold board meetings more frequently.
* They rate the board’s contribution more positively, employ more workers, have qualification policies for employing family members and were more likely to have named a successor.
* They had higher sales volume.
These findings demonstrate a correlation between the existence of a strategic plan and taking actions that are essential for family business survival and success. Of the 63 percent of family businesses that did not have a formal plan, there are probably some very successful companies.
I would speculate, however, that a large number of them are in trouble. And unless the overall management mindset in the business changes, ownership will likely never truly understand the need for developing formal plans or for breaking out of the family business mold and ensuring long-term success.
Joel Strom ([email protected]) is director of Joel Strom Associates, LLC, the growth management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing profitability and value. Reach him at (216) 831-2663.
