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Key Questions for West Michigan Family Businesses

1. What are our core family values and how do they impact our success? 

Family values are defined as the underlying beliefs, principles, and ambitions of the family. A shared value system can unite family members and provide a framework for relationships with customers, employees, and the community. Values serve as a compass to help organizations navigate difficult decisions, drive practices and policies, and distinguish itself from non-family run organizations. How do you best understand and identify your family values? Look back at your family business history. Identify pivotal points in the organization and define the value characteristics that best define how your family responded.

2. How do we deal with inherent conflicts?

All family businesses inevitably will experience conflict. Family run organizations operate in three spheres – ownership, business, and family. This is widely described as an intersecting three circle model, and the intersection of the three spheres is where you encounter common conflicts. Some issues that create the most tension include the direction of the business, roles and responsibilities of family members, and compensation. Having family business advisors, outside council, or more formal governance structures can help to navigate and minimize conflicts. 

3. What governance systems do we have in place?

Many family business organizations begin with a founder whose entrepreneurial vision launches and builds the business. They prefer an independent operating style and full control over decisions and direction of the organization. As the founder looks to engage the next generation and families begin to expand, there is the need for a more formalized governance structure. Governance structures assist in developing family relationships, support effective decision making, and strengthen accountability of all stakeholders. Board of Directors, Ownership Agreements, Family Meetings, Family Councils, Family Foundation and Family Office are some common examples of systems that are available as the family grows and ownership becomes more complex.

4. Do we have clear compensation and equity arrangements?

Unsurprisingly compensation and equity are often the most contentious issues in a family business. What are the expectations of the family members (active and non-active)? What is fair? What is equitable? Family organizations should have well-defined job descriptions, compensation packages, and promotion criteria for both family and non-family members. Some organizations separate equity and profit structures to ensure that the distribution of profits to family members is documented and fairly distributed to avoid additional controversy. Equitable is not necessarily equal for many family run organizations. 

5. What are the obstacles facing family businesses today?

All businesses are currently challenged with talent and retention issues as well as implementing growth and innovation strategies. Family Businesses are also challenged with unique obstacles concentrating in areas of family leadership and ownership. In a recent survey of family businesses in West Michigan, leaders identified they are most concerned with properly preparing the next generation, adapting governance strategies, and implementing their family values. In terms of ownership challenges, they are looking for information and resources on shareholder responsibility, evaluating equity, and shareholder agreements. 

6. Do we have a business succession plan?

If you do not have a plan, you’re not alone. According to a recent study by PWC, only 34% of family run organizations have a robust, documented, and communicated plan in place. Succession plans should incorporate all aspects of a family business including ownership, governance, and leadership. Succession planning is a long journey and often includes defining when family members may work in the business, how profits should be distributed, who may serve on the board, preparing future leadership, and other matters such as taxes, liability, estate planning, ownership stakes, and voting rights. From planning to transition, succession implementation can be a seven-to-ten-year process.  

7. How am I engaging the Next Generation?

As they say, “All the flowers of all of the tomorrows are in the seeds of today.” Successful succession planning begins long before the next generation can determine their future career choices. Engagement for family run business should include education, communication, and collaboration. Formal and informal education should include sharing and documenting family history and family values. Whether at the kitchen table or a more formal family meeting – these are key opportunities to share information. Families should also explore digital communication vehicles (websites, social sites, or newsletters) to build and connect family members. Finally, creating collaborative opportunities around a project or charitable giving provides tangible experiences to build relationships, reinforce values and cultivate engagement.  

8. Do I participate in the family business community and take advantage of resources?

While every family business is different, many share the same operating challenges. Connecting with and learning from other family business organizations while developing a confidential and supportive peer network is a great way to tackle these dynamics. Sustaining a family business is a journey, but you don’t have to do it alone. Family Business Alliance seeks to help family organizations in West Michigan thrive by creating connections, navigating governance, and elevating leadership for over 165 member organizations. Learn more about how we want to help your family organization at fbagr.org. 

 

Why Won’t My Parents Retire and Let Me Run the Family Business

If you have spent your career preparing to take over the family business, it can be frustrating to wait for the senior generation to decide that they are ready to retire. It also may be hard to understand why mom or dad chooses to keep putting in the long hours and would rather deal with the challenges of the business instead of retiring and enjoying life.

For the next generation, the waiting is even more difficult if your parents have not created a succession plan. This causes great uncertainty regarding the role each person should be preparing for and how a successor will be chosen if a parent passes away without a plan.

Sometimes the wait exists because the parents may still enjoy running the business. They likely are in no hurry to let go of a company to which they have devoted their lives. Or, parents may not wish to deal with the complex emotions, the fear of the unknown or the hard feelings associated with choosing successors. These issues and others can create barriers to planning for a transfer of the business to the next generation.

If you want to help your parents focus on succession, it is important to understand the issues behind their reluctance to do this planning and understand the strategies for addressing them (warning: it might take years). Below are some common issues that our succession planning attorneys, working with the family’s other professionals, help families overcome to begin preparing for ownership transition and creating a succession plan.

Coping With Reasons Why Parents Won’t Leave the Business

1. They are uncertain about how they can be financially secure away from the business.
This one is huge, and succession will not be addressed if this concern is present. However, many options exist to solve this problem, and your wealth advisors and your attorney can certainly help you find one that is right for your family.

  • Common approaches include taking higher pay for a few years and saving it, selling a      portion of the equity back to the business or to other family members, creating deferred compensation arrangements, or retaining assets to lease back to the operating business.

2. Their identity is tied to the business.

  • A parent may be able to identify a new role for themselves that is related to the business such as: Chair of the Board, consultant, informal advisor, trainer/mentor, representative to industry associations or other related groups, etc.
  • Depending on interests and skillsets, a parent can develop a new role relating to a family foundation, family investments, family governance, next-generation education, or a family office.

3. They worry that their life will lack purpose without the business to run.

After they have devoted decades to building a business, it may be hard for them to see that they could have an important purpose elsewhere.

  • Help them realize that as they transition the business to someone else, they can use their lifetime of experience to benefit others. Examples of new ventures could include starting a consulting firm, speaking on business or motivational topics, serving on boards of other companies or nonprofits, leading philanthropic organizations, teaching business classes at a college, working with local business associations or business startup programs, or coaching students in business/entrepreneur programs such as Junior Achievement or DECA.

4. They believe successors are not ready to run the business.
Find out what their specific concerns are and take steps to alleviate these concerns.

  • Seek opportunities to demonstrate the ability to succeed, including rotations through all functional areas of the company.
  • Engage in learning and development such as an executive MBA program, leadership courses, mentorship plans, connections with other business leaders, and working with consultants or mentors from other businesses.

5. They believe that they are irreplaceable.
Some of the strategies mentioned above can help with this concern too. However, this one may be difficult to address without outside help.

  • Make sure the senior generation gets exposed to the skills and successes of next-generation family members and a well-functioning management team.
  • Identify friends or business acquaintances who have successfully transitioned their business and who might be helpful examples or resources.
  • Consider meetings with former owners of multigenerational businesses now managed by the next generation. This could provide an understanding of the issues they faced during the process and help gather best practices.

6. They are avoiding hard feelings that will occur in the family when a successor is chosen.
This is where a good succession planning attorney or advisor can help your family design a plan that creates a win-win situation for the members of both generations.

  • You may need to enlist additional help to move your parents to realize that if they want to ensure the continued success of the company after they are gone, they need to make decisions now that will make that happen. Help them see that it is bad for the business and for the family to have the children fighting for company control while working through their grief after a parent’s death.

7. They equate retirement with a decline in health or even impending death.
Everyone has heard a story about someone who died soon after retirement, and even though this is rarely the case, some people still equate retirement with the end of an active, healthy life.

  • If you have solved issues #2 and #3 above, this may cease to be a worry for them, since they will be plenty busy. But if this worry still exists, there are plenty of resources and professionals to help you work through this issue.

8. They fear losing their prestige in the community (the business leader and/or the spouse).

  • This is tough to deal with, although having the leader continue working in a new role in the business, foundation or family office – one that still provides opportunities for networking, speaking engagements and social visibility – could certainly help.
  • Finding a board position or a leadership position in another organization, such as a nonprofit or industry organization, can also help with this.

If you are in a waiting situation that appears to have no end in sight, perhaps it is time to engage someone to help you have conversations about the future of the business. Our succession and estate planning attorneys can often facilitate these conversations and help families start planning for a successful business future.

Family Business Alliance, devoted to advancing family business organizations for multi-generational success, designs its programming, resources, and events to meet the needs of its members at these distinct stages.  Currently, the Family Business Alliance represents nearly 170 member organizations throughout West Michigan and offers the opportunity to create connections, elevate leadership, and navigate governance.  To receive more complimentary resources, connect with us online at Family Business Alliance.

This article is reprinted with permission from Warner Norcross + Judd LLP and author Bruce Young. This article is not intended as legal advice. For additional information, please contact Bruce Young at byoung@wnj.com

Understanding the Key Transitions in the Family Business Life Cycle

Understanding the key transitions in your family business in relation to the family business life cycle can help you navigate the unique operating challenges of leading and succeeding in a family business.   With the help of Family-Owned Business Institute of Grand Valley State University and adaptations of several online resources[1], The Family Business Alliance has established a Family Business Continuum to help family businesses in West Michigan understand the distinct axes of the family business model and improve the opportunity for multi-generational success.

The Family Business Continuum Axes are defined as:

Ownership

The Family Ownership Axis identifies the key and controlling stakeholder(s) and is not linked to a specific generation.  In many cases, the first stage of ownership is established based on a Founder’s Dream.  The succession to the next generation can be either identified as a “New” Founder’s Dream or a Sibling Partnership. In a sibling partnership, the siblings jointly own the shares of the business, however, leadership may be singled out to a primary member.  As the family and business operations grow, ownership models may evolve to a Cousin Consortium which includes extended family through multiple generations or may evolve to a model which includes Distant Relatives.

Leadership

The Leadership Axis defines the experience and engagement of family leadership in the business. Stages include Leading the Business where control is either one primary family leader or shared among siblings.  The family leader(s) oversee all strategy and operations.  In Joining the Business, a potential successor(s) is introduced to build professional experience, operational experience, and industry knowledge.  At this stage, the business often

implements professionalization of roles and formal processes are developed.  As the next generation has its own visions and often a strong desire to introduce more strategic thinking, they assume mid-level management roles, defined as Working Together.  This leadership expansion phase is often linked with restructuring and may include the development of a board of directors, family governance policies, and family council meetings. Leadership succession can span more than a decade as a succession plan is created and implemented. Each generation transitions to new roles both internally and externally as they Pass the Baton. The family may also sell or expand to different markets and the family business may evolve to a Family Office.

Business

The Business Axis characterizes the stages of a business as it strives to move from a Start Up to Growth and Formalization, defined as the company leaving the niche market and entering a more competitive and larger arena.  Often, organizations engage in strategic planning with outside professionals to meet organizational objectives to achieve Maturity and Stabilization.  In this stage, the business focuses on the development of organizational talent and seeks to create a flexible framework to take advantage of market opportunities and manage threats.  At Regeneration, the key stakeholders face a strategic choice for further growth and maturity. If reinvention is not prioritized, these businesses have a heightened risk of decline.

Family Business Alliance, devoted to advancing family business organizations for multi-generational success, designs its programming, resources, and events to meet the needs of its members at these distinct stages.  Currently, the Family Business Alliance represents nearly 170 member organizations throughout West Michigan and offers the opportunity to create connections, elevate leadership, and navigate governance.

Understand your organization on the Family Business Continuum and download complimentary resources available through the Family Business Alliance.  Serving over 165 members, Family Business Alliance seeks to advance family business in West Michigan.  Together we, create connections, navigate governance, and elevate leadership.

[1] Sources: Ivan Lansberg, Succeeding Generations; Thwart Magazine, Family Business Life Cycle; Forbes How to Use the Family Business Life Cycle to Personalize your Family Office.

Banking Relationships that Make an Impact to your Bottom Line

Family-owned small businesses face lots of challenges. 2K Tool, founded 15 years ago by Heidi Smith and her son Kevin, has navigated a path to growth and success by having a productive partnership with their banker, Old National Bank. “I think that partnering with a banker who understands your industry is very important, [who] understands the manufacturing industry a lot, and you have to click in a way that you trust the relationship, too,” Heidi says.

2K Tool is an innovative leader in custom machining and mold making. It has 25 employees in Grand Rapids, including Heidi’s husband, her daughter Amanda, who serves as operations manager, and Heidi’s son-in-law Aric.

Female Leadership in the Family Business

New research on gender diversity in family businesses shows that women tend to be more upbeat about business performance than men — but that changes if the women are in leadership positions, according to Ana Gonzalez, Director of the Family Owned Business Institute and Assistant Professor at the Management Department at Grand Valley State University. She was interviewed by Sheri Welsh for The Welsh Wire podcast, sponsored by the Family Business Alliance.

 

How Servant Leadership Can Ensure the Long-Term Success of the Family-Owned Business

The following article was written by Scott Hill of Varnum LLP.

Through my work as a corporate attorney, I’ve had the opportunity to observe many beautiful businesses on a regular basis.  And while there are shared strengths across successful companies such as weathering storms of surprise in regards to sales cycles, supply chain external forces, and shifts in talent, I am often most struck by the prevalence of the servant leadership model at the highest levels of these businesses.

Servant leadership, a philosophy in which the main goal of the leader is to serve, differs drastically from the traditional leadership model where the leader’s main focus is the thriving of their company or organization.  Robert Greenleaf (who most attribute to coining the term “servant leader”) noted in 1977 that the authentic nature of a servant leader enables them to accept people as they are, fostering an environment of creativity and risk-taking without the fear of ridicule from (gasp) one’s parents or relatives.  In my mind, this type of leadership style could be compared to the Elmer’s Glue from an elementary level art project – unrefined and messy at times – but, serves to hold things together and provide a platform for growth and success in the learning years to come.

My belief is that servant leadership is instrumental for business sustainability and that we see it more commonly in the family business construct due to the bonds that familial relationships bring prior to involvement in a business.  In turn, these bonds help to build foundations of service to one another.  So when family businesses find themselves at generational crossroads, I posit that despite Millennials’ mixed reputation, the servant leader model is of tremendous importance to imprint on this next generation and can act as a meaningful measuring stick for long-term business success.

Mike Novakoski, the featured speaker at the Family Business Alliance’s February meeting, knows quite a bit about leadership, how people interface well with one another, how to challenge people, and how to grow. Mike’s teachings (through public speaking and his and John Parker’s book Unmistakable) surrounding right-brain thinking augmenting left-brain leaders and how he shares the journey of his team at Elzinga & Volkers is worth paying attention to.  Varnum is pleased to be the sponsor for this FBA event titled Leading the Business as we’re excited to sharpen our minds on the topics Mike will be discussing. I hope you will join us and learn from his teachings. You won’t be disappointed and I look forward to seeing you at the event.

Scott Hill
333 Bridge St NW #1700
Grand Rapids, MI 49501

Finding Top Talent – When It’s Time to Get Some Help

Written by Sheri Welsh – SPHR, CPC, CERS 

The struggle to find talent is real.  The acute shortage of professional talent is staggering! Traditional methods of finding key employees such as job board or website postings often fail to produce a single acceptable candidate.  It might just be time to seek help.  But many family businesses are hesitant to do that.

Growing up in a family owned business, I understand the struggle in deciding whether or not to outsource a function.  We carefully weigh the investment against our ability to do the work internally.  If you’ve built a strong operation, with a great customer base and an excellent reputation you may have never experienced a problem with recruiting talent – until now.  You may never have faced a business challenge that you couldn’t solve with the help of your family leadership team.  And when it comes to recruiting, many think, “This shouldn’t be that hard! We should be able to handle this!”  Unfortunately, the game has changed – sourcing great talent just isn’t easy anymore.

Here are some tips on how to know when it’s time to get some help:

  • You don’t have the resources to conduct the search.  Without the contacts, network, and tools to source “A” level candidates, you could come up empty.
  • You don’t have the time to conduct the search.  If you don’t have time to dedicate to managing a search, how long will it take you to fill the position?  And what’s the cost in lost business while the position remains open and your focus is directed elsewhere?
  • Your business needs an individual with skills it doesn’t have. When hiring for skills outside your area of expertise, it is wise to enlist the help of a professional who understands the position better than you do.
  • Your company culture requires a unique style and fit.  Hiring for culture fit often requires a very strategic, targeted approach and direct sourcing efforts that require outside support.
  • You won’t settle for a mediocre candidate.  If “good enough” is just not for you, it’s time to call a search firm to find your next rock star.

Sheri Welsh – Welsh and Associates

Four Steps to Increase Separation Between Work and Family

In general, people naturally try to keep their work and home environment separate to make day to day life easier; the advantage found in the ability to do so is inherently lost in a family business. However, there are steps family members and coworkers can take in order to create a more advantageous and harmonious work environment.

Family Talk Versus Business Conversation   

Family employees who blend family life and work life are likely to make business decisions based on considerations of family issues and are likely to converse about business during family events (qtd. In Cooper et al.). Making the decision as a family to never talk business while spending time together as a family and to never discuss family issues or occurrences while at work is an impactful way to keep family and work separate. Set this boundary together (and discuss why it is important) and honor it. In addition to this, making distinctions in the way family members will be addressed at home versus at work can help to build the divide between family time and business time.

 

Code of Ethics and Consequences

Consequences for family employees should be the same as those for non-family employees, as well as the expectations set regarding their behavior. Creating a code of ethics with both family and non-family employees (Cooper et al.) and laying out clear consequences for violating regulations can help to maintain a division between family and work. This will result from a heightened awareness for the need to react to family employee’s behavior in the same manner one would to a non-family employee’s behavior.

 

Role Clarity

Employees need to have a clear understanding of their role and the expectations that role places on them. Role ambiguity is the lack of clarity in one’s role, and it has a higher presence in a family business than a non-family business due to the overlap of roles (e.g., role as a family member versus role as an employee – or – current role versus future role while a business plans for succession) (Kidwell et al.). Often, it can be tempting for family business leaders to attempt to exert too much control over a young family member who has been given a position of leadership or to continue in attempts to operate the family business after they have been  succeeded them (Cooper et al.). On the other hand, in leaving a family employee without enough direction (if one assumes she will be able to navigate the role well enough on her own due to family relation, growing up in the midst of the business, etc.), the business will be negatively affected due to the creation of role ambiguity through the blurring of family and work dynamics. Uncertainty of expectations in one’s work role has been linked to decreased work performance (qtd. in Kidwell et al.). Because of this, it is crucial for a business to clearly define an employee’s work role and the expectations being placed on them. This can mean ensuring that a family employee doesn’t have authority or voice that a non-family employee would not have in the same role. This can also mean avoiding the other end of the spectrum, wherein a family employee’s input is more easily disregarded or perceived as coming from a place of lack of knowledge than a non-family employee’s input. Having open conversations with family employees that set expectations for their responsibilities and boundaries can help create role clarity.

 

Respecting Privacy and Physical Space

Family employees should respect each other’s privacy at work as well as at home (Cooper et al.). Although ability to create physical space within the work environment varies depending on the type of business, it can also be very helpful to utilize separate work spaces when possible. For example, two family members could benefit from having separate office spaces. Creating this physical space helps family members to stay focused on business and decreases opportunity to discuss any thoughts on family affairs while at work. Privacy of family employees is then bolstered.

 

 

 

 

 

 

Family-Owned Businesses Wrestle with Talent Concerns

As president of Grand Rapids Label and chair of the Family Business Alliance, Bill Muir understands what family-owned companies are going through right now. According to Muir, manufacturers remain optimistic heading into the new year, and they’re making more investments to support their customers.

Eventually, the economy will go into another cycle and we’ll have a downturn. How well are family-owned businesses prepared for it? 

I think family-owned businesses have gotten smarter in terms of not getting too far ahead of ourselves. I think there is a conservative nature of a family-owned business compared to another business in terms of being able to hold cash. It is different because family-owned businesses are willing to put their own money back into the business to support it. 

Is family part of your brand identity?

When you think about your business and its brand, what words come to mind?

Pause. Really think about this for a moment. Jot down 3-5 words.

So, what words made your list? Quality? Service? Innovation? These are all great words. But, what about family—did it make the cut? If not, we suggest that it should. And research supports our position.

Sure, working with family can be tricky, but in the minds of your customers, family is a positive attribute. Family Business Magazine reports that 60 percent of consumers say that they prefer to buy from family businesses.

Here are a few reasons to brand yourself as a family business and examples of our FBA members who are getting it right:

1. Humanize your brand. Without a doubt, your business has a story—one that includes a unique set of circumstances and an interesting cast of characters. These stories give context to your business, inspire, and ultimately make your brand more endearing and relatable.

Take this story from BISSEL Inc. BISSELL started out of necessity—Mr. and Mrs. Bissell was looking for a more efficient way to clean up the constant trail of sawdust in their crockery shop. Mr. Bissell invented a unique sweeper and patented it. The story goes on to share that after Mr. Bissell passed away, Mrs. Bissell the business and became the first female CEO in America.

The BISSELL story is pretty remarkable. It gives you a peek at the family’s values of innovation, tenacity, and perseverance.

2. Set yourself apart from the competition. Anyone can start a business, but doing so, and growing it with family, is unique. Use this to differentiate yourself.

Researchers from the Institute for Family Business conducted a survey of 125 family businesses for their report titled Family Business Branding: Leveraging stakeholder trust (note: this report is loaded with great information—definitely worth skimming). Participants were asked why branding themselves as a family business was beneficial. The report states, “A distinct family business brand is assumed to contribute to a company’s image of trustworthiness (81 percent), social responsibility (70 percent), quality-orientation (68 percent) and customer-orientation (67 percent).”

Take King Flour as an example. On their website they say, “King Milling Company has been family owned and operated for over one hundred years. From its humble beginnings using the stone grinding process, to the fully automated network of steel rolls today, the King Milling Company has always pushed to be on the leading edge of milling technology. A quick look at our history will show that our company has always strived to be a pioneer in the milling industry, finding the most efficient way to produce the highest quality flour and wheat products for our customers.”

Without a doubt, this type of information can go a long way in differentiating yourself on the shelf.

3. Build trust. The title of this 2015 Harvard Business Review article says it all—Study: Customers Really Do Trust Family Businesses More.

Positioning yourself as a family business demonstrates steadiness, reliability and a commitment to being around for the next generation. All of these things help customers feel confident and secure in your relationship.

We like this example from Skytron. On their website they say: “Skytron is proud to be a privately held and family-owned company. Since our founding in 1972, we have stood firm on this business structure. We believe it’s one of the many ways that demonstrate our commitment to integrity and long-term focus.”

Reflections: If you are not currently branding yourself as a family business, why not? How could you use this key part of your business to build trust, differentiate yourself and connect more deeply with your customers?

 

 

 

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