How does a family business exist? In this world of business conglomerates with clearly defined structures, and multicultural specialty workforces, how can family business survive? In the United States there are 22.4 million businesses and 90 percent are family owned and/or managed.
Most electrical contracting firms today are some sort of family business and they face three major issues: First, the effects of the economy on the construction industry; second, changes in electrical markets; and third, the generation transition. In the family business, the most challenging issue is the transition of leadership to the next generation.
Electrical contactors are today an aging business. The average contractor is 50 years old with 26 years in the industry. A recent study found that 43 percent of family business founders expect to transfer leadership within the next five years. But there is a great deal of concern because it has been suggested that only 33 percent of the family business will survive beyond the second generation and 13 percent the third generation.
There are several factors that have been credited for these poor statistics, but the major factor is the dedication the new generation has to “continuation.” The next generation is concerned about emulating the previous generation; therefore, they conduct business the same as in the past.
In addition, family business founders are frequently reluctant to fully retire, so their influence never allows the new leadership to take full ownership and control. Nothing changes from one generation to the next. But the electrical industry does change. Contractors have seen changes in their markets, products, service, competition and customers. Maintaining the status quo results in an inability to adapt and adjust to a changing environment. Emotions shouldn’t govern whether or not changes are implemented.
However, emotion does play a role in family businesses. It is the strength of the family business—and the biggest weakness. Unlike other organization structures, family businesses have a built-in structure with emotional issues with unique values and personalities that are reflective of the family culture. In a family business, the relationship history goes all the way back to birth and there is a “family creed.” That means:
• The employees are willing to sacrifice personal needs out of love.
• They are dedicated both to individual family members and to the business reaching maximum potential.
• The integrity and family reputation are more important than the individual success, money or growth.
• The creation of the legacy that is worth being passed on to the next family generation.
For a family business to succeed, the emotion must be controlled and the business elements have to be divided into family issues and business issues. Unresolved family conflicts become business conflicts. At family meetings, family members are able to discuss and resolve topics that are too sensitive and personal to be discussed in front of non-family employees. Harmony is essential for the family to collectively develop a family vision statement.
A vision statement should state what the family wants the business to become. It is family-focused, not customer-focused, and leads to the development of a business mission statement. The two statements will project the family and business goals and objectives. The goals and objectives are the foundation for both business and family planning.
Family business planning has four essential plans:
• The Family Plan—an overall plan of how the family benefits from the business.
• The Strategic Plan—how the business will meet the financial objectives of the family and company. Family and non-family managers of the business must be involved in developing this plan. The strategic plan defines who is going to do what tasks and by when.
• The Succession Plan—a plan that defines who is going to be the new director of the company and how that person is going to be prepared.
• The Estate Plan—anticipates the passing of the current owners and determines how the negative financial impact can be diminished. An attorney and tax accountant must be included in the developing of this plan. This may involve all the members of the immediate family whether they are part of the business or not.
The non-family management should then be informed of the family objectives. Families usually have certain expectations from the business. Conflicts arise when the family expectations are not effectively communicated to the management of the company. The family must communicate those objectives to non-family management in writing that is in a clear and concise manner.
Business theories and educators believe that family businesses are not supposed to work, but it does and has for as long as business has been defined. The success of the family business hinges on the ability of leadership and the following generations to embrace changes for the continuation of their organization and legacy. EC
MARTIN is a business consultant for Alan Martin & Assoc., consultant for SBA, speaker and adjunct instructor with NECA-MEI, based in Morris Plains, N.J. He can be reached at 973.540.1298 or firstname.lastname@example.org.