WHY DON’T 86% OF AUSTRALIAN FAMILY-OWNED BUSINESS MAKE IT PAST THE THIRD GENERATION? WHY IS THIS SO?
(Previous KPMG/FBA family business survey)
If you work in a family business, you will definitely relate to selected examples listed here through your own experience.
Some will remember a popular television series called Why Is it So? A USA University Professor, Julius Sumner Millar demonstrated how thing work in physics and offered easily understood solutions. He kept asking. Why is it so?
Over the years, through my experience of advising private companies, owning and working with other families in business I often ask myself. Why do families keep doing things that create negative internal culture issues that hold the business back from long term sustainable success.
It is no wonder only 12% of family-owned businesses make it pass the second generation.
The following is a series of comments and observations I have experienced first-hand and have been put to me over the years by non-family leaders, managers and employees.
The good news is, for every example listed there is a solution, as has been proven by those families in business who understand the benefits of open and trusted conversations, proper structures, systems and processes.
In every family business, it should be a partnership between all family members. The real issues develop when the power of control is vested in one person only and honest conversations are not held. For next generation working family members internal friction often leads to personal stress and family stress. Often, the solution and challenge for second and third generations is determined by their personal values, their own mental health and wellbeing and the angst within their own family unit.
Seek external advice, meet with the family leaders and do not be afraid to have the robust and honest conversations.
Copyright © 2021 by Bill Winter
Trusted business mentor/advisor. M: 0411536424
Recently I wrote an article about an issue I often come across in family business that ensures future success is compromised. Some commentators refer to it as fractured families.
This mind map is the result of a workshop I facilitated for an extended family business in the past.
I find it’s critical for families in business to hold an all of family meeting to ensure a common agreement is achieved across the generations.
I have never come across a family business that does not have to deal with complex individual family member emotions. This becomes more complex as the second and third generation are involved in the business.
Most family business with more than one generation, originally started as a one or two-person company usually with a husband and wife team or with one as a sole director. Sometimes it can be a combination of two siblings, and as time goes on, the next generation of family members working in the business include other siblings and cousins. As the family grows and the extended family grows, family leaders must learn how to manage and accept that each member is different and has different personal ambitions. They are never clones of the founders.
I have witnessed situations and been involved with a variety of family business where the family dynamics and individual personalities have been a major disruptor to internal harmony. On the other hand, I have worked with some who have found a way to keep the family emotional issues out of the business environment.
I left our own family food and beverage company at an early age, because my father and I had totally different ideas on how the business should progress. It turned out well because I went to another city and started a similar business and we shared resources. We just could not work together under the same roof. No one at fault, we were from different generations and had different personalities. Those who have achieved respectful family member relationships in the workplace are more successful with retaining key staff and enable better business performance than those who are in open conflict at work.
The success of any business is heavily dependent on positive internal culture. Employees are constantly watching workplace family dynamics and they tell me they don’t like it when internal conflicts come to the surface in front of others.
The Australian reported in an interview with David Smorgon on family business where he referred to fractured families. I have experienced fractured families in business and it is heart breaking. I have known family members who work in the same building to never speak directly to each other. Fortunately, this is a rare occurrence.
Where I have been able to generate honest and open communication with all individuals one-on-one, followed by a whole of family meeting, there has generally been a better chance of compromise for the good of the business. Every meeting has been full of mixed emotions ranging from nervousness, silence, anger, tears and acceptance. Rarely do they end in a walkout.
Working in isolation at home is causing some mental health related issues for solo operators.
A daily 1 hour rowing routine in my garage has helped me mentally get through the COVID lockdowns.
For those of us working from a home office, we read & hear about the lockdowns affecting our physical & mental wellbeing. I am no exception. I don’t like being stuck without face to face connections. In the first lockdown I hired a rowing machine to keep active & now I have my own.
The focus in the press and on social media has been on looking after corporate employees who are working from home.
It’s even more important for those self employed and at home who don’t have corporate or peer support to encourage others to look after their health & wellbeing.
Title: Family business advisory boards – Enables you make better decisions.
“I don’t want an outsider telling me how to run my business”.
I couldn’t tell you how many times I have heard that response from family business owners when I talk to them about implementing a family business advisory board/panel.
It is a typical response in a patriarchal lead family enterprise. In real life I have experienced it mostly in families business where there are two or more generations working in the business. I gave a presentation in a large regional town attended by about 150 from surrounding area farming families. What surprised me was the number of wives and daughters who approached me asking if I could help them talk to their husband/father to look at putting together a panel with external independent experts.
I also know from experience that some family businesses are more likely to have inter-generational emotional conflict between those family members working in the business.
My past and present history sitting as an experienced advisory board/panel member on family business boards/panels in Geelong, Ballarat, and the Wimmera with food manufacturing, small engineering, transport and local construction has proven that private and family-owned companies with an advisory board outperform those without one.
The primary value of a trusted advisory board member is to provide an independent source of information and advice to the owners on difficult strategic issues or risks confronting the business.
I learnt that lesson in my business with a sibling during 1980’s, Noddy’s Soft drinks in Melbourne and Geelong. It was only after we sold and I went on to manage a subsidiary of an Australian listed company that I saw the value of having knowledge, experience and wisdom around you to enable you make better decisions.
An advisory board/panel provides a different perspective on issues raised by the owners/directors based on insights and external experience and by being removed from the day-to-day operations.
Independent boards/panels are able to challenge the thought process and ask the right and difficult questions that are often overlooked because of the family emotions that guide and influence decisions.
I suspect the reason owners push back is because the business is often an extension of the family dynamics that exist outside the business.
My best example to demonstrate the benefits of an advisory panel was in a renown family hospitality service business where the father died and one of the children took control or maybe, I should say seized control and put the company into debt. The mother was advised to establish an advisory panel as she owned all the shares. We (The advisory panel) were able to remove the family member in control, bring in an experienced CEO and establish proper governance and controls through holding monthly advisory meetings and ensure the business was capable of surviving and provide ongoing annual dividends to the owner and other family members.
Bill Winter M: 0411 536 424
Here we are in the middle of the Latest COVID lockdown and family business owners are really hurting. For many, it has become critical to reassess their future survival and future opportunities. No one can be expected to operate successfully in business environment that is so unpredictable.
Not only do they tell me they lie awake worrying about future sales and cashflow, they are often leading a business based on personal emotions and complex interfamily egos, family turf wars and differing individual aspirations and personal ambitions. The shutdowns have now introduced a high level of personal stress and anxiety.
When the original founders started, usually as a husband and wife team, they only had themselves to consider and were often married to the business, working amazing hours. Now things are different. The family has grown and expanded and family group dynamics have come into play.
Following on from 2020, which we can only describe as the COVID year from hell, family business owners are faced with some key decisions they have never faced before. Business models need to change, supply chains have changed, consumer buying habits and attitudes have changed, the way we work has changed and technology is driving this at an incredibly fast pace.
In my work with family business owners, there are three fundamental questions. Especially since credible research from a large national accounting group and Family Business Australia indicates that only twelve percent of family businesses survive past the second- generation.
Family leaders must decide. Do we just continue as we always have done in the past? Do we look to find a buyer and exit the business? Do we, or can we, transfer and transition the business to the next generation and accept that change is necessary?
Recently, I have been involved with families in regional construction, hospitality, artisan food and local engineering who have struggled and cannot see a light at the end of the tunnel. However, there are others in food manufacturing who have been hit hard initially and then rebounded. The latter are examples of those who stopped and reassessed their situation, have been bold in making change and are now beating their pre COVID results.
My best example is a family business in agribusiness who initially lost sales and clients in 2020 and quickly brought the senior team together and decided to make some tough people decisions, reassess their channels to market, adjust their product range, raise their gross profit margins, upgrade their technology and revise their short term and long-term business gaols.
The lesson learned for family business is those who had always ensured they communicate with each other, have maintained cash reserves and a good balance sheet prior to 2020 have been able to survive last year and now have a chance for surviving past 2021.
No one has ever achieved real success working on their own. This was a hard earned lesson for us when we operated our own family business. With a successful history of business experience and knowledge in both listed and private companies as owner and CEO, Bill Winter understands the issues business leaders face when operating in a turbulent and ever changing business environment such as we face everyday at work in uncertain times. We understand that business success is all about people and culture, a common vision, robust conversations, systems and processes and the ability to set targets and goals and and measure performance
Because family emotions and individual family member personalities get in the way of operating under standard behaviours you would expect in a successful company, the future survival rate for family business is limited.
Bill Winter is a renowned business mentor for business owners. He is a facilitator of the hard to have business conversations.