An owner’s perspective about the purpose and who the business serves directly impacts culture, ability to recruit and retain good people, and drive performance – all of which influences customer perceptions, revenue, and profits. Often, if there is no actual “family” working in the business, dealers do not intuitively view themselves as a family business owner. This misperception can and does have an impact on overall business success, sustainability, and value.
It is important, as a dealer, to understand the purpose of your business and what you hope to achieve, long-term. Is the purpose of your business to serve you and your ambitions? Or is the purpose of the business to serve and provide opportunity to your community? Is it a mix of both? If the mission and vision of your business includes serving those around you, then it is important to begin thinking like a family business owner.
It may be unlikely that kids or extended family will become involved soon or maybe they are already involved. Either way, if they are, or if there is any possibility in the future, remember the apple often doesn’t fall too far from the tree. Involvement of children is not immune to just your familial decision. If any of your key managers/employees have children, you can predict with almost certainty that probably one or more of them will become interested in the business.
Similarly, “family friends” and extended family know a good opportunity when they see one. No matter how close you are in your relationships, these scenarios, if not thought through from a family business owner perspective can create awkward distractions. Business and emotional stress turns what once was a highly fulfilling, and perhaps fun endeavor, into a real drag.
Let’s look at a common scenario:
Twenty years ago, Bob and Joe began working within a dealership. Learning the business and moving through the ranks together they decided to invest in, and over the course of five years, buy out the previous owner.
Because they had complimentary skills, matched ambition, and were financially invested equally they developed a 50/50 partnership. Through the last twenty years both Bob and Joe have each gotten married and have had kids of their own. As their families have grown, so too has the size of their business, to almost triple, employing over 500 people.
Today, Bob is still as passionate about the car business as the day he started. He wants to continue to grow and diversify. Joe on the other hand is finding other interests to occupy his time. He is less passionate and has become less present; yet very much involved in overall business decisions. His oldest daughter (20 years old) and some “friends of the family” are showing interest in the business.
The partners have different opinions and with their varying levels of contribution and passion to the future, this affects the balance of what each believes to be the strategic direction of the business. They do not see eye-to-eye on compensation plans based upon their contributions, strategic future vision, or the appropriate way to integrate and develop family member employees in the business. Partner conflict is impacting teamwork and performance.
What started out as a simple entrepreneurial partnership has evolved into a family-owned business. Consider your scenario and where you are today. Even if you “hold all the keys to the castle,” there will be a day that someone shows interest in your business. As soon as someone else is involved, you are now involving their future goals and desires, and they may not align with yours. Therefore, consider the following:
You don’t have to be blood-related to be considered a family business
Regardless of DNA, Bob and Joe truly cared about each other and the welfare of each of their strategic partners, manufacturers, managers, employees, and families. Without a unified vision for the future and plan for getting there, they quickly realized there was no telling where the business could end up, especially with constant market, technology, political, and economic changes. As a result, they engaged in a strategic planning initiative, involving their key leaders to develop a unified vision. As a result, they:
- Aligned Bob, Joe, and key managers’ visions for the future and identified key resources needed to achieve the 3-5-year goals on a rolling basis
- Developed action steps, due dates, and responsible parties to drive the organization towards the unified goals of the owners and leaders
There is no business gain worth a family loss
By adopting the Family Business golden rule, they could find the expertise needed to address some emotionally challenging topics such as each other’s vision for the future, passion for the dealership, motivation, compensation, and vision for eventual exit. As a result, they:
- Clarified each partner’s roles and responsibilities based upon strengths, weaknesses, expertise, and areas of interest to remove ambiguity and to clarify reporting and decision-making authority
- Developed compensation and bonus structures unique to each owner’s role in the organization
- Took into consideration each owner’s exit strategy and 3-10 year “phase-out” period to make room for successor development
- Implemented a strategy for each owner to develop financial independence from the business to support their exit strategy and vision for the future
- Implemented strategies to avoid potential relationship damaging deadlock between the partners
- Identified 3 independent professionals to sit on Board of Directors to vote on strategic issues
- Refined Shareholders’ Agreement/Operating Agreement for “Issues of Major Importance” to specify issues needing a super-majority or unanimous vote, such as compensation changes, buying or selling the business, and capital expenditures above a certain dollar amount
You can’t run a family like a business and you can’t run a business like a family
Family and business are an oxymoron. Family is an environment of love and acceptance, where business is an environment of “what have you done for me lately?” Without developing and implementing family governance policies, the family business oxymoron can become the Pandora’s box of emotional stress in the family and business. With friend and family member interest in the business increasing, Bob and Joe developed Family Governance Policies including:
- A Family Member Employment Policy outlining criteria to be considered for employment in the business
- Family Member Performance Criteria communicating what is expected as an employee
- A Perks Policy that indicates what benefits are available to employed and non-employed family members from the business
Now that you have considered what your future might hold and put some perspective on it. Knowing what Bob and Joe went through earlier, here is an outline of where they are today:
- Bob and Joe now have a Deadlock Provision that allows them to amicably discuss and decide business direction when there is difference of opinion
- Developed exit strategy for each partner which provides opportunity to develop successors, develop financial independence from business and puts both partners at ease that one will not be left carrying the ship while the other sails away
- Created a unified strategic vision and implemented key programs needed to improve performance such as:
- Acquisition strategy for evaluating deals within a geographical area, brands that had similar core values, and # of units and types of brands that corporate structure could effectively manage.
- Recruitment and retention strategy to attract good people and provide development opportunities from the store all the way up to executive level management.
- Implemented Family Governance Polices providing clear expectations to immediate or extended family specifying what is required to participate in the business. One of the owner’s daughters has since entered the business, after she fulfilled a few criteria, and is currently successful in her role and gaining the respect of employees and managers. A “family friend” ended up opting out of the opportunity, as he realized employment in the business would not be a cakewalk to a new boat and vacation home.
Because of Bob and Joe’s family business ownership enlightenment, they have proactively achieved results to benefit their business. They can now amicably discuss and decide on business direction thanks to a Deadlock Provision. They each have an exit strategy and a plan to develop their financial independence from the business; all while providing opportunity to develop successors. Their roles have been clearly defined and their business vision unified, so no one person is left shouldering the brunt of the work alone. Lastly, they implemented Family Governance Policies, so they can bring in the next generation of leaders and owners in a structured and clearly defined way. These results will help to create long-term stability for the business and lay the groundwork for future growth, so Bob and Joe can enjoy the business they’ve built.
Author: Kendall Rawls
Kendall Rawls knows and understands the challenges that impact the success of a family owned business. Her unique perspective comes not only from her educational background; but, more importantly, from her experience as a second-generation family member employee of The Rawls Group. Email: Krawls@dealer-communications.com.