Too much success in a family business can create real problems. What?
Pick your battles, this was one of them. Three against one. My mother, brother and I were having a spirited conversation (translation: full-on argument) with my father. It was an ongoing debate about how fast we should grow the business. My father was pushing for faster, aggressive growth, the three of us for slower, controlled growth. Our family never really had conflicts, we always get along well with each other and our disagreements are few and far between.
If you’re going to have conflict this is a good topic to have it over. It’s a pretty critical issue, unlike sibling rivalry and other less productive issues. We had experienced growing pains before, but this was different.
This growth strategy debate opened up a whole set of issues:
- Lifestyle business or financial business
- Professionalizing the family business
- Corporate culture
- Non-family executives
- Ownership/Control
- Outside equity
- Founder’s legacy
- Family entering the business
- Financial controls
- Formal policies
- Sharing strategy and financials
- Delegation
Basically, there was very little this issue didn’t touch.
“Do” Shoot the Messenger
You can separate the debate into two parts; first the “substance” of the growth strategy, and second the “style” of how it was being communicated. I’m not sure how much of the disagreement was about the “substance” or the “style” it was being presented. Regarding the substance, we all agreed we had to grow the business. The differences were over how fast to grow and how big we wanted the business to be. Complicating it further was the way it was being presented by my father. He didn’t ask for opinions, but rather said it just had to be done. The three of us didn’t feel involved in the process. It was almost being dictated to us. Something we had to do. This created the resistance and made us have doubts about the strategy.
The three of us pushed back against my father. But he was pretty dug in. It became uncomfortable for us, especially him. He was always the parent who didn’t want the young kids to go to bed upset over an earlier disagreement (even though we were almost always at fault). This discomfort was what helped move us past the bottleneck and change the tone of the discussion. He listened to the three of us and became more accepting of our opinions. Similarly, this loosened the three of us up to be more understanding of his position. Yes, we agreed to disagree. This was a start though, a breakthrough to resolving the issue. We learned that conflict often comes from how it’s presented more than the substance of the issue.
The dreaded gray area.
Our industry was going through a big transformation with outside equity firms funding leading businesses to use as platforms for mergers and acquisitions, with the eventual exit strategy of going public. The consolidation created a large gap between the smaller and larger businesses in our industry.
Our specialty retailing business was caught in the dreaded gray area. We were too big to compete with the smaller niche players who were more nimble with lower overhead, but too small to compete with the larger conglomerates who enjoyed the economies of scale and greater financial resources. We had to either downsize and become niche or grow and become a conglomerate. Staying still wasn’t an option to survive in our changing industry.
Both scenarios are uncomfortable.
You might think that the safest, least risky option would be to downsize rather than grow. Downsizing would require employee layoffs and termination of vendor agreements. Two things that go against our family values. Our values were treating employees as family and suppliers as partners. The majority of the companies who choose the downsize option, fail, because they don’t cut overhead costs at a rapid enough rate to match the declining lower revenue.
Growing rapidly required more capital resources, a larger credit facility, and more sophisticated systems. Most businesses fail under this scenario because they are undercapitalized and don’t have the expertise to manage a larger enterprise. It also brought in issues of loss of control and ownership.
What we did
A strange thing happened, the three of us eventually conceded and gave in to my father. Yes, he wore us down. We understood the consolidation that was happening in our industry, and the need to grow the business. What we didn’t agree on was how fast to get there. Our father had presented an extreme case, maybe to pull us out of our comfort zone and agree somewhere in the middle. He was good at that. He always pushed us to read more business books, attend more industry conferences, and achieve higher education. This may have just been just another way to push us.
We decided to grow the business rapidly to compete with the larger conglomerates. We enjoyed the slower, more comfortable lifestyle business, but to downsize, just went against all of our family’s values. We wanted to provide our employees with continued employment and give them the opportunity to grow in a larger business. We also felt strongly about following through on our commitments to suppliers and others we had contracts with. We treated them as partners who helped us especially in the early stages of the business.
We professionalized the business, hired non-family key executives and brought in outside equity.
Sometimes too much success in a family business can create real problems.
Takeaways:
1. Get on the same page with how fast you want to grow the business
2. There’s nothing wrong with running a slower growing, comfortable lifestyle business. You just have to be sure your business can sustain the slower growth against the competition and industry.
3. Understand why you are growing the business. Is it strategic? Is it to support a growing number of family members entering the business?
5. Find a way to work through sensitive issues, paying special attention to more intangible things like how the issues are framed and communicated to get buy-in from other family members
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