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Tuesday, October 19, 2010

Family business is BIG Business: Not just a "MOM and POP"

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What is a Family Business?

Far too often, when people hear the phrase "Family Business," they immediately conjure up the image of a little Mom-and-Pop grocery, shoe repair shop, or news stand. Perhaps they think of family businesses as quaint reminders of an era passed, or see them as heroic little David's fighting the corporate Goliaths.

That's just not so.

According to a study by the 2003 study commissioned by the Raymond Institute and Massachusetts Mutual Life Insurance Company, 89% of all business in the United States are family businesses, including some of the largest publicly traded companies in the country. In fact, family businesses represent 64% of the Gross National Product! Surprised? Do these companies sound familiar?

Take a look at these companies, and see if your perception of family business is changed:

Wal-Mart (NYSE: WMT). With over 1.25 million employees and 4000+ stores, Wal-Mart is the largest retailer and largest private business in the U.S. Founded by Sam Walton in 1962 and his descendants currently own 38% of the company. I wonder how tough it would be to get something done if the Walton family was against it? If that's not family control I don't know what is.

Ford Motor Company (NASDAQ: FORD). In the world of publicly traded companies, it is often the case that when a single person or entity owns 5 to 10% of the stock, they can control the company. The Ford family still owns 40% of the voting stock in the Ford Motor Company. Read their company story - some of the Ford's have left interesting legacies - remember the Edsell? Nevertheless, no matter what - the Ford family calls the shots.

Motorola (NYSE: MOT). Founded in 1928 by Paul Galvin, Motorola made the first car radios, later moving into television manufacturing, and is now arguably the most popular manufacturer of wireless communications and cellular phone equipment. As companies grow requiring outsiders in various leadership roles, the names on the letterhead and faces on TV change, but the family culture is always there.

Considering the family business in the 21st Century we can think about a family business in two ways:

Whether or not they are owned and/or controlled by a small group of people, or whether or not they act like a family in terms of how they handle each other, their employees, and their business.

The first scenario is obvious - the second, consider your workplace.

Invariably there are people who have taken on family-like positions that have nothing to do with their place on the organization chart. Someone is the person we turn to when we need help with a colleague, like our mom did when we had problems with our pesky brother or sister. Someone is the father figure, wise and thoughtful who pushes us to put aside our differences and get the job done. There are people like our favorite uncle - he doesn't seem to accomplish much, but he is such a great guy who could let him go? The parallels are endless.

And even large companies without the family component are operating with family systems. They exist in many business environments because its a well-known principle that family systems are successful at getting the most out of people.

Some Fortune 1000 sized companies are organized around a system of having no more than 150 people at one installation. They recognize the value of the family (teams) atmosphere and believe they are more important than the "economies" that could be achieved with larger business units.

Typically, when the experts consider the criteria that characterizes and organization as a "family" business, they look at these three characteristics:

A single family controls the company's ownership.

The controlling family's members are currently active in top-level management.

The family has been involved in the company for at least 2 generations, or it appears they will be.

Not all three must exist, but all typically do. The huge misperception remains, however, that all businesses run by families are mom-and-pop. This couldn't be farther from the truth.

Challenges for Privately Held Companies.

I've given examples of family businesses that have grown into giant, worldwide corporate entities. But what about the privately held family businesses who stay out of the public's hands, companies you couldn't buy stock in because it's not for sale? Can they compete against the Fortune 500?

Cargill Incorporated. Headquartered in Minnesota since 1865, Cargill is the world's largest privately held company. Its 95,000 employees buy and sell commodities with operations on six continents. Cargill and MacMillan descendants have run the company for five generations, with family members owning 85% of the company, and key employees owning the remaining 15%.

Koch Industries: This privately owned company with over 11,000 employees in Wichita, Kansas, owns a diverse group of companies engaged in trading, investment and operations around the world.

Clearly, these privately held companies are playing in the big leagues. No Mom-and-Pop shops here. With publicly traded companies making up such a tiny percentage of all businesses it should not be a surprise to us that this is the case. In fact there are over 30,000 privately held companies in the US with annual sales of over $25,000,000.

Typically however, since the family owned companies are not continually looking for investors money, and because they do not have a public information staff - to keep their name in the media and hold their per share value up - we never recognize their dominance.

Common Ground.

What do these privately held companies have in common with large, publicly traded businesses?

When it comes to the problems associated with getting along and working together, they have exactly the same issues that any large company has! And, focusing down through smaller and smaller companies, it becomes clear that the problems are the same at all levels of business.

And bigger companies don't necessarily mean bigger problems.

From a financial angle, smaller, privately held companies have exactly the same stumbling blocks as their megalithic counterparts, but the situations can be even more intense, and the consequences even more dire: After all, its one thing if you're losing stockholders´ money, its quite another when you're losing your own!

So, what's my point? Well if you are a member of a family owned company, you already know this stuff. I'm really preaching to the choir, aren't I? When I meet someone for the first time and they ask me what I do and I say "I work with family businesses" - many of them will launch immediately into their story - how their great grand father came to the US with only his clothes on his back and a carpet bag full of samples from the family business in the old country and on and on the story goes.

This article is actually for the rest of you. Those of you who thought (before you began reading here) that family business and mom/pop businesses are the same things. Those of you who wish to serve this huge audience, now that you are beginning to see the potential, but are not sure how your experiences with government agencies, the university, and big companies will translate to Main Street.

Business is Business.

Its not about Mom-and-Pop. Business is business. It's human nature to want to snag the huge multimillion dollar sale to the one giant company in your area, but the regular mainstream businesses in your neighborhood are the ones that will benefit the most from your experience and expertise (and vice-versa). With no committee meetings, board approval and endless request for proposal requirements.

For example, there are far more opportunities for conflict resolution professionals to build their client base and reputation in the family business arena than in the publicly traded arena. There are many more insurance prospects for $500,000 policies than $5,000,000 policies. And since 755 of all companies have fewer that 25 employees - there are many more opportunities among them.

Professionals of all kinds will find a greater number of opportunities among family businesses than the public companies - there are so many more of them. And when you don't get the appointment, or you don't make the sale, or a client drops you in favor of someone else, it won't be fatal - they'll be easier to replace than that single giant client you've spent your life looking for.

Fewer than 50,000 companies are listed on all the stock exchanges, but there literally millions of companies that are not. And "privately held" don't necessarily equate with small profits: Over 20,000 privately held family business in this country have over million dollars in annual sales!

So, I ask again, how are they different? We've seen that, from a business standpoint, they are alike; same regulations, same structures, same challenges, etc. But family business means that people are related. And you can't just choose, when the going gets rough, to stop being related.

People are often forced into situations where they must work cooperatively in an interdependent, long-term relationship with people they wouldn't have necessarily chosen to work with, and they can't (or won't) easily leave. People need to be able to get along with their family members at work, because they will need to get along with each other outside of work.

In addition to the standard business angles, people in a family business are in the unique situation of having to juggle family and personal dynamics with other on-the-job stresses. For example, a family member feels that the matriarch or patriarch loves their brother or sister more, and gives them preferential treatment at work.

Or a brother-in-law with an advanced business degree is passed over for president in favor of the son, who can barely add a column of figures! Mixed messages come from the senior generation often keep one group of people thinking they're entitled to something that they are not going to get.

So, if you're working in a family business, you've got all of the issues associated with managing a business, getting along with people you may not want to work with, a lifetime of the personal baggage that comes with any family, and the knowledge that one day, all of this will be yours.

And it might be yours sooner than you think! Not long ago The Wall Street Journal featured a survey on the transition plans of business owners. The great majority of owners of family-owned businesses see their businesses continuing in family hands.

In fact, 9 out of 10 family leaders said that the family will control the family in 5 years. These are significant figures when you consider that 39% of businesses will experience a leadership shift in the next 5 years, and 56% in 10 years, as today's leaders retire.

Family Businesses and Professional Solution Providers.

Emotional issues often overrule logic in the family business environment, and by learning about the advanced emotional challenges of family businesses, becoming knowledgeable in the techniques of conflict resolution can provide valuable assistance. And it will greatly enhance your reputation as someone who understands them (the most important element in any relationship).

All of the business issues; the management issues, the human resource issues transition planning issues-- are exacerbated by the fact that the entire process is highly emotionally charged.

Someone who understands simple conflict resolution techniques has a huge advantage over their competition, regardless of advanced degrees, professional designations, etc. They are recognized as the ones in the best position to help the company create an atmosphere where productive planning can take place.

Based on the principles found in the landmark self-help mediation text, "Managing Differences", each of us can learn the simple process of helping our clients manage their long-term family/business interdependent relationships. These are strategies that will help people work together in the long run. Integrating them into your work will allow you to help your customers develop the common goals required for an atmosphere where active planning for the future can take place.

Simple Idea, Unlimited Possibilities.

The idea is this: if you can combine your professional knowledge with conflict resolution skills and developmental coaching skills, the potential market for your services is huge. There are virtually unlimited possibilities to add to your business, your satisfaction, your client base, and your revenue by reaching out and going after the family-owned businesses in your area. they're easy to reach because they're everywhere. And once they understand how you can help them, they will reach out to you to help them.

Sure, everyone wants the big deal-- The government contract, the training contract with the megacompany. Typically, those organizations take weeks or months or years to make decisions. Numerous meetings, an unwieldy chain of command, and decision by committee all slow things down. You will have made a huge investment of your time and effort before you even get the green light, if you get the green light.

Smaller, family-owned or privately held companies can make snap decisions. They can determine whether they like you or not, whether they think you can help them or not, they can say yes, and they can write the check. They can make these decisions without having to ask permission.

They can be found at the Rotary club, chambers of commerce, and through tens of thousands of trade associations located in every corner of the country. And if they like how you operate they'll refer you to their friends whose family company is dealing with similar issues - a never-ending stream of contacts.

Wayne Messick is the author of dozens of articles for mainstream businesses, emerging professionals and association executives. If you are a small business advisor and want to maximize your potential, here is an outline of the resources we are using to generate all our consulting business. Resources that you can use too, to multiply your new business, your revenues, and your client's satisfaction.

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