Working in a family furniture business is tough. Here’s how to make it easier.
by David Lively
“The father buys, the son builds, the grandchild sells, and his son begs,” goes an old Scottish proverb. The Americanized version says, “Shirtsleeves to shirtsleeves in three generations.” The founding generation starts with nothing, works hard and amasses wealth, but by the time their great-grandchildren have come of age, the family is back where it started: nothing.
With business under such tremendous pressure and the furniture industry failure rate at its highest in over 25 years, it is useful to reconcile these timeless truths with what is going on in today’s family furniture businesses.
Do you recognize yourself in the stereotypical framework for the family business lifecycle?
First Generation: The first generation starts a business and begins to grow the company. Most businesses in this phase are in “survival mode.” It’s a phase that frequently lasts longer than it has to because first generation leaders are frequently afraid, or just plain unwilling to share authority and responsibility for their brainchild, their “baby.” Reluctance to face old age and eventual death, added to a history of controlling behavior makes many first generation leaders indispensable, leading to slow growth, a lack of innovation, scarce organizational talent and difficult transitions to the next generation.
The great 20th century author John Steinbeck said, “It is the nature of a man as he grows older to protest change, particularly change for the better.” While not all next-generation ideas are for the better, a company without a fiery, talented next-generation leader will, without a doubt, eventually die.
Second Generation: If the business makes it to a second generation, the new leader must earn respect and gain authority. Other family members often believe the leadership position should have been theirs. At the same time, many long-term employees are sure that none of the “young people” thrust into leadership positions will fill the shoes of the founder.
Despite these initial obstacles, many second generation leaders become catalysts for high growth rates in family furniture operations. Because they are often better educated and the company is more stable going into the second generation, this group of leaders is in a position to take the family store and grow it into a regional chain or beyond. We all know second generation leaders who lack the commitment or talent to run a business. It is a situation that almost always precipitates the decline of a firm.
Third Generation: If the company is one of the handful that makes it to the third generation, the problems exponentially increase. The ownership structure of the business is likely to include multiple families. Siblings from the previous generation married and had children resulting in multiple ownership claims. Some potential leaders may lack the ability or interest to help the company move forward. Making matters worse, many of these people feel they are entitled to reap significant benefits without understanding that every business must continue to earn its right to exist in the marketplace.
During this stage of the business cycle, family members usually find a way to consolidate stockholders’ voting authority. Outside professional managers are hired whose sole focus is the ongoing growth and development of the business.
Where is your Business in this cycle?
The 2009 U.S. Trust survey found that the majority of owners in family businesses had inadequate business succession, asset protection and estate plans in place. These families ran successful businesses, but were much less adept when it came to passing their companies from one generation to the next. Only 15 percent of family-owned companies survive past the second generation, according to the study.
There is something wrong with this picture! These business owners are bright, articulate, talented, wealthy - and they are missing the mark. I believe that this is because the bulk of the decisions associated with family business planning are emotional. Here is a partial list of stressors in family businesses which can result in business failure.
- Disagreement about business goals or decision making styles.
- Differences concerning management styles and work habits.
- Worries related to money.
- Inability to separate personal and business lives.
- Spending too much time together.
- The pain of criticism is increased when it comes from family.
- Difficulty separating the role of business partner from that of father, brother, sister, mother, etc.
- The feeling of the business leader that he or she is “bulletproof”.
Once the business owner faces his or her own mortality and deals with these and any other issues that may be negatively impacting the business, the next hurdle is to address the fear of giving up control. There are several widespread behaviors leading to successful family business relationships and, ultimately, transition. This is hard work. The list includes:
- Placing family relationships first.
- Showing great respect for one another regardless of the situation.
- Communicating closely and carefully.
- Carving the turf appropriately.
- Understanding that each family member has special skills.
- Finding ways to use each family member appropriately.
- Binding family ties.
- Laughing together.
- Putting egos in check.
- Competing with the outside world, instead of each other.
Often, addressing personal relationships that form the core of a family business’ reason for being, is a more important exercise than other strategic day-to-day issues facing furniture retailers. Once problem areas that contribute to business weaknesses are minimized, real opportunity for business longevity and the development of family wealth are maximized.
Several key factors allow this type of strength, growth, and development to take root. This begins with the creation of a family board (or council, or team). This group lays the foundation that allows family members to express themselves and participate in the overall direction of the firm. This board is controlled by the single leader who remains the ultimate authority and has full veto power of any of the ideas brought forth by the group. In my experience in dealing with family boards, the veto is rarely if ever used because families typically act in the best interest of the business.
As a result of belonging to this family board, family members develop a better perspective of the issues and opportunities facing their business. Over time, the family culture of the single leader begins to spread to multiple family members who act more responsibly in making business decisions.
A word of caution here: not every family can do this. Unfortunately, there are situations that have already “drawn blood.” There are families where communication has completely broken down; anger, resentment, and disrespect have overtaken nearly everyone. This is a sad state of affairs. If your family is one of these, constructive communication has likely passed like water over the dam.
Fortunately, in most families these behaviors are not ongoing issues. More often, family members share a common bond. There is real affection. Families are able to communicate and work together to accomplish the life plans of family members as they relate to the business and beyond.
Family boards should be developed as soon as it possibly makes sense. Typically, by the time the next generation reaches young adulthood, or even in some cases their late teenage years, young people understand the importance of moving the company forward. Do not wait to start this process.
The ideal makeup of a family board and its actions will vary from family to family. Here are some general principles that are essential to making any family board function properly:
1.An outside counselor can help to provide objective and seasoned instruction during the meetings to ensure that each member of the family board has the opportunity to express his or her real true feelings and opinions of the issues at hand, in a safe environment.
2.Allow all family members to speak freely during the meeting. Established levels of authority should be thrown out the window before each meeting begins. Everyone in the family must come with the mindset of a participant; no boss or worker mindsets are allowed. These meetings should happen no less than monthly and they need to take priority over the day-to-day running of the business.
3.Don’t waste valuable time chasing after unproductive, unattainable, or unrealistic subjects. The following topics can gain strength and depth over time as they are worked through on a regular basis:
- Management standards.
- Family involvement in the business.
- Management succession.
- Ownership of company stock.
- Outside issues like the banking, legal, accounting, etc.
- Relationship management.
- Conflict prevention.
- Conflict resolution.
- Future planning.
The future of our industry lies in the hands of family businesses. Family is a tough business. To achieve generational success, families must implement an organized process that allows each key family member to discuss relevant business issues, and express them in a useful, appropriate and professional way.
Lasting family businesses are owned by strong families who share common beliefs, values and characteristics. As the Pulitzer Prize winning poet, essayist, and translator Mark Strand said, “The future is always beginning now.”
David Lively, partner at The Lively Merchant, has over 20 years hands-on experience in the home furnishings industry, from the warehouse to the sales floor to the boardroom. He has walked the walk and talked the talk from the family-owned, single-site store to the multi-state, multi-million dollar operation; from sales training to computer programming; from warehouse construction and operations to financial management; from new store construction to complete renovation. Twice named to the "Beyond the Top 100" list of independent retailers and 1997 "Ohio Retailer of the Year,"
David's wisdom was won on the front lines of a furniture store and his battle scars have given him compassion for counseling today's retail warrior. David’s experience has led him to address the issues of the transfer of authority, responsibility and wealth from one furniture store generation to the next. The surviving legacy of your family business depends on your plan for transition, and David has developed a system for helping to identify goals, strengths and opportunities during this crucial time.
Read more of David Lively’s articles for family furniture businesses on the furninfo.com website. You can reach David by calling 740.415.3192 or email him at davidL@furninfo.com. David has offered free phone consultations to any FURNITURE WORLD readers who would like to talk about topics related to family business transition.