The Family Business

Family businesses contribute to more than 60 percent of the U.S. Gross Domestic Product, according to the U.S. Small Business Administration. What makes them so common? Often, family members know (or at least have the potential to know) each other inside and out. They’ve identified each other’s strengths and weaknesses, and (perhaps as a result) how to complement one another. In many families, familiarity breeds understanding, loyalty, trust — qualities that enable fathers, sons, mothers and daughters to solve problems and stick together through good times and bad. Just what you’d want in any business concern.

And yet, only 33 percent of family businesses survive to the second generation. Half of those make it to the third, industry experts say.

So where do family businesses go wrong? Is the problem family related? Sometimes it is.

Contracting Profits recently talked with a cross-section of second, third and fourth generation family-owned cleaning companies to find out what it takes to make the family business work from start-up to succession. The owners and executives discussed learning to adapt an established company to new market trends, the legalities of succession planning, and the pressures on the next generation to build on the legacy of their predecessors. But for many owners, the problem they struggle the most with is one that they readily acknowledge should be the simplest to solve: Success and long-term survival depend on how well you separate family from business. From addressing people in the hall to grooming the next president, family relationships must not interfere.

If you do let them interfere, these BSCs said, you may end up making decisions that aren’t in the company’s best interest. Family members don’t always have the best answers or always shine as employees. But ignoring a relative’s mistakes because they’re family and you’re afraid the tension may cause problems in your personal life will damage the company. Showing favoritism toward family members will cause rifts between family and other employees, potentially hurting service, sales and morale.

But, realizing these potential problems is only step one — you can’t write “no allowing family matters to interfere with business judgement” into an employee handbook and walk away. It’s a daily job to remember that as soon as you walk into the office, these people aren’t your family, they’re employees. And that’s how family will need to be treated — especially if you want one of them to run the company one day. Succession — and success — needs to be based on more than just a common last name.

Blurring business lines
For any entrepreneur, keeping family life and work limited to nine-to-five is difficult enough. Since co-workers are your wife, son, daughter, brother, sister or some other family member, business can easily take over the five-to-nine hours as well, says Paul Greenland, president for Aetna Building Maintenance, a business started in 1936 by his grandfather in Columbus, Ohio. Business may continue at the dinner table or be discussed at a family gathering. It’s easy for work and family to become blurred to the point where your dad calls and you don’t know if it’s your dad or your boss, he says.

But allowing the lines between family and business to blur can prevent a company from reaching its full potential. You may have brought in a family member because you knew you could trust him or believed he’d be a key asset, but once that relative walks through the office door, you must view him or her as a professional colleague. The person can’t be both your relative and your employee because the guiding principles are different for each, says Dr. Marc Silverman, family business consultant, Strategic Initiatives Inc., Miami Beach. The rule of the family is to love, while the rule of business is to generate revenue, he says.

“You can’t love your son more one day because he made a bigger profit,” he says.

You can, however, reward your son, the employee, for excellent performance.

But, how do you begin stripping away years worth of personal history to focus only on the professional?

Life in the fishbowl
To start, you have to at least prevent from addressing family members by “dad,” or “uncle” or “son,” says Terry Woodley, vice president, Woodley Building Maintenance (started by his father, almost 40 years ago). For example, Terry calls his father and boss Jimmy, J.W.

But “dad” and “boss” are just words. You’ll still need to develop a work relationship that allows you to put your personal feelings on hold, says Woodley.

And to prove to the rest of the company that you truly believe that business comes before family, you’ll need to treat family members like every other employee. Once again, that’s easier said than done.

The family in a family-owned business is in a fishbowl, says Silverman. Other employees will see if family members are given special treatment or privileges based on who they are instead of how they perform.

For instance, vacation, benefit packages and wages should relate to experience and performance levels, not last names. Visible favoritism among family members can erode non-family employee’s morale. They may wonder why they should perform beyond minimum expectations if they won’t be recognized accordingly. Key players may decide to leave.

“You don’t huddle together as father, mother and son,” says Marge Barraclough, owner, Cross Gate Services, Brentwood, Tenn. “We call it the Cross Gate family and we try to treat all employees the same as we would treat our family members.”

At Cross Gate, Barraclough’s late husband Art went out of his way to never show favoritism toward her son Steve Southard. If anything, Marge says, Art probably pushed Steve harder than any other employee to show that family didn’t get special treatment.

For example, when Cross Gate took on a new account in South Carolina, Art sent Steve to develop the managers and crew for four months, despite Steve having recently fathered a daughter. It was a difficult decision for Art, Marge says, but the account was Steve’s responsibility. If Art allowed Steve to shirk his duties, it would look like favoritism.

All eyes on the successor
Establishing a separation between family and business is a challenge you need to meet head on daily, but ultimately, you’ll demonstrate how successful you’ve been when it’s time to name a successor. If you have indeed placed family members on an even playing field with non-family employees, then it should be clear, not only to you, but to everyone in the company, as to who the next president should be. You may realize it’s not the family member you always thought it would be.

You have to be conscious of who you are promoting and why, says Steve Altman, owner and president of All-Pro Cleaning Service Inc., and Youngstown Window Cleaning Co. and Youngstown Cleaning Co., an Ohio business started more than 100 years ago and currently in its fourth generation. For example, when a parent promotes a son or daughter and the child doesn’t perform well, its true the child looks bad, but it makes the parent and owner look even worse, says Altman. It could seem that the parent chose to think “family” instead of “business.”

The way Altman sees it, if a family member isn’t producing, but a non-family employee is showing tremendous potential, he has no choice but to promote the best candidate. And though he hopes his son will someday represent the fifth generation of Altmans at the helm, Steve’s son will have to earn it.

“Running a family business is not a popularity contest… I have a responsibility to shareholders, employees and customers to put the best team forward,” he says.

As the owner’s son, Tim Murch, current president of Mitch Murch Maintenance Management, a St. Louis-based business started by Mitch Sr., along with Tim, in 1978, knew he would have to earn any promotion given to him, especially the presidency. And that meant being the first one in in the morning, and the last one to leave at night. He made sure as the company grew, he wore all the hats — operations, sales, administration to name a few. He knew he would have to succeed in more roles than just the ones that would take him to the top.

“You don’t want anyone to perceive or assume anything is given. You want it all to be earned,” says Murch. “It’ll bring down everyone else if it’s perceived that someone is taken care of.”

Regardless of whether you hire your brother, promote your daughter or groom an outsider for succession, as an owner you have to be comfortable with the decisions you make. If you believe you’ve made the right ones, then stick to your guns.