April 22, 2016

The pressures facing family businesses in retail

Guest contributor

Through a special arrangement, presented here for discussion is a summary of an article from Convenience Store Decisions magazine.

According to the Small Business Administration, family businesses comprise 90 percent of all business enterprises in North America and 62 percent of the U.S. employment. Yet, only a third make it to the second generation, 12 percent to the third generation and three percent are a fourth-generation entity.

These are surprising figures when you consider that many c-store operators are run by second, third and even fourth-generation operators.

Baruch College professor Elisa Balabram, an expert in family business management, recently offered me five key tips for running a successful family-owned business:

1. Deal with daily pressure. It is imperative that family members of a business communicate well with each other. Create family rituals that allow for bonding, including dinners and vacations, where business discussions are not allowed. Hire a mediator to help mend relationships.

2. Understand and define roles. It is common for family members to occupy multiple positions without a defined job title. This can create conflict as there isn’t a clear leadership role, and no one knows who is responsible for specific tasks.

3. Write a family constitution. The more family members involved the better, as it will give people a sense of ownership. Items to include are: mission and vision statements; dividends and benefits policy; and succession planning strategies.

4. Hire employees that are not family members. Non-family employees, either as employees or on the board, can share their expertise and serve as non-biased supervisors and mentors to the next generation.

5. Empower the next generation. Give the next generation a chance to work part-time. Pay them market value, but also hold them accountable to perform their jobs well. Allow them to work elsewhere to gain experience and new perspectives. If they join the business, make sure to mentor and empower them so they are ready to take the leadership role when the time comes.

Discussion Questions

DISCUSSION QUESTIONS:
What advantages and disadvantages do family-run retailers have over corporate-owned ones? What tips would you add to those in the article for running a successful family-owned business?

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Ralph Jacobson
Ralph Jacobson

Having consulted to innumerable family businesses, I see generational transition being one of the most difficult aspects of these businesses. The kids are less interested in the retail business and may only have interest in the real estate. Also, too many boards don’t have effective external advisory capabilities. The perspectives are most often too narrow and parochial. Innovation, like in any business, is critical and sometimes families cannot “see the forest for the trees.”

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Ian Percy
Ian Percy

I have a good friend whose successful psychotherapy practice is built totally on stressed out members of family-owned/run businesses. That doesn’t surprise me since at the time I met her I was consulting to an international company founded by the classic patriarch — dominant, grouchy, micro-manager, know-it-all and at times emotionally abusive.

The old man was in excess of 85 years. His 50-year-old son had been made president. We were in the board room strategizing the future when the old man barged in unannounced and without apology demanding something-or-other. Instantly the son became a withering child. It was shocking.

It’s hard enough to be a family without having your livelihood complicating things. And successfully maturing the company beyond the founder is almost impossible. My advice: Keep it family owned but not family run.

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Tony Orlando
Tony Orlando

As a third generation in the supermarket, here are some thoughts on this subject.

  1. Nobody owes you anything, so if you want to get involved in the business it is important to start out from the very bottom and earn your way up. My Dad was tough on me and made sure that I was prepared to lead, by doing everything properly, and he did not tolerate being a slacker, which made me stronger mentally and physically.
  2. Show respect for all of your employees, and learn how to deal with hiring and training to meet the standards that were set. You can not manage and lead people without knowing how to follow first, and when the time came to start managing, I was ready.
  3. Do not just hand the business over to your kids, as it can cause complacency. I purchased the business with 8 percent interest and a five year payback, and the other five children received their share, which to me was the fairest way to make sure I paid attention to making the business profitable, when you have a debt to pay off.
  4. I agree with hiring people who are not your family as it makes the whole business stronger, and I believe in treating them the best that you can financially.
  5. Make sure if possible, that your kids get an education, be it a trade school or college, before taking over, even if they think they know everything. College is great for studying with your peers and can foster good working relationships later as you move on.
  6. Teach your kids to learn how to invest their money and plan for retirement, since they will eventually step down and have something for their nest egg, whether they sell the business or pass it on to their children.
  7. Above all, never force the business on them, as it takes a burning passion inside the individual to want to do it. It is very hard work and the rewards sometimes aren’t always there for you in the first several years. I’m one of six kids, and we all worked in the business, but I loved it from the age of four.
  8. Lastly, Be grateful for the proper upbringing and the opportunity you have been given to succeed. My father taught me about giving back to the community. Make sure you represent your business proudly, as this is vital for continued success. Hope this helps. Have a great weekend.
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Steve Montgomery
Steve Montgomery

Family run businesses are by definition privately held. This allows them to operate without being subject to the pressures of quarterly earnings, stock holders who don’t care about the business, its employees, etc. but only its share price. The principle disadvantage may be the ability to access the funds necessary to grow.

One of the issues is the separation of the business and family issues. They tend to move from one environment to the other and can be detrimental to both.

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Ed Rosenbaum
Ed Rosenbaum

Tony has said all that can be said. He is in the fight and knows firsthand how to do it. Most of the rest of us are offering our opinions, Yes, they are strong. But nothing beats being there when the doors open and making sure the lights can be turned on.

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Nikki Baird
Nikki Baird

Aren’t there whole catalogs of Emmy-winning and Tony-winning and Oscar-winning stories based on the coming of age conflict involved in a child being expected to take over the family business when they really want to do something else?

I don’t know that this issue is retail-specific per se. But I do think that the tips are good. When an older generation takes the time to show why they love the business and why they want the next generation to love it too, that has much more of an impact than some base expectation that they are obviously going to take over the business.

And treating that generation with respect — like paying them for a job instead of taking advantage of what a child might easily perceive as slave labor, and giving them more and more responsibility as they’ve earned it — will go a long way towards cementing both the next generation’s commitment and their capabilities.

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Craig Sundstrom
Craig Sundstrom

I think the biggest issue is hiring outside persons. It’s usually essential — as it’s unlikely family members will have all the skills necessary — but unless effort is made to put them on an equal footing (with family members) the hiring will fail. It’s also good to keep in mind that most people want their business to grow, and implicitly that means at some point it will stop being considered “family-run.” If it is still being characterized as such by the third or fourth generation, it likely means that either (1) there is no interest in ever making it bigger, or (2) it wasn’t successful at outside hiring (see above).

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