Ownership & Governance

The #1 Reason a Family Business Transition Will Fail… or Succeed

I’m not a licensed pilot, but I sure get a kick out of aviation. Flight, especially the powered kind, just seems to drop metaphors from the sky – perfect for illustrating narratives.  Consider this:  there are two major types of flying machine – fixed wing (airplanes) and rotary wing (helicopters).  Both use an engine to force their flight surfaces through the air, creating lift.  An airplane uses a jet engine or piston engine to propel its wings forward, and a helicopter uses its power plant to rotate its wings for exactly the same effect.  Same resultant lift, but vastly different methods.

Airplanes can be beautiful, and sleek lines are both pleasing to the eye and functional:  less drag means more lift.  Helicopters, though, don’t have to worry as much about sleek lines and aerodynamic shapes.  After all, as the old saying goes, helos don’t actually fly, they just beat the air into submission.  That’s not true, of course, but they do fly differently.  Cut the power to an airplane and a helicopter flying side by side at 3,000 feet and which one do you predict will glide farther?

Some Family Businesses are Airplanes, some are Helicopters

And the same can be said about Family Business Owners.  It’s not empirically robust (yet), but I would argue that the controlling owner’s gender –and his/her spouse’s role – will play a significant part in a transition.  In their groundbreaking book “The $14 Trillion Woman,” Barbara Kay and Anthony DiLeonardi explore the differences between male and female investors – how they set goals and reach critical decisions.  To paraphrase them, men tend to be more goal oriented and women set their sights more on security and freedom.  Similarly, male and female stakeholders view things the same way.  In some multi-generation family business transition scenarios, a patriarch is more likely to focus on enterprise value and multiples to reach a clear monetary threshold, enough to buy that lake house, red Ferrari, or other tangible goal.  The matriarch, of course, wants enough to enable them to live their dreams, but not if it tears the family apart in the process.

Family Business Transitions Succeed or Fail Because of Communication

Remember:  FOB|BOF – the family owned business and business owning family are opposite sides of the same coin; they are inextricably linked and affect each other immensely.  The solid vertical line between them represents a coin, a mirror, and/or a barrier – of language.  Business models and strategies have always been written in the language of the FOB, but if a transition is to succeed they MUST be written in a language understandable by both the FOB and the BOF.  Don’t misunderstand me:  I don’t just mean rephrasing them with different words.  I mean business models and strategy plans envisioned, created and implemented by the entire BOF for its own goals and objectives, using the FOB as a critical resource to achieve them.

A transition shouldn’t be the final chapter in the story of the Family Owned Business, it should be the next chapter in the story of the Family.

Category : Ownership & Governance

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About the Author: Chuck Meek

Chuck brings a unique background and perspective with regard to transition planning in privately held businesses. He earned his A.B. degree in Russian Studies & Language from the University of Chicago in 1984. After serving as a Naval of…

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  1. cc

    December 5, 2012 at 4:16 pm

    Excellent points. Without clear, regular, open communication in a Family with a Family Owned Business, the tail too often wags the dog. So, how do we create the right environment for honest, open communication? It’s hard and risks hurting the feelings of the people you love.

    • Great question, CC; how do we create that environment? Because unless the dialog is deflected away from each other and toward an external, common reference point (i.e., what do WE want this family to look like in 3 years, and what role does OUR family’s business have in helping us get there?), it’s hard indeed.

    • Les

      December 6, 2012 at 7:25 am

      Cc. The only way I know is by having family meetings on a regular basis ie any where from 2to 4 per year or as often as required to keep the communication going

      • Do you have any insights on ‘best’ and ‘worst’ practices with regard to family meetings, Les?

  2. lhollandjr

    December 6, 2012 at 9:16 am

    Thank you so much for this great article! I couldn’t agree more with your premise. In particular “Family Business Transitions Succeed or Fail Because of communication”! I will be curious with your articles going forward if you will be identifying best practices on this front?

    • Atticus Bailey

      December 6, 2012 at 11:53 am

      That is certainly my intent, albeit with the caveat that my opinion is…well, my opinion. I hope you and others will chime in, too. Thank you for your time and interest!

  3. jn

    December 6, 2012 at 1:38 pm

    Interesting insights and thanks for the great article. What is the path for a family owned business to evolve to a business owning family. I have been involved with several family owned businesses that have not been able to get to the BOF stage. What would you recommend?

    • You, JN, clearly understand that it’s more than semantics: of course a Family Owned Business can’t be defined as such unless there is a family that owns it. What I think you are driving at is how a family comes to consider itself in the BOF light: though there may be some legal document that delineates everyone’s ownership stake, it doesn’t mean the family identifies itself as such. Consensus around their collective vision is a crap shoot, to say nothing of unanimity and clarity. Which precludes acting like a BOF. Let me think about your question a bit more and I’ll express my thoughts as clearly and eloquently as I can… Thank you

  4. Chris Cain

    December 6, 2012 at 4:42 pm

    Very interesting – I agree you have to be highly aware of what is motivating key stakeholders and understand those motivations may vary among family members.

  5. Louis M

    December 7, 2012 at 6:14 am

    I’ve been on the financing side of several family business transitions, and the FOB/BOF concept is spot on. So many family businesses rely only on their accountant or attorney to manage through the details of a transition, but too many times it seems the emotions sour or kill the transactions.

  6. Swing

    December 7, 2012 at 6:48 am

    Communication is vital but roles should be clearly defined. In the asian context, the children will refer to their father as the boss and not dad when they are at work. However, the patriarch usually exercises his familial authority when the push comes to shove.
    Regular meetings of family members without the presence of professional staff allow each person to be constructively critical without embarrassing themselves in front of outsiders.
    A successful transition depends also on the willingness to accept the limitations of the family members and seek professional involvement from external resources…

    • Atticus Bailey

      December 7, 2012 at 7:53 am

      Do you believe the’Asian context’ applies equally to FOBs whether they are located in Asia, the US, or around the world? Does local culture ever trump ethnic?

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