Converting your business to a Family Enterprise

Summary

§?Your business life cycle should assume that there is no decline stage

§?Starting and growing the business is the entrepreneur’s prime objective

§?You can continue the business’s life as a family enterprise

§?One big benefit is continuing your business legacy

§?Beware there are challenges when multiple mindsets meet

§?There are some simple life-long strategies to transition your venture

Converting your business from a single owner operation into a family firm is not like changing your car to CNG or doing a major home renovation. This transformation is organisational change and requires a different skill; talent entrepreneurs often do not possess. Searching for opportunities and assembling the necessary resources to capture them was the key strategy. And building a sustainable business model was the prime objective.

But now entrepreneurs must think about a new game plan—adding family members to the management team. It is not as simple as a turnkey operation—people need the competencies—understanding the entrepreneurial culture, how to master strategy making, business model design and developing external relations; bankers, suppliers and other stakeholders.

Benefits of a family business If you assume that the business will continue when you are gone, we have many real-world examples of companies owned by families and slowly or suddenly exited. What might motivate you is the concept of legacy. Why build a business and then see it disappear as soon as you decline in age? It will bring happiness and joy in retirement, knowing your family has a source of employment and wealth generation.

Many of the most successful entrepreneurs own family businesses. Think the Walton (US discount retailing), Ford (US automotive), S. C Johnson (US home cleaning), Bhagwansingh (Trinidad hardware retailer), Bermudez (Trinidad food manufacturer) and other names we respect. Your business might be an SME, but the next generation must grow the firm to a much larger operation. While families have conflict issues, the right culture can create higher rates of return than non-family businesses.

Besides the finances, families that work together tend to stay closer. Often, families marry and migrate, and the unit exists only on paper. But with the family business as the employer, your creation many years ago now has the benefit of being the crazy glue that will bond for generations to come. Imagine your children, and your grandchildren, all working in harmony.

Beware of challenges Of course, you know families coming together is not smooth sailing. There is sibling rivalry, there are the in-laws if they are involved, and the conflict with you over the future direction. The best situation is to start early to indoctrinate them. Think after school sessions (social media can be a competitor), packing the shelves, the long vacation for a short apprenticeship in customer service and dealing with suppliers.

When different mindsets enter the business, you, as the founder, must recognise the psychology that it takes to move from disagreements to constructive conflict. Conflict in itself is not destructive as it brings different perspectives into the room, and this situation room now can reveal all or any blind spots that the organisation might have. However, moving from differences in how a task is to be done, personality conflicts and objectives to be achieved, can be your biggest challenge.

Proper governance can assist in laying the groundwork for dealing with chaos and introducing predictability so the venture can align itself with the external environment.

Governance is like the foundation in your house; without it, everything else falls, but rules and policies in a family business can be a challenge to introduce.

One of the reasons SMEs proliferate is their 'looseness' and agility in pursuit of opportunity. This lack of formality comes with a downside—as the business grows and needs to professionalise, the non-family members' grouping starts to increase, and they need to know the rules. Even so, when the incoming family members don't understand the game, their behaviours will be shaped by interpretation, which could open a can of worms.

Formalising an organisation does not mean increasing red tape and being slow to adapt and innovate.

As a diverse family group enters the firm, family rules are needed as a country needs a constitution—family employment policies, dividend and buy-sell agreements. Just as a family has house cleaning and meal preparation rules, the business needs these same rubrics.

Passing the baton The act of succession is not a one-off event. When one day, the founder walks out and rides into the sunset. It is like growing a plantation; it takes time to prepare the land, choose the trees, fertilise them, spray them for pests and harvest the crop—it does not happen overnight; it takes time and dedication. Founders need to start when their minds are fresh and open. One of the best ways to plant a seed is to start at the dinner table.

Unfortunately, many entrepreneurs are too busy with their businesses and never take the time for this important act. Some husbands focus on the company, while their wives spend time with the kids. While this might be a stereotypical situation, it often happens. If your spouse is not involved, get them into the conversation. Have regular informal meetings. If your spouse is not a business person, your job is like an educator to infuse a management and entrepreneurship mindset.

One way to get your kids thinking about business is to let them study POB or POA in secondary school and have discussions about critical topics. If they choose a pure science route, then getting them to read biographies about famous entrepreneurs who had a science background (Bill Gates and Steve Jobs) might be a sneaky way to infuse business thinking. Mindsets don't change overnight, but they change with a plan—creative problem-solving, puzzlement resolution, and value-unlocking abilities.

Transitioning your business to a family enterprise requires recognition, planning, and implementing some essential steps to preserve your legacy and keep your family together long after you are gone. But remember to start early, plant the right mental seeds, educate the youngsters, and see them grow and blossom like an intergenerational orchard.

This is a condensed version of my article that appeared in my column in the T&T Business Guardian Money Magazine.

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