Notes from the Family Innovations Summit

Written by Pierre duPont

cornell-2018-0523-0105Thanks to Daniel Van Der Vliet and Cornell’s Smith Family Business Initiative for a stellar event earlier this week. This was a day of private discussions between family-owned businesses of all types and sizes – from some of the largest in the world with 20-50 family members to some small and with only two or three family members.

Across all the sessions, I heard one overriding message: communicate with your family about your business and understand your family’s views and needs – now. Do it openly and as soon as possible, as the business starts and grows, and even if the business is large or it appears to be too late to start such communications. And do this whether you think your family (and the business) needs it or not.

Another message seen clearly: many families with successful businesses have visible and not-so-visible dysfunction, and that dysfunction can create nearly-insurmountable hurdles for continued success or a leadership transition to the next generation. And yet, dysfunction CAN be overcome as we heard several times.

In one case (all will remain anonymous given the incredible amount of openness, and even raw emotional pain, expressed by some of the participants) we heard of several older generations of the leaders in a family-business who appeared to want to limit the continuing success of the company – the next-gen leader overcame this across ten or twenty years through perseverance, many creative ideas, standing ground when faced with strong family pressure, and even by walking away to force the family’s approval of the desired business-change. The result? A household-name business expanding in new directions and generating new levels of success, to the benefit of the whole family.

In another case, we learned of a family faced with discord amongst the older leaders at the top of a large and prominent global company. The discord was clearly hurting the business, so the next-gen came together as a whole to drive leadership changes and new family-control-mechanisms which proved to be the right steps for all generations and for the business itself.

We learned of family-communication done well, too. There were several examples of 20-something and 30-something children who were given leadership roles in their family businesses, and who then rose to the challenges of evolving markets and changing technologies – with appropriate guidance from their parents to the youngers, and from the youngers to their parents.

And we heard an illuminating example of a very prominent family where the elder-generation cousins who lead the business meet regularly to have their business arguments and ‘family squabbles’ behind closed doors, rather than in the public view.

Tactical advice was given by two family-leaders regarding how to strengthen multi-gen families and their businesses, and how to head-off or repair the dysfunction that can arise: engage external family-business advisors/consultants/therapists early, whether or not you think you need to do so today. I was pleased to hear this said several times, confirming the value such external and independent advisors can have – partly that value arises because such advisors have no ‘horse in the race’ (and be sure to look closely for that – sometimes there are hidden agendas and unclear profit-opportunities for external advisors), and partly it arises because the better advisors have seen and learned from many situations.

Contact Daniel if you are a family business who might like to participate in future events like this week’s. And even if you don’t want to participate, I am sure Daniel will welcome calls (as do I 🙂 from family-business owners (whether you are the older generation or a younger generation) to talk confidentially about successes and challenges and failures – lessons can be identified and shared, and paths-forward found, just by talking it through with a suitable outsider.

Pierre duPont is an advisor, entrepreneur, investor, partner and business owner.

Lessons from the Cornell Families in Business Conference

We recently concluded the 3rd Anual Families in Business Conference at Cornell. The event brought together over 175 family business owners, Cornell alumni, and students for three days of exploration on the theme of “The Future of Family Business.” 

I was pleased to receive this email shortly after the conference, from Bruce Werner, Managing Director of Kona Advisors LLC, and a member of the Werner Ladder family business. With his permission, I share it with you:  

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I have been told that getting to Cornell is difficult, but it is beautiful once you get there. That is certainly true. Here are a few thoughts I brought back from the Smith Family Business Initiative Conference.

The lessons of family business are timeless, but each family needs to learn for themselves. Being on campus, it reminded me of the freshman introductory courses. The same textbook is used every year,  but it is still new material for each class.

Like physics, the principles are universal, but what matters is how you apply this knowledge. I was in a discussion with two people. One recently sold a $1B business, while the other was the owner of a $250K business. Everyone was engaged in debating the issues, but they will use what they learned differently.

Managing conflict is everything. Good family governance allows owners to manage family conflict, which allows them to run a successful business. For obvious reasons, these issues don’t exist in public companies.

Money changes almost everything: expectations, effort, risk/reward appetite. How you deal with these changes likely determines your happiness. You can be successful, but not happy.

While these topics were discussed in the context of running family businesses, much of it equally applies to privately owned businesses.

Thank you for sharing Bruce. 

 

 

2017 FEUSA Family Business Survey

downloadFamily Enterprise USA is a 501 (c)(3) organization dedicated to educating lawmakers and growing public support for family businesses across America. Each year, Family Enterprise USA surveys business owners across the country to learn about their challenges and ensures that their voices are heard on Capitol Hill.

Based on the findings of the 2017 study, which is an aggregate of thoughts and opinions from 186 family-owned businesses, we learned the following:

  • Most family businesses (76%) saw their business revenue grow in 2016 and are confident about the business’ ability to increase revenue each year.
  • The majority (72%) say they plan to hire additional employees in 2017, an increase from 66% in 2016.
  • Business owners share, in their own words, the impact of the regulations on their business. The common themes are around estate taxes costing money, resources and time that they could have put into growing their business.
  • Aside from creating jobs, 92% of business owners pursue civic engagement by sharing their time, talents and resources in their communities.

Please click this link to read the entire 2017 report. For comparison, if you like to also read the 2016 report, please click here to download it.

What To Do When Your Path In Life Is Chosen For You

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I am a typical twenty-three-year-old who just finished my first year in the workforce. I’m adapting (and sometimes struggling with) post-grad life in solidarity with my peers: I’m learning how to cook, I’ve lost at least 40 percent of my sock collection to the laundry, and I’m trying not to screw anything up at work. But what makes me atypical from my contemporaries, who intend to stay at their current jobs for the next two, maybe three years, is that I intend to keep my first job for the next forty-plus years.

When I arrived at work on my first day in the “real world,” and every day since, it was my name on the door in big, bold letters. I wish I could say this is because I have done something extraordinary this year to bring meaning to that name, but its reputation has been built by many Gersons before me, first by my grandfather and now my father. It’s a lot of weight on a twenty-three-year-old shoulders. An eighty-two-year legacy, more than one hundred dependent workers, and an expectation that it will be my responsibility to care for all of it in the decades to come.

Growing up, this duty was met with a lot less trepidation. If asked what I wanted to be when I grew up, I would joyously reply that I knew I was going to be the CEO of Gerson & Gerson, Inc. Perhaps as a result of a childhood shaped as much by family events as the ups and downs of the fashion industry, the business became an integral part of my identity. With the understanding that the name Gerson had meaning beyond my nuclear family—a reputation for ability, integrity, and honesty—I spent most of my childhood trying to achieve these ideals. With each nomination to the class council, captainship of a sports team, citizenship award, and finally an acceptance to an Ivy League university, I continued to crave validation.

The privilege of having a family business is a double-edged sword. The reputation of the next generation’s perceived entitlement is an insecurity I have combatted my entire life. I have long accepted that I would need to work harder than my peers to receive the same recognition of ability for my roles, especially since I belong to a generation that is largely characterized as entitled and narcissistic. At some point, I realized that the notion that I could be recognized purely on my own merit was unrealistic. The reality is that I am in this very extraordinary professional position due to my name, and not my achievements. The best I can hope for is that by virtue of my competence as a student, as well as my dedication and work ethic, that the people around me will view me as worthy of the entitlement.

I graduated college at twenty-two, armed with a business education and a lifetime of industry knowledge. I entered the firm just one month after graduation. Some might call my inexperience an impediment, but I view my ignorance as an asset. I will never know as much as my predecessors do about the business they currently run, but asking disruptive questions and bringing a fresh perspective is often my most valuable contribution. The freedom to ask any question that might seem otherwise embarrassing, without fear, has allowed me to acquire both an understanding of the industry and a chance to make small improvements along the way.

My education had taught me the practical skills of business planning, and I was fully prepared to leave my mark on the company with grand ideas of modernization and branding. I discovered that I was not only stepping into a business, with its operational and industry challenges, but I was also inheriting a culture: a rich company history that has engendered a culture of dedication and honesty but at the same time, inflexibility and entrenchment in a “way to do things.” When an entity has been building momentum for so long, the slightest change in direction is difficult to achieve. This is exasperating to an energetic, entrepreneurial thinker eager to chart a new course. It is also something I have grown to regard as the most precious asset in our firm. The invaluable passion for protecting and maintaining something we have all worked to build must be met with enormous respect. I learned that effecting change within the company must strike a constant balance between honoring tradition, maintaining the culture, and shifting toward a new vision.

Ironically, the legacy that I initially found so daunting has become the most comforting part of this journey. I arrived eager to prove myself and my abilities, spent so long focused on combating an impostor complex, and finally found something much greater. Being third generation to a company is not only my journey; it is the story of the past two generations, the people who work for and with Gerson & Gerson, who have become part of our family along the way, and hopefully the generations who come after me. Letting go of my ego and allowing myself to serve the company and the people connected to this legacy is both my greatest challenge and my most powerful motivation.

My love and dedication to Gerson & Gerson are what has helped me to gain credibility within the firm, to push myself to accept this position at a young age, and to be part of the 13 percent of third generation family businesses that succeed. I strongly subscribe to the notion of following your passions as a means for success, as belonging to a family business goes far beyond seeking financial gain. There are endless ways to work toward particular interests within the company; focusing on branding and innovation in small markets is where I have found my satiation for an entrepreneurial and fast-paced environment. Beyond personal interests, it is also the opportunity to work in a place that is worth fighting to protect. Where a business is more than just business, it is family. I will continue to carry on the Gerson legacy, out of necessity, drive, and passion for this eighty-two-year journey.

Millennials like me were raised in a world where we were constantly told, “chart your own course.” But sometimes you don’t get to choose your own path. Sometimes it is chosen for you, for better or for worse, by your name, a circumstance, or a series of events. It is up to you to decide what you want to do with it, and how to grasp what is both an extraordinary opportunity and an extraordinary challenge.

Jessica Gerson is a 2015 graduate of Cornell University, where she earned a B.S. from the Dyson School of Applied Economics and Management. She is the third generation of her family business, Gerson & Gerson, Inc., which she joined after graduation. Gerson & Gerson, Inc. is a leading design house and manufacturer of children’s clothing and is most known for its brand of girls’ dresses, Bonnie Jean. The company is celebrating its eighty-second year of bringing the joy and beauty of a new dress to girls around the world. Within the company, Jessica focuses on bringing innovation to small markets. She is an advocate for family business, and you can learn about Gerson & Gerson, Inc. at www.Gersonandgerson.com

This excerpt was borrowed with permission from the book 3 Billion Under 30 and its author, Jared Kleinert.

Developing the Next Gen

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The Family Business Consulting Group has compiled a helpful list of recent articles aimed at development of the next generation. Shared here are their 10 top articles written by their team:

  1. Introducing Teens and Young Adults to the Family Enterprise
  2. Family Champions: Energy for Success
  3. Vaccinating with Values: Family Business Antidotes to “Affluenza”
  4. Developing Next-Generation Leaders in Family Business
  5. Empowering the Next Generation with the Future
  6. The 80/20 Rule: Balancing Ownership and Management Responsibilities
  7. Achieving Balance: Individual Rights and Family Interests
  8. Passing the Baby: The 8 Must Haves of Successful Continuity Planning
  9. Enabling Incompetence Among Family Employees: Good Intentions Gone Awry
  10. Next Generation Development with a Mentor Team

From Entrepreneurs to Enterprises to Extremophiles – Why not all family businesses are small, and why others last for more than one hundred years.

NOT ALWAYS SMALL

There is a common myth that family business equals small business. It’s natural. Family is the building block for most of what we know. Early memories of trips to the corner store, the local hardware shop or the town garage and getting to know those proprietors personally frequently fuel the notion that family businesses are small businesses and vice versa.

While many family businesses are small, they are also mid-size, large, and even huge. In most countries around the world, family businesses are between 70 and 95% of all business entities and often dominate their industry sectors. Regardless of size, these firms have retained what makes them distinctive, family. From start-up, where 77% of all new business ventures established in the United States are founded with significant involvement of family in the business, to the more mature and successful, family-controlled firms now make up 19% of the companies in the Fortune Global 500, up from 15% in 2005.

What makes family businesses unique? The alignment of family, ownership and business can create strategic advantages and the ability to make adjustments to the market quicker and seize fleeting opportunities. Furthermore, a shared history and social bond often pull families towards sustaining their legacy. These can be counter-productive as well. Knowing when it’s time for an owner to exit the business or even when the family must sell can be excruciatingly painful decisions.

FAILURE, SUCCESS or SUCCESSION

Welch Allyn, one of the foremost medical products manufacturers, has been in family ownership for 100 years and four generations. A global leader in the innovation of diagnostic devices, they have also remained a family owned business, until recently. With significant changes in the industry and consolidation in the global marketplace, the Welch Allyn Board of Directors, together with the Allyn family, decided to sell its interest in Welch Allyn to Hill-Rom for $2.05 billion. “It was an agonizing decision,” states Eric Allyn, Chairman of the Board of Directors, and great-grandson of William Noah Allyn, who founded the company with Dr. Francis Welch in 1915. A decade ago, Welch Allyn transitioned from family-owned and family-managed, to family-owned with non-family management; since then, it has been led by a non-family CEO, and a majority independent Board of Directors.  Although the new governance structure worked well, major changes in the US and global healthcare markets changed substantially forced the company to consider a sale.  “The healthcare landscape shifted so substantially that we could no longer compete on a global scale. We needed to think about what was best for the company, and truly had to put the needs of the Welch Allyn ahead of the desires of our family,” said Allyn. “We loved owning Welch Allyn, and it was painful to realize that its future would be better as part of a much larger, multi-billion dollar company”.

Not all families are as honest with themselves. By the second generation, about 70% are no longer in family ownership, only 12% pass into the third generation and less than 3% endure into the fourth generation or beyond. Many of these businesses are successful and sell, much like Welch-Allyn, but many fail miserably, often bringing the family down with it (see Anheuser-Busch, Gucci, Market Basket, et. al.)

Creating lasting success is the goal of many, if not every business, regardless of size. Ernst and Young recently completed a survey of nearly 2400 of the largest family owned businesses in the world (figure 1). They key factors that often led to sustained success for many of these businesses; having a clearly identified successor, implementing numerous levels of governance, and communication within the family. Additionally, family businesses are creating opportunities for females, specifically daughters. Currently, 24 % of family businesses are led by a female CEO or President, and as many as 70% of family businesses indicate that the next successor is a female.

Figure 1.

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Source: Staying power: how do family businesses create lasting success? EY Report 2015

EXTREMOPHILES?

While the challenges to business and maintaining harmony in the family are many both here in the U.S. and abroad, most do not face the challenges of starting or sustaining a business in emerging markets. Many see the opportunity of those emerging markets from afar; 58% of small to medium enterprises are looking to emerging markets to sell their goods. Yet for those that face the reality of operating amongst political strife, financial turmoil or environmental crisis on a constant business, their daily reality is much different.

Even still, these businesses find a way to survive and even thrive amidst the chaos. A new term has emerged for these businesses, extremophiles, a phrase coined by Devin DiCiantis of Lansberg Gersick.  Why do family businesses make natural extremophiles? According to Devin, their investments extend beyond the high risk episode, they are skilled at tactical triage AND strategic planning, they have strong ties to a city, country or region which often pre-date the current episode and they possess robust social networks. And, like most successful businesses everywhere, they have found necessity is the mother of invention.

FAMILIES in BUSINESS across CORNELL

On October 9, the Smith Family Business Initiative (SFBI) and Cornell University will celebrate “Families in Business across Cornell” day. The inaugural Families in Business across Cornell Day will be a full day celebration on the Cornell campus and will showcase the range and impact of family enterprise, from entrepreneurs to global enterprises and legacy families. Alumni, business owners and students are all invited to take part in this day-long series of keynotes, networking and workshops. Registration is open to all.

Founded in 2014 from a generous gift from John and Dyan Smith, the Smith Family Business Initiative provides education, networking and research for family business owners, successors and students from across the globe. Now entering its second year, the SFBI has established the Johnson Family Business Club, now with 90 members, and created numerous connections with campus supporters, Cornell alumni and educational partners. In July of 2015 the SFBI completed the first iLEAD program, a 20 immersion program with 20 next generation leaders from the US and China. For late 2015 and early 2016, a series of executive education programs will be delivered to a network of Latin American business owners as part of the Owners and Officers Institute in Miami.

John Smith, MBA ’74, and Chairman of CRST International, shared upon announcing the gift, “It is in the best interest of family businesses and the country for these businesses to be carried on for many generations. With a focus on family businesses at Johnson, good research will be conducted, educational seminars will address the unique needs of family businesses, and prospective students will be drawn to Johnson because of the family business expertise on campus.” Dyan Smith adds.

“One of the main reasons we are moving forward with CRST remaining within our family is because of education. The initiative is the next step to putting Johnson in the forefront of family business management.” (Cornell Chronicle, Jan. 21, 2014) The history of the Smith family business traces back to its entrepreneurial founder, Herald Smith. In 1955, Herald and Miriam Smith started Cedar Rapids Steel Transport out of a refurbished chicken coop they bought for $125. At the time, they had no trucks and no customers, but Herald, known as “Smitty,” convinced firms he could save them money. He contracted with owner/operators who were hauling livestock to Chicago to return to the Cedar Rapids area with loads of steel instead of empty trucks. Family owned to this day, CRST has evolved from a trucking firm to one of the nation’s leading providers of transportation solutions. (CRST website)