Stephen H Baum Leadership

All Businesses Are (or can be) Family Businesses

As an observer of and coach to businesses large and small, I have always learned a great deal from entrepreneurs and those more corporate executives who adopt the best of their traits.

In recent years, I have observed at close hands the strengths and weaknesses of entrepreneurs and founders of family businesses. This note speaks to four particular cases and the lessons learned.

As an overview:

Passion, energy, relentless focus and a good business model can create a success story. Hard work on relationships inside and out and development of the next generation can lay the groundwork for continued success.

But there comes a time when fresh blood and insight (and often capital) is needed for the next chapter. At that moment, the company can either become highly vulnerable or can be reinvigorated. The injection can come from new senior hires, a major new investor or – on rare occasion – an epiphany of the founder.

Long-standing assumptions and approaches must be questioned, all options must be re-examined and a new risk/reward profile and action plan established.

My Own Family’s Business

Effanbee Dolls was founded by my grandfather and led by my father. By the 1930’s and for another two decades, Effanbee was the gold standard for quality and innovation in realistic, interactive baby dolls for little girls. The Baums prized integrity, keeping promises, delivering high quality merchandise, taking good care of their distribution partners (department stores) and of their own people. Traveling with my father I remember occasions when a businessman in a town would see him and show great affection and respect.

But the company thrived until the tectonic plates of the marketplace shifted and it just could not (or would not) adapt quickly enough. They moved some production to Asia (this is in the 1950’s!!) but the advent of television advertising and discount stores was seized by competitors who developed lower-priced product lines and adapted their go-to-market strategy. It is hard to go from owner to CEO, from managing the checkbook to thinking, investing and shifting for long term. Especially if you have no other experience.

Two More Successes Who Haven’t Made The Turn

The founder of a search company built his company to market leadership with big-time revenues within a relatively constrained geographic footprint; with just enough profit to support relatives inside and outside the business, some in an enviable lifestyle. The owners spurned buy-out offers during the boom times.

The business model worked for decades until the larger clients representing the lion’s share of earnings now and in the future found their needs shifting in ways that require a new business model, substantial capital investment and new talent. Competitors, including new coalitions of providers have eaten into the client base as the owners have avoided change. The business will have to be sold to a financial or strategic buyer.

Another company in facility management services developed a reputation as the gold standard in its industry. The founder is constantly showered with notes and gifts of appreciation from clients and other external parties. But in this family business, the founder made all the decisions with no opportunity for anyone to grow into his successor. The business model was heavily dependent on external relationships with no comparative advantage. Competitors began offering the company’s core services as loss leaders. Now, with a need for re-invention, the company has neither the deep bench strength nor the capital to get on firmer footing.

Best of Both Worlds

The owner of one of my Vistage CEO Group companies has told me for years he struggled each morning with being either the owner or the CEO. He made the transition: his company adapted to new technology, new approaches to large clients, new go-to-market tactics and roll-up of smaller competitors. He grew the company sales and profits by orders of magnitude.

Recognizing the need to make yet another new chapter, he just sold control for a large premium and remains its CEO. The new financial partner wants and will enable a major new growth strategy.

And although there are by design no family members in the company, the CEO has made it a family business as I see it– the top tiers of people feel an affinity for him and the company as if it were a family business. Lower tier associates have always felt they were part of an engine that grew them along with revenues. And he instilled a sense of fun along with the hard work.

Finally, the founder of a retail store company serving high end clients has taken his company from a local one store foothold to a multi-brand, bi-coastal formidable enterprise by sticking to sound customer-focused practices, taking extraordinary measures to develop his sons as leaders in the business and attracting the capital needed for acquisitions. The family members are admired and respected. And the associates are made to feel like winners.

Both of these companies have the best of both worlds: an owner who is really a CEO and strong internal and external relationships.

Lesson Learned

Family businesses thrive on the passion, energy, drive and continuous focus on the business. Then they run aground when either family relationships become dysfunctional or the myopia of prior success and the fear of change make the company vulnerable. If the entrepreneur can avoid these shoals (or tolerate the transition with the help of a new member of leadership), then a new chapter of success can be written. Larger, more corporate companies have found the best of family business by adding the relationship dimension to the strategic approach.

That’s my view. What’s yours? You can hear it on Jim Blasingame’s radio show for small business.

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