Family businesses and successful transitions

The backbone of most communities is family-owned businesses because they hire the most people and are the most philanthropic leaders of the community.

Those businesses that succeed were started by entrepreneurs who saw opportunities and pushed ahead even when most people would exit seeing the risks were too high. One of those people was my grandfather, who, with three of his brothers and one sister, came to America in the late 1890s to start a new life and escape anti-Semitism and death in the Ukraine.

Julius, Cezar, George and Minnie spoke seven languages but not English when they arrived on Ellis Island. Their parents and oldest brother remained in Russia to keep the family business going. When they left, they never saw their parents or brother again. The oldest was 19 and the youngest 13.

They didn’t know what they were going to do or where they should live but people said they should move to Chicago because things were happening there, so off they went. They found jobs, went to school and the three brothers became pharmacists and their sister a teacher.

My grandfather started opening up drugstores and with a group of small pharmacy owners started Rexall Drugs. At one point, he had 24 small pharmacies that were open 24 hours per day, 365 days per year.

A group of investors approached my grandfather about going national and selling to them but he just could not get his arms around working for someone else. He did however recommend they contact his friend Charlie who had five stores at the time. That was of course Charlie Walgreen. My grandfather was very successful and his philanthropic deeds are legendary in Chicago. In the end he said, “I could leave everyone a lot of money but I think I’m going to leave you with something more important and that is a good name.”

My grandfather died when he was 71 and was still working. My dad, who worked with his dad, took over the family business and one day when he was only 55 said he was going to retire and move to Florida. I had intended to go to law school so this was my last chance to take over the family business.

At 22 I took over and with my partner brother-in-law we tried to survive competing with Walgreens and Osco. The retail business changed dramatically and independent drugstores pretty much were history. Our family business has long been gone. We moved to the Quad Cities in 1985 and I started MRG in 1989.

Most family businesses are lucky to survive the second generation but very few make it to the third generation. Some of the reasons are market driven, technology changes or poor decision making. However, many fail because the skills, education and training, motivation and interest change from one generation to the next.

Those that “boot strapped” their way to the top didn’t have a choice but to succeed or go broke. Times were different and in some ways easier with less competition and a greater emphasis on reputation and word of mouth. Location alone could drive up your success and if you hired loyal, hard-working people to help you, the road to success was not as complicated.

There is a common theme among my grandparents generation. They started with nothing, worked hard, went to college and were successful enough to bring family members into their business. As time went on and they became more successful, they wanted their kids to become doctors, lawyers, CPAs, etc. And, their kids were not interested in joining the family business.

Today my kids’ experiences include living in a big city where they went to college and they have never expressed an interest in moving back or taking over my business or my wife’s law practice. Today most family businesses have an exit strategy that involves selling to a competitor or to a company looking for a comparable fit with their business.

Some get involved in a “roll up” in which a new company is formed made up of several smaller companies that are put together, or they sell to a large corporation or private equity group. When there is no family member to take over, the biggest loser is the community where the family businesses reside.

For many family businesses, one of the reasons they fail is the next generation is not prepared to take over. Just knowing or having a sense of what their parents do or have done in the past is not enough to necessarily lead to future success.

Parents often have an overall generous view of their children’s capabilities. Today almost all business are going through rapid change. Different skills are required to manage the business and it is necessary to be a lifelong learner to stay ahead of the curve. It certainly helps when your children get a great education but there is nothing like real life experience to fill in the gaps.

If you are lucky enough to have one of your children interested in your business, it’s always a good idea for them to work at a large company in your niche before “coming home.” The training and exposure will be very valuable to them and will provide an appreciation for what it’s like to be an employee. Chances are they will be focused on a particular area that matches their education. If at all possible, this is also a great time for them to get an MBA.

Once the big decision is made to bring them into the business, I suggest exposing them to all areas of the business. Make them work in the different functional areas so they understand how the company works. Accounting, operations, marketing, sales and HR are great places to learn. Reporting to people who are willing to teach, mentor and hold them accountable will go a long way to becoming good managers themselves one day.

Once they have done “the rounds,” provide projects they can take on and lay out the outcomes you are looking for. Be there if they need help, but let them figure it out. If they fail, use it as a learning opportunity.

If you have an opportunity for them to manage a segment of your business and be responsible for the P&L, that will go a long way in their development. But you will need to manage them in the role to make sure they don’t become discouraged or fail and hurt the company. Providing clear expectations, time frames and measurements for success along with regular meetings to monitor progress are all important components.

If the company is big enough, perhaps the next step is to run a division in which they end up managing managers. At this point, hiring an executive coach will help them succeed. This is a big step in their development and they are going to need to confide in someone other than you to learn and grow and gain the respect of other executives in the company.

Once you have a comfort level with their development, find a way to bring them into the “C” suite of the company and work with them and their coach on strategy and vision. Let them step out of operational responsibilities in order to focus on the future. Provide educational opportunities and help them to seek out experts in the industry that can help them map out the future.

When they are ready, have them present to the executive team where the company needs to go and how they can accomplish the vision. Encourage them to work with the team to improve the plan and when the time comes, give them the keys and remind them you are around if they need you.