123 Years of Family Business Success

Article originally hosted and shared with permission by The Christian Economic Forum, a global network of leaders who join together to collaborate and introduce strategic ideas for the spread of God’s economic principles and the goodness of Jesus Christ. This article was from a collection of whitepapers compiled for attendees of the CEF’s 2018 Global Event.

— by Philip Clemens

The average family business lasts 25 years. Only 30% of family businesses go from the first generation to the second; only 12% go from the second generation to the third; and less than 4% go from the third generation to the fourth. What has allowed our family business to go into the sixth generation—to survive for 123 years and have in excess of 325 family shareholders?

Are we just lucky? No, I don’t think so. Did we do everything right? No, I know we didn’t. So, how did we do it?

First, I need to admit we made many mistakes and came very close to becoming a statistic like most family businesses. Second, we weathered many storms through our strong faith in God and our view that the business was not ours, but God’s. Finally, by becoming very intentional, we clearly understood the pitfalls and had many very honest and hard conversations.

Every family business is made up of three unique entities: family, owners, and business. Most all family businesses begin with these entities looking like one when in reality they are three. Enmeshing them into one ends up confusing everyone because you wear a different hat in each entity. In the family, most times it is a parent hat; in ownership, you wear an owner’s hat; and finally in business you may wear the leader, president, CEO, or another hat. Each hat has different responsibilities and rights.

Many family businesses that fail are victims of one of the pitfalls. Communication is a major pitfall. Communication is complicated because of the lack of understanding about which hat you wear and which hat the recipient is wearing. Another major pitfall is an entitlement mentality assumed by many family members about what their role can and should be in the business. Lack of accountability is also another major factor in business failure. This list could go on and on.

I find there is one common thread in every family business that has failed. In fact, it is a seven-word phrase written on the tombstone of every failed family business: “We never did it that way before.” This is a failure to change.

After 100 years in business, we have discovered a major secret that allows us not only to survive, but also to thrive:

We changed our focus from being a family business to being a business family.

These two models are mirror images of each other. One will work; one doesn’t. Making a change from being a family-first business to a business-first family is very difficult. As a result, many families choose to end their business either by selling the business or by watching it die a slow death.

To better help you understand the differences between a family-first business and a business-first family, let me explain the distinctions.

In a family-first business, family members feel they are entitled to a job and sometimes even to a title in the business. Some families actually mandate that their children join the family business or become ostracized from the family. Family who are employed by the business rarely have the same rules of employment (salary and benefits) that other non-family employees are required to follow.

Leadership in a family-first business can take some extreme forms. For some, only a blood-line family member can be the leader; others only allow the oldest male child to lead the business; and there are many other variations to this. Some family-first business, however, allow non-family to lead the business. In either case, the consistent factor is that family always chooses the leader.

Finally, and most important in a family-first business, the main goal is family harmony. We all must get along. Profits are always at least secondary. This model is a non-sustainable model but is the one followed by about 80% of family businesses.

A business-first family desires to have family members employed by the business. However, in order to be hired, you must be qualified. You don’t get hired just because you have the right last name, you’re an owner, or you’re a friend or relative of the owner. All employees hired by the business need to be qualified.

When it comes to leadership of the business, it is always the most qualified. If that is family, that’s great; if it’s non-family, that is OK also because we know we are being led by the most qualified individual.

In a business-first business, all employees also have the same work rules. There aren’t different rules for salary, promotion, benefits, etc. for employees. Family members who are qualified to be in the business only get to wear one hat: employee. It levels the playing field for all employees.

In a business-first family business, the business is there to give a fair return to the owners. Often in a family-first business the family feels they are there to help the business, regardless of whether they are employed by the business. It’s a bit like the IRS knocking on your door and saying, “I’m from the IRS and I’m here to help you.” All of us can do without this type of help. In a family-first business, the family members barge in the door and say, “I’m from the family and I’m here to help you run the business.” In this scenario, family are as welcomed as the IRS.

Finally, in a business-first family, the main goal is profitability. Profits are both expected and respected. As a result of being profitable, you can then work on family harmony.

These two models are mirror images of each other. Business-first family businesses are often seen as family business when in reality, they are just the opposite.

In my family’s business, our success has come because of several important factors.

1. First, we are a mission-focused business. Our mission is: “We aspire to operate in a way to honor the Lord Jesus Christ as demonstrated through ethics, integrity and stewardship.” We define ethics as “I’ll do the right thing”; integrity as “I’ll do what I say”; and stewardship as “I’ll build a foundation for the future.”

2. Second, we are firm believers in accountability for everyone. Our management team is held accountable by a Board of Directors that has a majority of independent directors who are very qualified individuals. Board members must be leaders in another organization, have no conflict of interest with our company, and embrace our mission and culture. No employee is permitted to serve on the Board except the current CEO. Accountability is critical.

3. Finally, we have adopted a servant-led mindset. Leadership is focused on serving, not being self-serving. Leadership is there to serve our team members, customers, community, and shareholders. Servant leadership puts others first but does not abdicate the responsibility of leadership.

It is possible to be successful for multiple generations. It takes hard work, the willingness to risk relationships, and a strong desire to do the right thing.