I had the good fortune to chat with Henry Hutcheson, an expert of family businesses who has the ideal background: he grew up among not one, but two family businesses — Olan Mills Portrait Studies and Peerless Woolen Mill, and studied psychology along with his business training. Empathetic, savvy and direct, he’s become a go-to management consultant for countless family businesses. His new book is Dirty Little Secrets of Family Business (3rd Edition): Ensuring Success from One Generation to the Next.
What prompted you to write this book?
Most family business books out there are theoretical or highly academic. I wanted to write a book that was a practical guide for business owners and next-generation family business owners. It has detailed steps on how to address the issues using multiple case studies.
What is the single toughest challenge for a family business?
Creating an environment and system and group attitude where you can have good open honest communication about what’s going on without hurting peoples feelings and people taking true constructive criticism personally.
You make an interesting point about how most family businesses are not really structured to last past a generation or two. Can you elaborate on that?
A family business is created because someone was desperate to find a source of income, or saw an opportunity and took a chance. They didn’t know when they started if it was actually going to work out or not. Most new businesses fail, as we all know. Those that succeed typically succeed do so because of the founder or founders’ luck, hard work and personality. Then their offspring come into the business and are indoctrinated into how it is that the founder does the business. And so their answer about why they do what they do is typically, “We just do what our parents do.” They are generally successful because they have seen how their parents did it and how they worked hard from the beginning to make it all happen. There are no systems, no procedures, no rules — nothing written down. So maybe for two generations, they’re just winging it. But they happen to be really good at winging it. But then you get to the third generation, and they have no idea what the beginning was like, and weren’t able to witness how the founders went about doing what they did. The third generation is looking for rules, structures, systems and governance. They want to know, most of all, why do we do it this way? But there’s no tangible answer.
Can you talk about how to deal with the sense of entitlement the founders’ children may feel?
A lot of it needs to be addressed head on. The founder may have come from a place of impoverishment, and the children grew up in that environment at the beginning. And then the business did well and now there’s lots of money. They see their Mom or Dad, who’s accomplished something fantastic and is in charge of a number of employees’ livelihoods — and has also given them, the kids, all the things that she or he didn’t have when he grew up. So they think they are important because they are related to their parent, who treats them like a royalty, and they also have lots of money. This creates a sense of entitlement.
There are a number of ways to address this. First, join the business by starting at the bottom and making the same wage any other bottom employee would receive, with no extra benefits or shortcuts. But if it’s gone too far, it typically has to be addressed head-on. The children need to be made aware that just because they’re related to their parent does not make them naturally good at doing the work. At the same time, being an owner and being a leader are two completely different things. They may be owners or future owners, but that doesn’t mean they’re the best people to run the company. They also need to understand that all employees measure the children by their performance, not their blood connection to the founder.
Unfortunately, sometimes children are simply too spoiled to actually perform at work. A life of luxury and ease makes it very difficult for them to put in eight to ten to twelve hours a day and work on weekends, though that’s what’s needed to get the job done. They’d rather take a break and go play golf. But to win in business you have to do whatever it takes — within the bounds of the law.
What if there’s no one to take over leadership for the family business?
There are two alternatives. Either bring in somebody from the outside who is qualified — they have to be able to not only do the business, but also navigate within a family business environment. This is more on the personal side: maybe the children are employees at other levels, or maybe they’re not there at all, and just good owners. Or you need to sell the business. Keep in mind that you’d rather sell a business when it’s valuable and doing well then to write it down to the bottom and then sell it when it’s lost all of its value.
You have a very informative section on millennials. Why did you decide to include that?
There are always gaps in attitudes and perspectives from one generation to the next, but this gap between baby bloomers and millennials is the biggest in history. In a family business trying to weave together the differences in the current generation and the next generation from a business perspective is hard. It is now extremely difficult because the gap is so large. It’s important that baby boomers understand where millennials are coming from, and millennials understand where baby boomers are coming from. We complained about millennials as baby boomers, but we also need to understand that as baby boomers we need to be more effective in the future. The future is the Internet and smart phones and ARI, and new things that we can’t even think of. The millennials are going to be more prepared to deal with that than someone who’s 60. Boomers need to realize that, but at the same time be sure to instill in the younger generation the core basics of running a business.
For more on Henry Hutcheson and his new book, Dirty Little Secrets of Family Business (3rd Edition), visit www.familybusinessusa.com.