RM Online - Use change to your advantage

BY MIKE HENNING

Mike Henning is a nationally known consultant on family-business issues. For more information, write Henning Family Business Center, 1006 N. Pembroke Court, Effingham, IL 62401, or call (217) 342-3728..

Our greatest challenge is planning for change in our business and in our family. Failure to meet this challenge has caused thousands of privately owned companies to close their doors, sell to the highest bidder, or merge with a larger company, often leaving active family members with a shaky career future. In fact, on many occasions, divorce occurs in the senior generation due to the one parent's strong ego and unwillingness to bend or mellow, sometimes upsetting a son or daughter in the family operation.

To keep up with change, people must constantly learn and adapt their personal and business styles if they want to remain a force in their industries. However, families who control their businesses and make their living from them experience chaos and change more than any other group. Technology changes rapidly and that can significantly affect families who run their own companies.

With the passage of time comes change in both the family and the business. Birth, marriage, divorce, death in the family, business promotions and attitude changes all contribute to this change.

More specifically, over time the family faces many predictable challenges and opportunities to make changes. Individuals in their teens and 20s deal with separation from the core family, individualization, marriage and career choices in the family business or elsewhere. Soon they will be raising their own children, dealing with relationships and spending time with inlaws. Added pressures may include changing relationships with siblings and competition for power in the company.

Those in the mid-life transition, typically 35 to 50 years old, will begin asking themselves if the path they have chosen in life is the one they will continue to pursue. They begin to review their lives from the perspective of career, marriage, parenting, religion, family relations, social, sexual, physical and recreational roles. They find themselves a member of the "sandwich" or middle generation. Often their authority is compromised by the senior generation. The middles are often dependent upon the seniors economically and have little control of their own lives. As the seniors disengage from the business, they feel as though they are losing status, power, control, meaning and many other emotional rewards. Often they are faced with a physical crisis, retirement of a friend or other unplanned events. Typically, leadership in the family follows the passing of the top spot of the company to a member(s) of the next generation.

From the start-up phase of market entry to survival and eventual expansion, companies themselves also go through cycles. While family members are challenged personally, companies are being challenged to grow and expand. Special attention must be paid to infrastructure, organizational change, ROI examinations and the process of growing from entrepreneurial to professionalization. Following this phase will be the cycle of "fat cats." With a bank full of money and everyone pleased with current performance, profitability begins to fall off, as do sales. Growth expectations end and it is time for renewal and regeneration. Management and ownership must recommit and reinvest more time and money.

Companies normally begin with one owner and continue that way throughout most of the first generation. Over time, a choice must be made as the second generation is poised to take over. This change might involve one owner or possibly even two or three. How will the control between stakeholders be structured in the next generation? Eventually, if the company is successful through the sibling generation, the challenge is sharing control and ownership between the third generation.

To most members of a private company, the entire design is extremely complex and complicated to the point that they have little understanding of the predictable challenges and changes.

Here are six approaches to change:

1. The Avoiding Approach. Owners often stick their heads in the sand and pretend

all is going just fine. They often remind everyone around them how successful they were 10 years ago. They also remind themselves that they intend to live forever.

2. The Apathetic Approach. We often discover families so confused by the multiple changes taking place within the family and business systems, they just sit back and watch it happen. They hope things will work out for the best.

3. The Resistant Approach. Many will fight the changes that are inevitably pushed by the market, industry, technology, aging and succession issues. They dig in their heels and hope they can outlive the new cycles.

4. The Reactive Approach. I get calls from junior generation heirs who have been frustrated by a parent, and as a consequence, have made plans to go into competition with the family business.

5. The Anticipatory Approach. The successful business families plan the time to become educated about challenges and predictable changes. Once they have a handle on the scope of their situation, they make appropriate changes.

6. The Creative Approach. A few senior generation owners will seek help in making plans for their own succession from the company. They will actually create the changes necessary to put the plans in place and then lead the plan of implementation.

The art of using change to your advantage must be supported with knowledge of the family business design. It is essential to understand the entangled and complex system of the family, the business and the ownership structures over time to face the inherent and predictable challenges before it's too late.

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