It's interesting to note that the environment for innovation in family businesses improves when more generations of the owning family are actively involved in the business. Family businesses also retain talent better than their competitors do since they tend to create a culture of commitment and purpose.
One fact often quoted in the world of family business is that 30 percent of all family businesses make it through the second generation, 12 percent survive into the third generation and 3 percent make it to the fourth generations. What's interesting is that this just happens to be the same survival rate as publicly held companies over a 100-year period.
To prove this point, in 1996 the Dow Jones Industrial Average celebrated its 100th anniversary. Its 30 companies represent the largest, best-capitalized leaders of U.S. industry, but only one firm on the original list is still on it today.
If you do some quick math and use 25 years per generation, 100 years represents four generations. About one third of family businesses survive in each generation. With 30 companies on the Dow Jones list and a one-third survival rate for four generations, we would predict that only one would still be around. And that company is General Electric.
So according to statistics, your family business has the same probability of survival as this paragon of industry.
The company that is the oldest family-owned firm in the world is Takenaka Corp., which has been around since 1610 when a shrine and temple carpenter set up shop in Nagoya, Japan. The Takenakas still run the engineering and construction company today, having overcome business, political and family threats for more than four centuries — that's 16 generations!
Vive la difference
So what makes family-owned businesses different from their counterparts?
Well, family firms tend to be focused on the next generation, not on the next quarter. Instead of chomping at the bit to get their quarterly bonus check, owners are more concerned with leaving the kids a thriving business that will support them and their grandchildren when they are gone.
This long-term perspective encourages them to reinvest in the company to ensure its growth and survival. They tend to adopt strategies that put customers and employees first and emphasize social responsibility.
Family-owned businesses also are especially good at nurturing employee commitment and involvement through training and development — and that leads to stronger brands and more innovation, as they are more likely to retain their best employees, especially those who are family members. They also create a culture of commitment and purpose, avoiding layoffs during downturns, promoting from within and investing in people.
It's no wonder that family-owned businesses score significantly higher on things like worker motivation and leadership. Further, tight-knit family members can move more quickly than bureaucracies and adapt to market changes, technological advances and competitive forces. Having leaders with an emotional and financial investment also goes a long way to outperforming companies whose leaders are not bound by the same ties.
Some fail during transition
Due to the aging generation of baby boomers, statistics indicate 30 percent of family-owned firms will experience a change in leadership due to death, retirement or semi-retirement in the next five years. So why do many family-owned businesses fail when transitioning from one generation to the next?
Probably the No. 1 reason is poor or no succession planning. According to Arthur Anderson/Mass Mutual, of the CEOs due to retire within five years, 55 percent have not yet chosen their replacement.
Take the fictitious “Joe's Truck Tires & Retreads” for example. One day Joe called one of his employees into the office. “Rob,” he said, “you've been with the company for a year now. You started off in the retread shop, one week later you were promoted to a route sales position, and one month after that you were promoted to district sales manager.
“Just four short months later, you were promoted to vice president. Now it's time for me to retire and I want you to take over the company. What do you say to that?”
“Thanks,” said the employee.
“Thanks?” Joe replied. “Is that all you can say?”
“I suppose not,” the employee said. “Thanks, Dad.”
Obviously, succession planning, entitlement issues and governance structures for both the family and Joe's business need attention. Proper planning helps the next generation prepare for possible ownership and managerial responsibilities and ensures an orderly transition from one generation to the next.
Some family business advisers recommend that proper planning begin with a family-business constitution—a collection of policies governing the interaction of family members with their business. It could include policies on employment, retirement, ownership, accountability, a code of conduct, as well as a buyout clause for family members who don't want to work in the business. It is designed to minimize conflict and just might save the business and family relationships.
There are many scenarios that can destroy a family business, such as:
- Children who don't want to take over the business, so the parents keep working into their senior years;
- Children who were never cross-trained because a parent was too domineering and controlling;
- Family members who run the business into the ground because of excesses in lifestyle; or
- A divorce or death settlement that put a financial strain on the company.
That's why is it vital that every company have competent and trusted advisers to help guide them in developing an exit strategy that should include retirement and estate planning.
It's also critical for every family business to have a mission statement. Frequently the driving force and mission of the business is lost between generations. Owners periodically should revisit the question of what they are in business for and update it, if necessary.
Having a clear mission statement can serve as a bright beacon not just for the current owner but for succeeding generations as well. Typically, succeeding generations can have the luxury of moving beyond the business' early concerns of paying bills and establishing a reputation, and focus on taking the business to the next level.
Young family members who grew up with iPhones and Xboxes want to look into running things in a new and technologically driven way. This can all be good progress as long as the mission statement is still the goal.
Commercial biz success
While there are all kinds of concerns regarding the survival rate of family-owned businesses, I believe that they will continue to thrive in the commercial truck tire world. I have several reasons for this belief:
1. Commercial fleets value and rely upon good service. They need a local “tire consultant” to advise them on what tires will work best in their operations, handle the grunt work of mounting and demounting tire/wheel assemblies, analyze their tire failures, supply tires on short notice, provide high-mileage retreads and get vehicles with flat tires up and running quickly.
This will never change. Only a tire dealership that remains close to its fleet customers, understands their unique characteristics and caters to them with innovative and adaptable sales and service programs will be able to fill this bill.
2. Tire manufacturers prefer to sell truck and bus tires through their commercial dealer network.
With over a million for-hire and private fleets registered in the U.S., there are way too many customer points for a tire manufacturer to touch even with a large sales force. While tire companies are happy to deal directly with the largest fleets, there is no way they can make face-to-face calls and supply tires to all of the smaller commercial fleet customers.
They will always need you to be their sales force to these accounts as well as their servicing arm and tire expert. You are their face to these customers, and you will not be replaced by the Internet.
3. Commercial tire dealerships will continue to grow to survive. While many that are family owned will not transition to the next generation due to reasons noted above, the remainder will become stronger and bigger as they buy out dealers who want to cash out or are struggling to survive.
We will continue to see the largest commercial tire dealers grow through acquisitions and market share as they adapt to industry and technology changes.
Challenges still will be ever present. They will include constant changes in trucking and the truck tire business, advances in technology, the challenges of growing the business despite economic downturns and competition that keeps getting bigger and more difficult to compete with every day, in addition to managing and adapting to your business' own growth.
While this statement is true today, it was true 25 years ago when your generation took over, and it will still be true 25 years from now when the succeeding generation steps in.
Hopefully, your next generation will be a better fit than the owner of “Joe's Truck Tires and Retreads” I mentioned earlier.
Turns out, Joe had a meeting with his new son-in-law Phil. “I love my daughter, and now I welcome you, Phil, into the family,” he said. “To show you how much we care for you, I'm making you a 50-50 partner in my business.
“All you have to do is go to the retread shop every day and learn the operations.”
At this point, Phil interrupted, “I hate retread plants. I can't stand the noise, smell and the dust.”
“I see,” replied Joe. “Well, then you'll work in sales, call on truck fleets and learn how to sell them new and retreaded tires.”
“I hate sales,” Phil quickly interjected. “I can't stand making cold calls and getting rejected.”
“Wait a minute,” said a visibly agitated Joe. “I just made you half-owner of a large, money-making, commercial tire sales and service organization, but you don't like retread shops and won't call on fleets. What am I going to do with you?”
“Easy,” said the young man. “Buy me out!”