A family business is just business… until it isn’t.
We explore the unique and complex dynamics of running a family business and explore how Jeff Wisdom, equipped with the right tools and guidance, transformed his 140-year-old company into a successful industry leader.
There’s a scene in the first episode of HBO’s Succession in which Logan Roy, patriarch of the Roy media enterprise, announces that he’ll be stepping down as CEO and bestowing the title on his son, Kendall, the heir apparent. That’s what’s supposed to happen, anyway.
It’s Logan’s 80th birthday. He’s in failing health, and his sons and daughters and their spouses—a mixed bag of characters who are each toxic in their own special way—are spending the day lavishing gifts and praise on the old man, hoping to get a piece of the family pie. Of course, as is often the case in the TV world and the real world alike, things don’t go according to plan. In the midst of the celebration, Logan pulls the family aside and announces that he will remain CEO. Chaos ensues. And, as you might expect, things don’t exactly get better from there.
When he decides to remain CEO despite his age and health, Logan isn’t making a rational decision. He’s operating on raw emotion. Unfortunately, the family has allowed their company to be run this way and hasn’t taken any steps to install proper checks and balances. Now, it’s coming back to haunt them.
The entire show is a rebuke of the idea that any business, particularly one owned and operated by a family, is ever “just business,” a phrase suggesting that a family’s business decisions can somehow be removed from personal feelings. They can’t. The Roys are finding this out the hard way.
In the business world, people sometimes imagine that their actions are removed from their emotions. But that’s rarely the case, especially for family-owned businesses where personal finances are often tied directly to company financials and people related by blood hold positions of power. A business is ultimately a collective of people, and a family business is a collective of people with deep emotional ties, both positive and negative, which can result in decisions that are clearly bad for business. Wherever people are, emotion follows.
And wherever emotion meets business, new challenges emerge.
What makes running a family business uniquely challenging?
The Roy family crisis is more than just good TV. They may be a uniquely hostile bunch, but the challenges they face, from succession planning (or lack thereof) to corporate governance (ditto), are the same challenges that real family-owned businesses encounter every day. And it’s not just the giant corporations. Our team works mostly with mid-sized organizations, and new clients often come to us because they’re experiencing these very challenges.
What makes running a family business uniquely difficult is that you have to make all the tough decisions required of any business while also reckoning with the emotional baggage of a family enterprise.
Take succession planning, for example. In a business, any rational stakeholder should, in theory, want to have a succession plan; it’s critical to the continued health and fundamental stability of the enterprise. Then why do so many business leaders fail to plan for succession? Why are they being so irrational?
In truth, they aren’t being irrational. They’re just operating on an emotional rationality, rather than a business one. The act of planning a succession is more than a cool-headed business maneuver; it’s an acknowledgement of an uncomfortable truth, the reality that the current leader of the company, who may be a parent, sibling or other relative, is eventually going to be unable to lead, possibly due to death or illness. It’s the kind of conversation—like discussing a will—that people tend to avoid. As long as you don’t talk about succession, you won’t have to think about its implications. And that’s completely understandable. Unfortunately, the consequences of avoiding these tough discussions can be disastrous for businesses and families alike (just watch any episode of Succession).
There are other challenges common to family businesses:
- Informal culture and structure. While having a laid-back culture can be a good thing, an overly informal structure can lead to a lack of controls, documentation, policies and procedures. Bringing formality to your company can be awkward, at first—these are more than colleagues; these are people you open presents with on Christmas morning—but it’s the only way to maximize your company’s efficiency.
- Funding growth. Growing a business takes capital. But deciding where that investment comes from and how it’s used can cause tension. What happens when your brother, who’s not involved in the management of the business and relies on dividends, receives less income because you decided to reinvest resources in the organization? Well, he gets mad, of course, and now you have to choose between pleasing your brother or doing what’s best for the business.
- Business valuation and ownership. The owners of a family business may not agree on the valuation of the business or how to split the ownership. Like the other points mentioned here, this business disagreement can spill over into personal tension, and vice versa.
- Growing and evolving the business. Many family-owned businesses are “stuck in their ways,” with older generations still influencing decisions. It can be easy to blame the patriarch or matriarch, but try seeing it from their perspective. They’ve dedicated a good deal of their life to this business; it isn’t easy to accept radical change or hand over authority to someone they raised.
- Delegating responsibility. This is a common issue in businesses with loose organizational structure. One person, usually the person who should be focusing on the overarching vision and direction of the company, is the CEO and the production manager and the CFO and on and on… until they’re spread so thin that they can’t really be effective. Managing all those responsibilities, they certainly won’t have time for the big picture.
- Saying “no.” This is a broad generalization, but anyone who has worked for a family business knows that it can be very hard to tell a family member that they aren’t going to get their way. You care about this person, you don’t want to anger them, and you’re aware that you’re probably going to have to reckon with this decision in your personal life. It can be tough to say “no” to colleagues, in general, but those with a business background can do it, when necessary. Once family is introduced to the equation, all bets are off.
With that said, there are also benefits to running a family business: You get to spend more time with your family (could be a positive or a negative). There’s often a strong and personal sense of pride in the company’s success. A positive business environment can actually bring family members closer together. And the business, if managed responsibly, can secure the finances of future generations.
Recently, we sat down with Jeff Wisdom, a business leader who can speak to both the challenges and the benefits of running a fifth-generation family business. Here’s what he had to say:
How a 140-year-old family business became an effective, agile innovator
The Wisdom family is a far cry from the Roys, but they can probably relate to some of the fictional family’s struggles.
Founded in 1875, Wisdom Adhesives was run for the next four generations as an “old-fashioned” family business. They had a good product—they produced the adhesive material commonly used in packaging—but, like many family enterprises, their business was loosely organized and, at times, resistance to change.
The result was a business that grew stagnant and struggled to keep up with new innovations. By the time Jeff Wisdom, a fifth-generation family member, took a leadership role in the company, Wisdom Adhesives was running in the red.
Jeff wanted to turn his company around. He was business-savvy and energetic, and he was brimming with new, innovative ideas. But, as he invested himself in more and more roles within the company, he found that he had less and less time to focus on the big picture.
“When you’re in a business like ours, you kind of learn to do it all. You make the glue, you sell the glue, you manage the company.”
Jeff was facing many of the challenges we outlined above: He was performing too many roles, his business’ organization was informal to a fault, and he sometimes encountered resistance from older generations who were hesitant to change the family business.
Jeff knew where he wanted the business to go, but he was struggling to make it happen. When he brought in an outside perspective, things began to change.
How can an accounting firm help a family business succeed?
When running a family business, one of the biggest mistakes someone can make is to pretend that the emotion isn’t there.
A company’s leaders are, first and foremost, responsible to the business. But it’s unreasonable to expect a person to make decisions that may impact their family members and future generations with total objectivity. Even if a person somehow manages to remove their feelings from the decision, the fact that they made the decision may affect their relationships with their children, siblings and parents. It’s just not worth it.
Instead of trying to ignore the emotional baggage, we recommend bringing in a third-party expert, someone outside the family, to view the organization objectively and recommend decisions with the business as their first priority.
When Jeff came to Dugan & Lopatka, our team sat down with him and made a formal org chart of Wisdom Adhesives—a breakdown of hierarchies, roles and responsibilities. This may have been the first time this was done in the 140-year history of the business, and it gave Jeff a new perspective on the company.
As we completed the chart, we could see that Jeff was involved in too many aspects of the business. This wasn’t much of a surprise to Jeff—and it wasn’t a surprise to us, since we see this all the time with family-run businesses—but it was eye-opening to see just how thin he had spread himself.
Next, we worked with Jeff to identify the best places to delegate responsibility. Jeff and our team concluded that he would need to hire more employees for his business to grow. But he wasn’t sure if the company could afford it, so we began breaking down the business’ finances and helped Jeff understand exactly how money moved through Wisdom Adhesives. After taking a closer look at the cashflow, we determined that he could afford to hire the staff he needed, freeing Jeff to focus on the big picture.
“One thing that I learned is that I needed to stop working in my business and start working on my business,” Jeff said. “That was eye-opening.
“I sat down with Dugan & Lopatka, and we talked about accounts payable, accounts receivable—all this stuff that I would never know. And I just remember they made it very simple for me, so I could really understand it. I’ve always considered myself a sales and marketing person—that’s my passion. But after sitting down and learning the financial side, I love it.
“That would be my biggest advice to people in any business; know your numbers.”
Now that Jeff had brought in a third-party financial expert to help him make the right business decisions, he could put his innovative ideas into action. Over the next several years, with Dugan & Lopatka at his side, Jeff grew what was once an “old-fashioned” business into a successful, profitable industry leader. In 2017, he sold the company for $100 million.
Partner with a team of trusted experts.
For decades, Dugan & Lopatka has partnered with mid-sized family-owned businesses like Wisdom Adhesives. We bring the objectivity, financial expertise and business acumen to the table to help you truly understand your business and achieve your goals.
To learn how we can help both your family and your business succeed, contact our team today.