Keys to successful multi generational family enterprises

April 16, 2012
| By Ellie Frey |
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As the next generation of my family’s enterprise, the Frey Foundation, I have been training to be a trustee for more than 20 years. This year, I joined two of my cousins on the board.

It’s an honor serving with my father and uncles, in a “family foundation committed to working together to make a difference in the lives of individuals, families, organizations, and communities,” and with a group that values “encouraging creativity while expecting excellence and accountability in ourselves and others.” My grandparents left an incredible legacy, a legacy I have been in training to understand, but didn’t fully comprehend until I started working with other multi-generational family enterprises.

As director of the Family Business Alliance, I have had the privilege of meeting hundreds of West Michigan family business owners and next-generation family members. Through my conversations, I have learned a great deal about family enterprise and my own role as the next generation. A few of the things I have learned:

Have you hugged a family business owner today?

Grand Rapids is what it is today because of the incredible power and generosity of the family business community. We have good options for our kids’ education. In fact, Forbes Magazine has just named Grand Rapids one of the best places in the nation to raise a family. We live in a community that can host world-class events like LaughFest and ArtPrize, not to mention the many conventions and conferences that take place each week.

To paint a picture, there are 5.5 million family-owned businesses in the U.S. They comprise 57 percent of the gross domestic product and employ 63 percent of the U.S. work force. In fact, 75 percent of all new net jobs are created by family-owned businesses. Family businesses give back to the community, and in one study (family enterpriseusa.org), 95 percent of the family business respondents said they gave philanthropically.

Accordingly to a study by GVSU, 88.8 percent of West Michigan businesses identify themselves as family owned. Looking around West Michigan, it doesn’t take much to see the impact of our family business community.

Preparation is the key to success

There are highly used statistics concerning the rate at which family businesses successfully transition to the next generation: 33 percent make it to the second generation, 12 percent make it to the third generation, and only 3 percent make it to the fourth generation and beyond.

Why not start to prepare for succession now? To paraphrase a mentor: “To know one family business is … to know one family business.” There are similarities and parallels between companies and situations, but the people involved are unique.

Begin to get educated on best practices and lessons learned by attending events, meeting with other family business owners you know, asking the questions that keep you up at night, talking to your trusted advisors, joining a peer group, and going online to read the myriad of family business articles. Then, apply what you have learned to your own situation.

I found that preparation takes time and commitment. To learn about family philanthropy, I attended conferences, went on community site visits, sat in on countless board meetings, questioned anyone who would answer my phone calls, interviewed the next generation of family philanthropy, learned from peers and kept at it year after year.

Who’s on first? It’s all about communication

Does your family communication look like something out of an Abbott and Costello skit? Communication is a struggle for many families, and the worst kind of miscommunication is no communication.

Family meetings and on-going communication are essential to the survival of a family business. It’s my theory that one of the main reasons family businesses don’t successfully transition to the next generation is due to a lack of effective communication. Give your family ample time and space to think, ask questions, make mistakes, feel, plan and prepare. By doing so, you give them the chance to succeed.

In my family, I have to ask questions over and over and in many different ways. I have had to take the lead and not wait for my parents to initiate important conversations. This has allowed me to process information and begin to plan on my own timeline.

The next generation and leadership development

Data assembled from a decade of research by the Family Enterprise Leadership System found that members of the next generation did not receive adequate feedback regarding their performance or a constructive model on how to proceed along a career path.

Eight years ago, I entered this community and instantly felt much was expected of me. I was expected to lead but lacked the training (and, at times, the confidence that comes with experience) to be effective. I was asked to sit on boards, present to the media, start organizations, serve on committees and raise money for nonprofits I supported, all at the “wise” age of 28, without any training in board work, public speaking, media presentations or fundraising. It so happens I learn well by trial under fire, but I could have used some mentorship along the way.

Since then, I have been proactive about my own leadership development. I have gotten the public speaking and media training, taken every personal assessment I could get my hands on, and am currently in a leadership development program called Leadership Advantage. I have learned much about my authentic leadership style and am grateful that my board of directors has allowed me the time to pursue this.

So much is expected from the next generation of family enterprises. As parents, advisors and mentors, allow them opportunities to learn about themselves and how to be the leader they need to be.

Unbiased trusted outsiders can help limit family drama

In Mike Cohen’s article “The Jigsaw Puzzle of Succession Planning,” he suggests: “Limit the drama of succession by involving your board.”

If you don’t have a good, independent board, then how about engaging a group of unbiased trusted advisors?

On the Frey Foundation’s investment committee, we have a great group of invaluable non-family committee members working side by side with the trustees. Over the years, their expertise has allowed the foundation to weather many economic ups and downs.

Author Jim Collins advises that, in order to have a great company, “get the right people on the bus and the wrong people off.” A favorite expression, slightly expanded upon, is: Surround yourself with people smarter than you, even (or especially) if they are outside the family.

Family businesses are a critical component to this community, but like everything, they take work. Start preparing today, communicate often, ask questions, use a group of outside advisors as a sounding board, and help your next generation obtain whatever tools they need to succeed in their career. 

Ellie Frey is the director of the Family Business Alliance (www.fbagr.org) and next-generation trustee of the Frey Foundation (www.freyfdn.org).

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