Families, by nature, like to avoid conflict within their own ranks. Whether it's out of respect for one's elders or deference to older, wiser generations, confrontations are rare, although animated when they do take place. Whatever the case, problems are seldom solved through intergenerational communication.
Successful businesses, on the other hand, are adept at resolving conflict as personal feelings of employees and management usually take a back seat to the solutions companies need to boost productivity.
Family businesses, unfortunately, are caught between these two dynamics. Closely held businesses usually have an avoidance system set up by the older generation that's designed to resolve issues but avoid the conflict. Resolution, however, is hardly unanimous. The irony of this avoidance system is that while the older generations may pass on a successful pool business to their kids without a second thought, choosing the path of least resistance may only set up the succeeding generation for failure.
"JUST LEAVE IT ALONE"
A business is something of an offspring to its founder. The owner wants to see it live, breathe and prosper. Through building that business, the founder took risks — discovered the edges, if you will — and determined how far he or she needed to go to make the business better.
The responsibility of the owner is to maintain that edge until the next generation comes in. Suddenly, the parent becomes more conservative about running a business that is both a monument to a life's work as well as a retirement plan. The new owners, however, see growth and opportunity.
The kids that have been groomed (hopefully) to take over the business have a greater risk tolerance and are willing to accept business failures much the way the founder accepted them decades prior. Unfortunately, the two ownership groups are in entirely different financial situations. The older generation is looking to cash out for maximum dollars on their way to a cabin on the lake while the younger generation sees a cash cow that needs to be leveraged a bit before it truly hits its stride.
So what happens? The parent gets nervous. I've heard three or four dad/owners recently make a statement like this to their kids: "Just leave the business alone. Everything's set up. Don't reinvent the wheel. Just take care of the business I built for you." It's as if the owner has created a contingency plan for everything. If a crisis occurs during transition, the parent/owner will probably try to solve the problem alone. The successor isn't allowed to solve the problem — or maybe more importantly, learn from failure.
This shielding may prevent the successor from finding the edge when the parent is completely gone. He or she may not think about the best way to grow or build interest beyond being an active stockholder. In the long run, the business suffers from stagnation. As a result, there may not be a business left for a third generation because it's either been swallowed by a competitor or it's lost market share completely.
FUTURE PLANS
The business can grow while taking care of the outgoing owners. It just requires some foresight, which includes communication.
One solution is that the exiting owner and the successors create a buyout structure well before the elder retires. In this scenario, the exiting owner can receive an income stream from his portion of the company over a fixed time period. This will lessen the hit to the business of cashing out completely upon actual retirement.
Another solution would be to diversify the business. Instead of just selling pools, the ownership team — exiting and succeeding together — could expand the product line, create a service department, open more stores and hire more sales reps. That way, when the owners put their profits back into the business, there are more revenue streams to protect the owners from market drops in some sectors. The company can become an acquirer instead of the acquired.
In the end, all owners have to consider everyone's financial objectives without exposing one family member to undue risk. The more the senior owner can ease the financial burden on him or herself and on the company before retirement, the more the younger generation can grow into the business and maintain the family legacy.
"WE TALKED ABOUT THAT"
It's a famous line that blurs the distinction between discussion and resolution, especially in the eyes of the dominant owner. This type of avoidance is almost worse than refusing to discuss anything at all because the older owner may subconsciously be employing it to escape from a potentially uncomfortable conflict.
Determining compensation among owners is a classic case of avoiding conflict. Two brothers start a business and share the workload. Both agree that because they're the only two employees, they will get paid the same amount. Over time, one of the family members dials down his efforts, thus creating an imbalance in pay. Now, one brother brings in his son as an owner. The company is growing; it has more employees but the one brother isn't pulling his weight like he used to, although his pay is equal to his two other partners. The son complains that the uncle is putting in less work but gets equal pay. The father listens but chooses to do nothing out of respect for his brother — but he doesn't communicate his judgment to his son. When the son confronts him again, the father dismisses him saying, "We talked about that. I took care of it." According to the father, conflict resolution means allowing his son to register a complaint. But that couldn't be farther from the truth in the eyes of the son.
The solution to this type of conflict avoidance is what I call "creative abrasion." It puts both parties (parents and children) on equal footing when discussing important issues. Creative abrasion creates a sandpaper effect to smooth out problems and generate better ideas using conflict in a positive sense. This type of brainstorming challenges ideas, not individuals.
In more traditional discussions, a son or daughter will come to the mother saying, "What do you think of my idea." The problem is that the parent in her wants the idea to work but the owner in her needs to analyze the idea objectively. The child, by virtue of framing the question, is looking for approval. Instead of asking for approval for my idea, ask for opinions on this idea. By employing creative abrasion, the parent doesn't have to struggle between validating her child and offering criticism to a business partner.
Both parties have to be willing to participate in this, however. The older owner can really supply wisdom that complements the fresh ideas of the younger owner.
So how does one convince older owners to buy into creative abrasion.
Allow them time to digest ideas. It's not unusual for senior-age owners to initially reject progressive thinking before actually processing the implications, especially when money is on the line. Besides, their successors might not have developed a knack for great business ideas or may simply present them poorly. But the day will come when a kid comes up with a brilliant idea and the parent simply has to mull it over to make sure it's, well, brilliant.
By temporarily stripping away the child from the idea and bouncing the idea off trusted friends or advisors, the parent may find that all the hard work has finally paid off and it's time to truly hand over the key, and the trust that goes with it.
Next month, we'll take a look at how several hot tub and pool family businesses resolve conflicts.
