Beating the Family Business Odds

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Wayne Rivers: Hi, everyone. This is Wayne Rivers at Performance Construction Advisors, where We Build Better Contractors.

This week, I want to talk about beating the family business odds. So, obviously, back in the day, we were the Family Business Institute and more focused on family businesses perhaps than we are now. 50%, roughly speaking, of our members continue to be family businesses. 50% obviously are not. Interestingly, about 11% of our members now are ESOP companies, which is kind of, I guess, a building trend you might say. But in terms of family businesses, they do have some unique challenges. So, in the chief executive briefing about, which I talk all the time, May 13 this year by author C.J. Prince, came up with five tips for beating the family business odds. And these tips came from real live family business executives that have consistently beaten the odds over generation after generation.

So, the first thing he started his article with were the family business failure statistics, which we debunked in 2021 in another vlog. I can't believe it's been that long ago. It feels like it was yesterday. But those statistics are probably not as valid, even though they're recited time after time, after time. They've even been attributed to us, which is incorrect, but they're definitely out there. And there's been no further research. It would be hard to undertake and expensive, too. There's been no further research that gives you the real picture of family business succession. However, these five tips do have some validity, I think. He says that $83 trillion of wealth, of generational wealth will be transferring over the next 20 years. 83 trillion. That is trillion with a T. That's a big number.

And so, that implies that we in our generation should probably be thinking about stewardship as it relates to that much generational wealth, moving from point A to point B. The first tip, don't assume that your next generation, your family will take over the family business or that they should take over the family business. There's pressure from both ends. I've seen it for 36 or 37 years now. The senior generation may put pressure on the next generation to feel like they ought to come into the family business like it's a debt somehow that they owe. And there's also pressure from that successor generation, because that family legacy does weigh upon them. So, there's pressure on both sides to come into the business.

And some people may come in for the wrong reasons, because they're supposed to or they should, rather than they have a passion for the business. And obviously, people who are passionate about the business and its future are the ones you want. The ones that are there because they feel like they should be or they've been pressured to be, maybe not so much. The successor generation has got to be passionate about the company. They've got to want it. And just as important, they've got to be capable of running the business. Number two, require outside experience first. I've had this debate dozens of times over the years. And some people are like, "No, come into the family business right away. You're going to learn more here than you're going to learn anywhere else." And that may be true. Parts of it may be true, but I think it short-changes that successor generation.

Why? Well, there's a great deal of pressure on that successor generation from all kinds of employees, trade partners, advisors. And if they go to work for XYZ Construction and they do well, they get a promotion, they gain confidence, all those things are good. And then when they come back into the family enterprise after three or five years, everybody looks at them differently. "Oh, well, he or she worked at XYZ Construction. It did really well." Now you come in with some skills and some background. And maybe you just jump right into estimating or whatever. And you've already got a niche ready-made in the family company. So, outside experience to me is non-negotiable. I think it should happen in every instance.

The third thing, plan ahead. So, the Anheuser-Busch family obviously had many successes over many generations in St. Louis and around the world. And Billy Bush from that family said that you really have to plan ahead. And if you don't, and actually let me read you what Billy Bush had to say about that. "You have to have a succession plan, and it has to be very black and white," he warns. "If not, there's a lot of room for squabbles. And the only people who make it well when that happens are the lawyers." He's right. He's right. The succession plan should have timelines, it should have mileposts, it should have requirements for the senior generation and the successor generation.

And then the other piece of it, I think a practical piece is let's say that the departing executive is let's say a 65-year-old, roughly my age, and then the successors are 35 or 40 or something like that. Irrespective of how talented that successor generation is, there's still a 25 to 30-year experience gap. So, even though my successor may be infinitely more talented and capable than me, there's still that huge experience gulf, and so you may want to think about a transition buffer. So, instead of just handing it from the senior generation to the junior, maybe there's a middle way where you bring in an executive or two or three to help mentor the successors, and to help buffer relations between the senior and junior generations.

The fourth thing is clearly define roles, responsibility, and accountability. I can tell you, over the years, it doesn't matter if your construction company has six zeros after it or eight zeros after it in terms of your volume, roles, responsibilities, and accountability come up in almost every single family business consultation that we do. Clarity is good. And the absence of clarity creates confusion, potentially dissension. It's not a good thing. Also, you have to be clear on decision-making authority. If I get a promotion and now I'm the division manager for this part of the enterprise, what actually does that mean? Can I hire and fire people? What if I have to fire someone that the senior generation is quite fond of? Is my authority clearly established? Am I going to be undercut somehow or undermined by others in the organization?

Those things need to be really clear. And I remember a client, years and years ago, had a great, great saying. And he said, "I'm at a point now where my dad lets me run 75% of the business. It's just that on any given day when he walks through the door, I don't know what 25% he's going to run." I mean, that really summed it up. He wasn't belly-aching about it. That was simply the fact that he had to live with every day. So, in that case, obviously his decision-making authority wasn't crystal clear, nor were the roles, responsibilities, and accountabilities.

And the fifth tip, leadership must be earned. I see people in the press and they say, "Oh, you've got to demand respect and all that." Respect, leadership, all those things is earned. And you can earn it every day for five years or 10 years and then blow it in one day of irresponsible behavior. So, it doesn't just have to be earned once. It has to be earned every single day in the workplace. How do you know if a leader is earning his way or her way? Well, followers. The followers should be able to give you some insight in that. One of the underutilized tools, I think, in family businesses as well as any private business for that matter, is the 360 degree evaluation. These confidential surveys, you might say, of how people actually view their managers, their peers, et cetera, et cetera, in the organization.

I also would say that training and development, they didn't mention this in the article, but training and development for that successor generation is critical. And that reminds me, of course, of Boot Camp. So, the 2026 Boot Camp calendar is out. Next year, we'll be in Dallas, Charlotte, and Salt Lake City. So, two new venues for us next year. Contact Charlotte and she'll get you more information about our Boot Camp.

This is Wayne Rivers at Performance Construction Advisors, where We Build Better Contractors.

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