The first article of a fourpart series examines why selling the family business can be a good thing. Some families, known as 'serial business families', achieve a positive outcome from the sale by reinventing themselves and starting a new business together
For many families, selling the family business is a traumatic experience, the details of which few wish to share. However, like most things in life, this does not apply to everyone. In fact,there are quite a few families who are not only happy about the sale of the family businesses but also are back in business together. These serial business families share several of the same characteristics that make them so inspirational to others in this field.
Recent research indicates that serial family businesses share several common characteristics. The owners of serial family businesses tend to have a long-term focus and business strategy. In fact, the new business is often created around the needs of the next generation; families do not necessarily look for immediate high profits but prefer to build a successful business that will be profitable in the next generation. The owners also tend to either re-create another family business in the same sector as their original business or, when circumstances do not allow that,stay as close as possible to the original sector and to their professional expertise (do what you know). A significant number of owners even buy back their original businesses.
The family members enjoy hands-on roles and have executive roles in both the original and new business. Even after the business is sold,the family members tend to manage the sold business under the new owner for a relatively long period of time. However, the number of owners tends to decrease with the re-creation of another business, though the percentage of family ownership increases.
Serial business families follow a threestage process. Stage one encompasses the sale of the original business; stage two covers the period between sale of the original business and start-up of the new business, lasting on average five or six years; and stage three commences with the re-creation of the new family business.
Reasons for selling
If business seems to 'be in the blood',why do theses families sell their businesses in the first place? The answer is simply, 'for business reasons'. Serial family business owners seem incredibly adept at analysing the environment and understanding that the way to solve the business problem is to sell the business. This is at odds with the normal family business world where families tend to have difficulties in accepting that they cannot strategically revitalise their business; they cannot face 'the shame' of having to sell the business; or they cannot accept the change(s) that selling the business would make to their lives.
However, that is not to say that serial business families are perfect. In fact, they often sell the original business for reasons involving family difficulties. A deteriorating family situation can make life – at home and at work – very difficult. Interaction between the family and the business and/or the ownership becomes problematic. While this can ultimately result in failure of the business, serial business families see the problems for what they are and sell the business before it suffers too much from family circumstances.
Family, business, ownership and governance
The structure and history of family, business and ownership, along with governance in the original business, has an impact on the business and governance structure at the re-creation stage. Research indicates that whenever family, business, ownership or governance was a success, their structure was maintained in stage three (re-creation of the business). In terms of business success, when the original business was a success,the success was subsequently maintained in terms of industry sector and business size. In terms of family success,when the family composition was successful, the same family members were involved in the new business unless they retired or voluntarily exited during the re-creation process. However,whenever family,business,ownership or governance was a failure (for instance, becoming difficult to manage in stage one), that structure was changed in the subsequent venture. Thus,the families were aware that problems could and did exist and needed to remedy them to achieve the desired results.
Business and governance structures
Based on the foregoing, it is easy to see that serial business families have learned how to work together and to fix the problems that occur in the family,business and ownership systems. Serial business families also learned to put in place rules where there were no rules in the original business and they also put efficient governance tools in place. Such tools include having a mixed board of directors,family council or regular family meetings. They often hire excellent non-family managers, with whom they work and trust. These nonfamily executives are often given the highest positions when they are the best people to fill that position.
So, why do families decide to enter business together again? The reasons vary,but the main motivations behind re-creating a family business are family and business opportunity. Specifically, it is so that the family can do something meaningful together; to provide work opportunities for the next generation; or to take advantage of a unique opportunity. Sometimes they buy-back the original business, for example when the new owner has a problem making the business profitable,when the new owner wants to divest himself of the business,or when the new owner cannot run the business and the business is declining. Furthermore, there often is no desire to retire and family members still want to fulfil a need for independence.
These motivations are different from those that shaped the original family business. The original family business was created for the sake of the business: a business opportunity existed, the founder seized it and developed it,and later turned it into a family business. However, when a family business is re-created, it is often for the sake of the family. Hence, the business is started with both the family and business in mind. As a result,serial business families tend to make a clearer distinction between family,business and ownership,setting out the appropriate rules and governance tools in the early days of their re-created business.
While there is no guarantee of success in any business,serial business families often tend to experience success the second time around more often than not. As alluded to above, this is due to experience as well as being able to distinguish between family, business and ownership. Thus, they know the pitfalls to avoid as they have already experienced them or remedied them.
However, in order to re-create a family business the family members need to trust and respect each other – even though most of the family members would have been well enough off financially after the sale of the original business to spend the rest of their lives at leisure. Together with love and freedom,trust and respect are the key reasons why families are successful in business.
Additionally, serial business family members enjoy working together and have fun doing so. This certainly helps in achieving success. The family members also want to perpetuate family values and the family culture. A common value among them is that of humility: they are able to acknowledge mistakes and are able to learn from them. Again,this is a key element in achieving success in business.
Nothing in common
If serial business families are so successful on the whole, their backgrounds surely must all be alike. This,however,is far from true. Examples of serial business families have been found in small, medium and large business – in any industry sector – and in many different countries and continents.
There is no common thread in serial business family histories in terms of reasons that often lead family businesses to be sold,such as divorce,lack of interest by the next generation or lack of successors.
Furthermore, there is no evidence of restrictive similarities, such as re-creation only by very rich families, highly educated families or by families with an international business. This is actually very encouraging, in that it confirms that each family business is unique. Therefore,re-creation of all types of family businesses is possible and appears to depend on the ability of family members to trust and work well together.
The fresh motivation and strong commitment of serial business families, combined with renewed entrepreneurial spirit, could well be an inspiration for families who feel that, after generations in business, their commitment and entrepreneurial drive have been eroded. Rather than act as an indication that it is time to sell the business, this motivation and commitment could serve as a model for examining why the family is in business and why they are in it together.