Business Monday

Three-generation family businesses share their secrets of success

 

Family businesses are everywhere in South Florida. But the ones that make it to the third generation have commonalities: the ability to stay relevant, think bigger and take a long-term view. Here is a look at some of those businesses.

Facts about family business

•  Family businesses comprise 90 percent of all business enterprises in North America, and 62% of total U.S. employment.

•  Only 30% of family businesses in America will be passing the reins to the next generation, even though close to 70% would like to keep their business in the family.

•  By the third generation, only 12% of family businesses in the U.S. are typically still viable. By the fourth generation and beyond, only 3% of family businesses continue to exist.

•  The environment for innovation in family businesses improves when more generations of the owning family are actively involved in the business.

•  The oldest family owned business operating in the United States is the Zildjian Cymbal Co. of Norwood, MA founded in 1623 in Constantinople and moved with the family to the United States in 1929.

•  Return on investment is greater in family businesses, averaging a 6.65% greater return than non-family firms.

•  The average life span of a family-owned business is 24 years.

•  More family owned businesses are finding leadership from outside the family. Between 10% and 15% of U.S. family firms are now managed by non-family executives.

•  Emergency planning is vital. In nearly half (47.7 %) of all family-owned business collapses, the failure of the business was precipitated by the founder’s death, or in 29.8% of the cases, the owner’s unexpected death. Only in relatively few instances (16.4 %), did the business failure follow an orderly transition, and in situations where the owner was forced to retire, the figure drops to 6.1%.

SOURCES: Small Business Administration, Peakfamilybusiness.com, Family Business Review, Family Business Magazine, ffi.org, familybusinesscenter.com, Barclays Wealth and The Economist Intelligence Unit, University of Connecticut Family Business Program


cindykgoodman@gmail.com

In 2009, when Larry Zinn took over as sales manager for the Infiniti dealership that his father owned, he had a great idea: retrain the sales staff in a team approach and offer customers complimentary add-on services for the first year.

Some salesmen who were used to selling the same way for decades up and quit. But that didn’t deter Larry from insisting a new sales culture and value proposition for new car buyers was necessary. “I was persistent with everything I’ve believed we needed to do going forward. People were going to embrace change or move on,” says Larry, 28.

The resistance quieted, however, after Larry recruited young salespeople and had them trained in the new advantage program. The new approach helped push sales volume up 72 percent. "We had a lot of success with it,” he says.

Larry Zinn’s experience is not unusual for family-owned businesses that survive into a third generation and employ new tactics to keep from becoming obsolete.

Nationally, family-run businesses account for nearly 35 percent of the largest companies including Ford, Koch Industries, Hilton, Wal-Mart, Loews and Ikea. In South Florida, family-run businesses are particularly prevalent and account for a majority of the largest Hispanic companies, including Goya, Bacardi, El Dorado and Sedano’s Supermarkets.

But while more than 30 percent of all U.S. family-owned businesses survive into the second generation, only about 12 percent are passed onto the third generation, according to Family Firm Institute, a Boston-based association for family enterprise professionals. Those that do survive have a few intriguing commonalities: an ability to stay relevant, think bigger and take a long term view.

“They try to figure out where they want to be in 10 years and take steps to make that target,” says Wayne Rivers, president of The Family Business Institute in Raleigh, N.C.

Most third-generation family businesses, particularly those in South Florida, were started by a scrappy entrepreneur who saw business ownership as a way to provide for the family. Those businesses include grocery chains such as Sedano’s, restaurant operators such as Las Vegas Cuban Cuisine and airport concessionaires such as NewsLink.

Typically, in those businesses, the founder brought his kids with him to work, put them in the kitchen, the stock room, the sales floor, and taught them on-the-spot business lessons. Those kids eventually came to work full time and helped the company evolve beyond a seat-of-the-pants start-up into a more sophisticated business with processes and systems.

Now comes the third generation, who are more likely to have received formal business education before they return to the company. Often, they are able to leverage that training and move the company forward dramatically. But the succession also comes with challenges. They must keep the respect of longtime employees and show the same dogged commitment to seeing their company succeed, even after having already grown up enjoying the fruits of its success.

In successful third-generation businesses, the senior generation often stays on to ensure that commitment, adopting a role as mentor or advisor while creating an environment where younger family members can take on real responsibility, says Rivers, who consults for family businesses. “They get out of the way, let the next generation make their own mistakes, and gracefully exit when it’s appropriate.”

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