Dear Advisor:

I took over a small manufacturing business from my father-in-law approximately three years ago. He built the company over many years and developed a group of loyal customers, many of them now his personal friends. I recently found out that our product is priced well below the products of our competition. My wife and I, as well as our four employees, don’t have much in the way of benefits such as good health insurance, and I think we need to increase our prices to help generate money for benefits and keep us competitive. My wife’s father, who is still chairman of the board, doesn’t want to institute price increases that would be passed on to his longtime friends. I feel I am caught between wanting to provide more income for my family and employees and starting a war, with my wife in the middle. I hope you have a great idea.      

Life in the family business can be so complex! Simultaneously maintaining the health of the business and the family is a monumental task. As a family business advisor, I have heard countless clients confess that they know what they ought to do, but they just can’t make it happen because of the dynamics of egos, emotions and/or fear of cracking eggshells. To navigate these waters, whenever a tough issue comes up, I always advise my clients to simply utter this magic question: “If it wasn’t family, would you know what to do?” In every case, the client always knows the right answer. My job is to give the family the tools and confidence to make the necessary changes in order to improve communication and professionalize their family business. And, most important, I remind them that this is a process that requires patience; perseverance; and, most of all, constant adjustments.

The core issue of your situation is that your role as the family member who “took over the business” and your father-in-law’s role as chairman of the board, are not defined and therefore not clear. Obviously, the two of you have different assumptions about what “took over the business” means. It sounds as if your father-in-law views you as the manager, while he still retains the role of president and chairman, and you believe you are the president. Pay no attention to what is printed on your business card; in family businesses, titles often come cheap, since, in most cases, careful organizational design is lacking.

You are in the midst of the problem, common for first-generation to second-generation transfers of a family business, known as “founderitis,” meaning the founder has a tough time letting go of his role as the decision maker. And frankly, who can blame a founder of a successful family business, as it is often the case that the founder’s entire identity and life has been dedicated to his business? Don’t confuse the absence of his physical presence in the business with his emotional presence as founder. That will continue forever. Unless his role is articulated as a real chairman and yours as president, you will continue to have conflict.

Further complicating your situation is the fact that most small family businesses like yours lack the discipline and structure to separately address ownership issues (strategic decisions), management issues (day-to-day decision making) and family issues (health of the family). These businesses tend to mix all these elements together and make decisions that are ruled by ambiguity. Right now you have no effective way to communicate with your father-in-law about your concerns about rising costs, improved benefits and increasing profitability, because you lack a proper discussion forum as business partners.

My other concern is that, like your father-in-law, your key customers are probably aging and will begin to exercise their own exit strategies, by choice or not. It is possible that your customer base could go away in a flash, so there won’t be much of a company to deal with in the end. Succession is a concern not just for your family business, but you need to think about what might also happen to your suppliers, vendors and customers if changes in leadership don’t go as planned. It is imperative that you begin to develop new customers on your own in order to diversify your customer base, as the old 80/20 rule is a reality for many businesses.

Where to start?
I would suggest that you begin to unravel this puzzle by taking the following steps to improve communication and decision making:

  • First, collect all the responsibilities that each of you maintain and form a bulleted list of these items; then sit down with your father-in-law and decide who will take responsibility for each bullet item. Conduct this meeting off-site, and get him to agree that you will meet each year to make adjustments to each of your lists.
  • Schedule a regular meeting (weekly or monthly) with your father-in-law to discuss business issues. Develop some basic ground rules that allow you to discuss sensitive issues, such as increasing prices — which will obviously affect old customers — with no interruptions. Once again, this meeting should occur on a neutral site and become a routine for each of you.
  • Begin to build your own customer base, where you hold the key relationship. At the same time, have your father-in-law agree to work with you in developing a stronger business relationship with the existing customers (his old buddies); if they have next generation members coming into the business, you should build a relationship with that next generation.

This simple list should get you started at better defining what “took over the business” means and help establish better communication between the two of you. Do remember the old proverb that “Rome wasn’t built in a day.” Changing behavior is a long process, and these small steps will help you get started so that you don’t become a statistic as one of the 70 percent of family businesses that fail to make the transfer from the founder to the second generation.