Family Businesses Learn to Adapt to Keep Thriving

Family Businesses Learn to Adapt to Keep Thriving

Niko Kallianiotis for The New York Times

Andrew Cornell, the chief executive of Cornell Iron Works in Mountaintop, Pa., believes that no job awaits anyone by virtue of family membership.

By ADRIANA GARDELLA
Published: April 4, 2012   

For family-owned businesses, the statistics are daunting. According to the Family Business Institute, only about 30 percent survive beyond the founder’s generation, and just 12 percent make it to a third.       

Quick Tips:

Hold family-member employees to the same standards as other employees.

Seek the help of outside advisers.

Suggested Resources:

The Family Business Institute.

A center dedicated to family businesses at the University of Cincinnati.

A family-business program at Babson.

A Forbes magazine list of the best family businesses..

You’re the Boss

Are the Owner’s Children Entitled to the Business?

 

In succession planning, there are many issues to consider: Is most of the owner’s estate tied up in the business? Is there a spouse to support after the owner’s death? Are there family members who have the desire or ability to run the business?

Related

For this small-business guide, we talked to the owners of several businesses that have beaten the odds. From those conversations, we identified a few traits that the survivors seem to share: a willingness to reinvent, a belief that family members are not entitled to employment, a focus on succession and an openness to seeking outside help.       

A WILLINGNESS TO REINVENT To endure, a family business must remain relevant. This can happen by chance if a company is fortunate enough to make a product that does not become obsolete. It can also happen by design, through continued reinvention. “If you do the same thing for more than five years in a row, you’re going to fall behind,” said Tom Flottman, chief executive of Flottman Company, a third-generation printing business that was founded in 1921 and has continued to expand into new markets.       

The company, which is based in Crestview Hills, Ky., and has about 50 employees, began as a commercial job shop. By 1968, in response to market demand, it had evolved into a full-color lithographer. In the 1970s, when the Food and Drug Administration started requiring pharmaceutical manufacturers to include additional printed leaflets with each unit package shipped to health care practitioners, the company developed a niche in the area, acquiring special equipment to handle the work.       

Today, this work makes up more than half of Flottman’s business. In the last 20 years, despite a shrinking market for printed products, the company’s annual sales have grown to $6 million. “To survive,” Mr. Flottman said, “we must be more than a company that puts ink on paper.”       

NO GUARANTEED EMPLOYMENT Cornell Iron Works, which is based in Mountaintop, Pa., and employs 600 workers, has been reinventing itself since it began as a blacksmithing business in 1828. Today, it makes specialty metal overhead doors for industrial, institutional and retail customers. Its chief executive, Andrew Cornell, joined the business in 1992. Since then, sales have increased about tenfold, to $130 million in 2011.       

Mr. Cornell attributes the company’s success, in part, to its approach to hiring and promoting family members. For 45 years, the company has followed a strict written policy: no job awaits anyone by virtue of family membership. Mr. Cornell, the only family member working in the business, said even one unqualified family member can wreak havoc. “A family business can’t be a home for wayward family members,” he said. “We’re building a business for the good of employees and shareholders.”       

Maintaining rigorous standards for family involvement is also important at W.S. Darley & Company. Based in Itasca, Ill., and founded in 1908, Darley began as a maker of municipal firefighting equipment, including fire trucks. The company has about 215 employees, including 10 third- and fourth-generation family members.       

Operations are overseen by an executive committee made up of Paul Darley, chief executive; his brother, Peter, and their cousin, Jeff Darley, both executive vice presidents and co-chief operating officers; and another cousin, James Long, an executive vice president.       

The company’s family-participation plan provides that, while family members are encouraged to consider working in the business, the position must be mutually beneficial. It states that the business owes no obligation to any family member and no family member is obligated to work in the business.       

Those who do are paid the market rate for their jobs and are subject to the same hiring, performance and termination rules that apply to other employees. Ideally, family members are supervised by nonfamily members. And, as at Flottman and Cornell, family members are encouraged to work outside the company first.       

All of this, Paul Darley said, has helped the company thrive. As fires have become less common, the company has evolved into a provider of equipment for first responders, including paramedics and the military. Despite a tough market, annual sales, which were $52 million in 2005, have increased to $112 million in 2011.       

SUCCESSION PLANNING When family is involved, crucial decisions regarding succession can become especially charged. Some family businesses strive to alleviate the potential for hard feelings by placing the responsibility for choosing new leadership in the hands of qualified members of the next generation. The fathers of both Tom Flottman and Paul Darley took this approach as they prepared to step down.       

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