By: Brad Nakase, Attorney
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Johnny owns Big Louis’ Deli, an old-fashioned Italian delicatessen specializing in flavorful meats and cheeses like you would find in Bologna and Parma – the old country! His father, Big Louis, started the business in 1946, and it quickly became a favorite lunchtime spot in Torrance. Following in the steps of his father, Johnny has worked at the deli since he was eighteen. Now, forty years later, he wants to pass on the business to his son, Vito. But Johnny is worried. His son is nineteen and young, more interested in girls than prosciutto. What if he doesn’t successfully manage the business and it fails? It’s a lot of responsibility to pass on. Johnny doesn’t want to spoil his father’s legacy. He begins to research how to manage a family-owned business so that he gets it right.
When many of us imagine a family-owned business, we might think of the local mom-and-pop store around the corner that sells sandwiches or hardware. But believe it or not, some of the most famous and biggest companies in the world are family-owned businesses: Walmart, Tyson, Ford. Those household names with stores across the country and the world started with one family. But not all family-run businesses can be this successful. In fact, according to the Conway Center for Family Business, only 30% of family businesses make it into a second generation, an even fewer 12% endure into a third generation, and a tiny 3% last into a fourth generation.
So, for folks like Johnny with his Italian deli, the matter of building and managing a family business is not easy. What’s the secret behind the success of that 12% — even that 3% — of family businesses that stand the test of time? Let’s look at some tips for managing a family business and making sure it is strong enough to last through the generations.
Families may not always get along. Different personalities and communication styles can create tension or arguments, and some family members may never see eye-to-eye. To manage a successful family business, open, healthy communication is a necessity. Communicating with honesty on a regular basis is the only way to make sure everyone is on the same page. It is also a foundation for trust. Any time there is a problem with communication, it should be handled immediately. If the problem is too big for the family to solve on its own, a therapist or mediator may be able to help.
Example: Johnny and his father Louis always had a great relationship and were good communicators. Any time Johnny had a problem, he knew he could go to Louis for help. Similarly, any time Louis thought his son was being a moron, he could tell him, and Johnny would do better. Unfortunately for Johnny, he and his son Vito don’t always get along. Johnny, however, knows how important healthy communication is for managing a business, so he schedules a family therapy session for himself and Vito. At the end of it, he and Vito have effective communication strategies to use when a conflict arises.
A family business that wants to stand the test of time must be willing to change with the times. Longevity is dependent upon adaptation. If a business resists new technology or a changing culture and society, then it will fail to appeal to succeeding generations of employees and customers. To be competitive with new, cutting-edge businesses, old family businesses must keep up with the times or be left behind.
Example: Big Louis’ Deli was founded in 1946, and when Johnny took over his father’s business, he had to modernize in order to keep up with the times. He created a website for Big Louis’ and made a membership newsletter. Similarly, Johnny’s son Vito has plans to take the business into the 21st century. He wants to make the business available through DoorDash and UberEats, as well as give it a social media presence. He creates videos on TikTok, runs a Facebook page and Twitter account, and even does Ask-Me-Anything posts on Reddit. Johnny doesn’t understand a lot of the new technology, but he knows that Vito’s expertise will help the family business connect with a new generation, critical to survival.
While family businesses are built by family relationships, it is crucial that families set boundaries to achieve success. There must be a clear division between family and business matters. This means that any issues that arise in family life stay out of the boardroom and any work issues stay out of the home. This is critical in maintaining healthy family relationships and keeping a business drama-free.
Example: Johnny and Vito don’t always get along. One day, Vito crashes his dad’s fancy red Mustang, and Johnny bans his son from driving it. He and his son fight all night, and Vito ends up leaving to spend a few days with his girlfriend. But the next day, Vito still shows up to work at the deli. While working, he and his dad try their best to get along for the good of the business. It would not look good to be fighting in front of customers.
Sometimes, a family simply can’t do it all. Good management means that when necessary, a family will hire outside leaders. A professional, advisory, or supervisory board can provide oversight and give an outside, unbiased perspective.
Example: Johnny is humble. He knows that to run his business well, he will need help from professionals. As he would like to one day expand his business, he recruits an advisory board to assist him in doing this. The outside advisors, who have a stake in the business, help him make smart business decisions so that his expansion will come about sooner and be more likely to succeed.
When it comes to leadership and staff positions, it is good practice to hire from the outside. While family members can put love into a business, they might not always be able to provide expertise in certain matters. By hiring talent from the outside, business success is more likely.
Example: Johnny wants to make sure that every position at his deli is filled by people great at their specific craft. He hires a master butcher who knows how to get the best cuts of meat, a cook who was trained at a top Texas steakhouse, and an IT guy who definitely knows his stuff when it comes to managing websites and databases. Johnny knows that he can’t do everything, and neither can Vito. By hiring these experts, he is able to focus on managing the business, and Vito can focus on managing the register, handling social media, and learning from his pops.
Part of the charm of family-owned businesses is that customers and staff are treated like family. That closeness is also responsible for success. Employees that are treated well are more likely to love their work and show more loyalty to the company. Similarly, customers that feel welcome at a business are more likely to return. Especially with family-owned businesses, customers that feel a part of the family, and feel like they’re at home, will show loyalty to the business through thick and thin. This is important when there are economic downturns, and the business must rely on the community to stay alive.
Example: Just like his dad Louis, Johnny treats customers like they are part of the family. Whenever someone comes in, be they local or tourist, Johnny greets them with a smile and a loud “Buongiorno!” The staff is always friendly and chat with the locals, knowing their names and family members. On Sundays, kids get free milkshakes, and Johnny treats the local little league team to free pastrami sandwiches on game days. When there is a recession, the local community rallies around Big Louis’ Deli and makes sure to provide business so that the deli makes it through the economic downturn.
A family-owned business should be managed with love and passion. A good manager shouldn’t pressure or guilt family members into working for the family business. If a relative is allowed to come to the company on their own, he or she will be happier, and happier employees create a better business.
Example: Johnny’s other son, Milo, has no passion whatsoever for the deli. His dream is to work with old cars, like his dad’s Mustang. Johnny understands this. He doesn’t force Milo to work at the Deli, and instead gets him an internship at a local garage to learn the car business. He tells Milo that if he ever changes his mind, the door is always open for him to work at Big Louis’.
Successful family-owned businesses always think about the future. Succession plans are important, since the future success of the business relies on talented and passionate younger relatives. It is also important that the family identify and invest in talented and passionate employees, even those outside the family, because these individuals might create excellent leadership one day.
Example: Johnny has decided that his eldest son, Vito, will succeed him one day at Big Louis’ Deli. Vito loves the business and is committed to carrying the torch. That said, Johnny knows his son will need the support of other leaders. One of his waiters, Carlo, is a confident, self-motivated young man. On the side, Johnny is training him in accounting and management, so that one day he might manage a second Big Louis’ deli, while Vito manages the flagship store.
