Transferring ownership of a family business can be messy. Managing relationships, expectations, and the business itself can come at a serious cost if not done thoughtfully and effectively. That’s where Marcus Bigelow comes in. An experienced consultant to many different family businesses over the years, Marcus discusses the ins, outs, and best practices for multi-generational businesses. Marcus is a consultant with the Convene consulting network, and a Convene Chair in the Sacramento, CA area leading two CEO Forum Teams.
—
Watch the episode here
Listen to the podcast here
Stewardship Of A Multi-Generational Kingdom Business With Marcus Bigelow
I am Mark L. Vincent. I am the Director of the Convene Consulting Network. I am very privileged to have a good friend, Marcus Bigelow, here for a conversation about stewarding kingdom-minded businesses, especially when it’s a multi-generational concern. I’ve known Marcus for a while. Marcus is deeply experienced on the pastoral ministry side of life and the business side of life, and has a deep well of stories and experiences with family businesses and helping them manage succession. It seemed like a good moment in time to sit down with him and invite him to share a bit of his wisdom with anyone out there who might be facing these matters.
Marcus, I want to welcome you to this conversation. I’m eager to hear what you might have to say. I like to plunge into these conversations and go for it right away. I’m going to do that with you. You’ve walked with a lot of leaders and businesses, and you’ve watched them start them, build them, and then exit them. In general, whether it’s a family business or not, what are some of the must-dos? We might call them the must-haves in order to be able to build toward a successful succession.
The Reality Of Succession Failure Rates
The number one thing is some awareness of some of the dynamics that go into it. Only 30 % of businesses that transfer successfully transfer to another generation.
That’s a small percentage.
Thirty percent transfer from 1st to 2nd generation. Only 30% of that transfers to the next generation, and on and on. By the time you get to the third generation, less than 4% are making it.
Only 30% of businesses that attempt a transfer successfully pass to another generation. By the third generation, fewer than 4% are still operating. Share on XThat sounds like the same percentage that getting an entrepreneurial start would be. You already have a big fall off to get the thing to exist, then to go to the next generation. That’s minimal.
Why Family Businesses Fail: Psychological Pain, Not Planning
It’s interesting. In almost every literature, there’s something along the line of shirt sleeves to shirt sleeves in three generations. The Scots have it. The Japanese have it. The Chinese have it. The Italians have it. We have it. It’s a difficult thing, transferring to the next generation. I haven’t seen any difference between Christians and non-Christians. I don’t have any good stats on that, but I know that overall, that’s the statistic.
The number one reason that family businesses don’t transfer to the next generation is psychological. It’s not a lack of financial planning. It’s not a lack of legal planning. It’s either that the heirs haven’t been prepared enough, or there’s conflict in the family. I always say that transferring a family business is the perfect storm because every family has some dysfunction. You add in money, power, sibling rivalry, and in a lot of cases, especially in the startup mode, a mom or a dad who was over-committed to the business, struggling to keep it alive. They step out, and there’s this vacuum here. It’s almost this perfect storm where people rush in, or a bad motive rushes in.
Transferring a family business is the perfect storm—where people rush in, and bad motives follow. Share on XThe must-do is to build good trust and communication with your family. If there’s anything that will allow a business to transfer, it’s trust, communication, and then preparation. The other side of the coin is the preparation. Those would be my must-dos or must-haves. The problem is that as business owners, we get consumed with our business. Sometimes, we don’t take into account things like maybe the son or daughter doesn’t want to be in that business. I always say that a family business shouldn’t be a lifetime sentence. Sometimes, a business needs to be sold because there are no heirs available or that are qualified or that want to do it. That’s a piece of it.
Self-awareness on the part of the first generation or the one who is passing it down is important. There are four models of transfer. One is the monarch model, which is you’ll carry me out in a box, and that leaves everybody grieving and trying to figure out what to do then. There’s this big power struggle. Usually, by that time, dad is 80 years old, or mom is 80 years old.
The second one is the general’s model, which is, “I shall return.” I’ve seen it happen where I had a family where the father said, “I want to pass this to my kids,” but he’d set it up so that they would fail, and he’d have to come back in, riding on his white horse, and save the day because it was about him. It wasn’t about passing it on to the kids.
The third one is the governor model, which says, “I’ll serve until X number of days, then I’m out of here. Good luck.” The last one, which I think is the correct one, is the statesman model, where you move from ownership to partial ownership to no ownership in 3 or 4 stages. You stay on as an elder statesman but remove yourself from the power as things go on.
It almost seems that if you’re going to build a business, you will have successors, especially if they are in the family in some fashion. You have to build that part of the business in intentional ways so that this trust factor increases. Am I going down the right path here?
Intentional Relationship-Building & Early Preparation
Yes. If you don’t intentionally plan for that and provide training or mentoring, provide for relationships that work. The owner who spends time building relationships with his children is huge. Talk about transparency, about what’s going on in the business, and about who is going to do what when I leave. A lot of times, it’s 2 or 3 siblings, and somebody gets their feelings hurt because one is like, “I want to be CEO,” and the other is like, “I want to be CEO.” If they don’t work on that ahead of time, that’s a big thing.
We have a family of French-Canadians who moved to California five generations ago. They are a successful farming family and have a huge agribusiness. They have a family council that meets 3 or 4 times a year, and they deal with family issues as they relate to the business. Not everybody can be a board member because there are 150 people in this family council.
They do something interesting. Every year, they do a cousins camp where they bring the kids in from 5 to 17. They all assume roles and responsibilities in the family business. If they’re five years old, maybe they pick some stuff and run a fruit stand. If they’re seventeen, they may be working in the accounting department, managing some harvest, or something like that.
They use that family camp to bring people in from across the country to keep it personal. It makes everybody like each other as they get to hang out together, but it also gives them a chance to preview talents, skills, and that kind of thing. Everybody, so far, has come through it well. This is a family that you’d be pleased to be a part of. They’re strong leaders. This is not a bunch of wishy-washy people. These are strong leaders, but they focus on building that relationship. Family councils and family camps, those kinds of things are good.
Let’s go deeper into the family business itself. There are some recurring dynamics that you probably already have touched on that you see again and again, things that families should be intentional about and navigate around. What else would you add to that that keeps showing up in the consultative projects and conversations that you’ve had over the years?
Separating Ownership, Governance, & Management
One is that there are at least three things that have to be transferred. One is ownership. That’s who is going to hold the stock and who’s going to have that kind of thing. The second is governance, and that’s not always the same. In fact, a lot of times, you have family members who can own stock, but they shouldn’t be governing. The third one is management. The governance is, “How are we going to make the big decisions? How are we going to set policies?” The management is, “How are we going to run it day-to-day?” If you think about those three venues, that’s certainly an important one.
In family businesses, there are three things that must be transferred: ownership, governance, and management. Share on XBefore we go on, how soon should a family get the governance stuff licked? I keep running into stories where they’re like, “We’re going to get to that,” and they never do. Where in that arc of developing that business should strong governance start to come into play?
That’s probably a situational question. My sense is the earlier the better. I don’t think that at 35, you want to start transferring governance to kids. For Johnny, who is five or something like that, that’s no good. We’re working with a couple of families that have been working on it now for four or five years because it doesn’t go quickly sometimes. Part of it was tax planning. Part of it was the legal. They had a very complex legal situation.
It’s two brothers who are leading this company. They started a couple of years ago. They’re 60 years old. They started at 55. They probably have another five or ten years of being in the governance part of it, but they’re starting to invite people into the process. They did an interesting thing. You’ve heard of the five behaviors of cohesive teams. Normally, that’s done in management. They had some family issues, so they did the five behaviors of a cohesive family that we had a chance to work through.
It was interesting to see. To begin with, there was some real bitterness in the room. Mom was bitter about some kids. The kids were bitter about mom and dad. There’d been hurt feelings. Halfway through that process, we had a real breakthrough. It was like we went from war to peace all of a sudden, but hanging in there was tough. It was a little scary for a while. Now, the family is united. The family is together. Working on some of those uncomfortable issues is important.
We talked about this in a meeting that I was in. Giving your kids a blessing is an old-fashioned concept, but it’s so important. I saw one fail. The dad was a tough old buzzard who was never going to tell his son he was proud of him or that he loved him. The son worked himself into a heart attack and into the hospital, trying to get his dad’s favor. We have this need to be blessed by our dad. That can start at five years old. We didn’t have a family business, but my dad called me every Sunday night from the time I was 21 until now to tell me he was proud of me. It gives you a strength from which to build. I can’t emphasize enough giving your children a blessing along the way.
You were walking your way through three items here, and I cut you all that for the first one with my question about governance. What else would you add to some of those recurring dynamics?
Equity Vs. Equality & The Stewardship Mindset
In terms of ownership and governance, the ownership one is probably the easiest from a legal standpoint. An attorney can draw it. Where it gets sticky is when we think we have to be equal. Not everybody has to be equal, but they do have to be equitable. You may have one heir who is more needy or less able to take care of themselves. Equal may not be well. It may not be a good thing. That’s one thing to think about in terms of the ownership transfer. That’s where it gets a little sticky unless you’ve had good communication prior.
Not everyone has to be equal, but everyone does have to be treated equitably. Share on XIn the management piece, that’s probably the most thorny because a lot of times, our kids grow up with the expectation of, “Someday, I’ll be the CEO.” There’s a stewardship piece of this thing that says, “What if I’m not the right person? It’s not just about our family or me. We have 400 employees and their families, 600 vendors, and 1,200 customers who all depend on us. How do I steward that?”
Maybe I’m not the right one to be the next CEO. Maybe my role is in sales or accounting. Do I have the humility to hire a non-family CEO to come in, and I’ll be part of the governance process and the management team? Maybe I won’t even be part of that. We have to teach our kids stewardship, like, “This doesn’t belong to us. This is bigger. This is God’s business. How are you going to do that?”
You have touched on a number of dynamics that are often delayed or pushed off until they can’t be pushed off anymore. I would guess that you would have an illustration out of your experience of a family that looked like they weren’t going to get it done, but they got some stuff turned around and are a much better set of stewards now than they might have been. Could you give us an illustration like that?
The family that I talked about. When we started that, I wouldn’t have given you a plug nickel for our chances of resurrecting that one. Being a believer doesn’t necessarily mean we make good decisions, nor does it necessarily mean we’re nice. It ought to make us kind, but not always nice. This was a family that was fraught with issues. It took persistence and some courage.
There were some kids who shouldn’t be in leadership and shouldn’t be in management, who were bullies. They had to work through some of those things. There were some hard decisions. I can’t say that it has always been peaches and cream, but I think the business is going to survive going into the next generation. They will do it with a non-family CEO.
I’m impressed with something here, and that is that the work does not get easier. If I’m this child who’s growing up in the business or whatever, if I have this thought that I deserve the appointment because I’m blood or that it will be easier now that all the hard work is done, I’m pursuing a very different mission than the mission that the business has. I can’t think that I can mail it in.
Let’s say a business owner comes to you, and she has built this up. She is delayed and has not gotten around to it yet. Life’s been busy. She has been growing this business. She can’t put it off anymore. That’s often how these clients’ scenarios come up because it’s overwhelming, and they can’t put it off. She’s thinking. She’s still even talking like, “I’ve got to fix a few things first, and then I’m going to be ready. Can we plan for this for next year? “ What are some of the first steps that she has to take if she has any hope of having a good succession plan?
That’s where we usually get called in, when there’s pain. The pain is greater than the reward at this point. A couple of things happen. Number one, you need to sit down with all of the players and have some frank conversations. “This is what I plan to do. This is my thinking at this point.” You may even need a mediator in the room because it might get brutal. Sometimes, that’s the help of bringing in somebody from the outside. They can act as the umpire and the referee. They can defuse things when it gets too tough. Talking to everybody is certainly a beginning point.
Assessing readiness to lead. Sometimes, what people forget is that when they started the business, it was a small, fledgling business. If they’ve been successful, it’s a $40 million a year business, an $80 million a year business, or a $200 million a year business. If they think back to where they started, thinking of coming into a $200 million business rather than starting from scratch, they would be overwhelmed themselves.
One of the things that I would say is that they need to focus on, “How do we move from mom and pop management to professional management?” Assessing the kids to say, “What are their capabilities? What’s their interest?” would certainly be part of it. If they haven’t done some training upfront, they’re going to have to cram it in. Anything that they can work on that way, which might be getting the kids a mentor or a coach. Those would be some of the things that might help that transition.
There’s this four-step process of going from “I’m doing it all” to “I’m doing it with you” to “You’re doing it, and I’ll watch.” That’s not going to do it in a year and a half or two years. It’ll be very compressed if it does happen. There ought to be some of that, “I won’t leave you hanging.” Frankly, if there hasn’t been any prep to that point, it might be that you bring in an outside CEO or outside president for a year or two or three or four until that person can train the successors. I’m working with a couple of businesses where they brought in some people who are training people up until there’s an interim CEO. It might be 3 or 7 years, but until there’s that ability to transfer it over.
As we wrap up this conversation, you’ve pointed out a number of critical items that have to get in place. They are as important as any other part of the business development, determining a product mix, figuring out your marketplace, and all of those things. Yet, sometimes, there’s a cornerstone here. There’s something that if it’s not there, it is going to fall apart, and everything else can build on that.
Among any of these, are there 1 or 2 that you would say, “If you’re going to build a business that is going to have success rather than just selling it outright or closing it up, that must be there if it has any chance to be that unicorn.” The 30% of the 30% of the 30% that gives it to a 4th or 5th generation even has a prayer for that. What must be there?
One thing?
If it’s not one thing, that’s fine. It seems like there might be a cornerstone piece here. It’s like, “If this isn’t here, it’s not going to happen.”
The Cornerstone: Family Relationship Over The Business
I would say it’s the family relationship. Sixty percent of those who fail do so because the family has fallen apart. The psychological pain has fallen apart. The kids flake, or the kids leave, because they don’t want the pain anymore. They would rather have Thanksgiving than a business. That would be my first thing. It would be to spend time building that family relationship, patching it, and getting it so that everybody can talk to one another, even if it takes counselors or coaches. If there’s one thing that’s going to be there, that’s the one.
Sixty percent of failures occur because the family falls apart under psychological strain. The kids disengage or leave because they no longer want the pain—and they’d rather have Thanksgiving than a business. Share on XIt seems so wise because if you’re going to have a family business, there has to be a family. If you’re going to invest in the business to have the business, you’re going to have to invest in the family and the family dynamic to have a family business. That’s maybe a little bit different than the business itself because it’s relationships and relatives. You have that quirky fabric of all of the dysfunction that can come, as well as all the wonderful, holy moments that can come.
It’s all about trust. If you have trust, you can get away with a lot of things that weren’t quite perfectly done. If you don’t have trust, you can have the best business plan, the best accounting, and the best everything else, and it’s not going to work. It is all part of that family relationship and emotional relationship.
You’ve not only provided good information here, but you’ve also displayed your patient way of working with people and thinking things through without pressing hard, which is so important when you’re facilitating conversations. I want to thank you for joining me here. For the people tuning in, we’d like to say thank you. Thanks for giving us this time. Thank you to you, Marcus, for your investment in the Convene Community and beyond.
My pleasure.
Thank you.
