How Does a Family Business Make the Transition from Entrepreneurship to Professional Management?

How Does a Family Business Make the TransitionNortheastern University
from Entrepreneurship to Professional Management?

Family Business Quarterly

More often than not, less smoothly and gracefully than everyone would prefer. That was the consensus of small-group discussions at a recent Executive Breakfast meeting of Northeastern’s Center for Family Business.

William Finard, president of Finard & Co. and thespecial guest at the meeting, recalled his own experience trying to professionalize the real estate business his father had started. “There was no support at all,” he recalled. “I had exposure to the family business all my life, but no experience in it.”

His experience becoming involved in and then professionalizing his family’s real estate business comprised the case discussion at the meeting. He joined the family business after spending several years teaching school, when his father was on the verge of retirement. The business was being run out of his father’s home and included only Finard’s brother-in-law and a secretary.

Not only did Finard have no business background, but, “My dad was not a teacher or communicator. He loved the deal. But there was no framework. It was unclear what we were trying to get to.”

Finard saw an opportunity, however, and gradually built the business into a major real estate entity. Among the issues that he and other participants warned must be confronted when making the transition to professionally run organization were the following:

  • Dealing with the “ego” issues.The older generation often interprets the efforts of the succeeding generation to professionalize the firm as a slap in the face. As one participant asked, “How do you make the founding entrepreneur aware of the need for change without kicking him in the face?” Recalled Finard, “My father wasn’t a tyrant. He would say, ‘You want to do it, go ahead–it’s on your shoulders.'” One participant pointed out the importance of giving the older generation credit. Keep in mind that each generation sees the previous generation as not doing things right.”  
  • Recruiting outsiders.For many family businesses, a key issue in professionalizing operations is determining how heavily to rely on family members and how big a push to make in using outside consultants and recruiting non-family executives. Participants were divided on this issue. Some felt strongly on the need to keep management in the family to avoid”When you bring in outsiders, there is the issue of how you treat them. You want to treat them as family, but how can you really do that?” Finard pointed out that he encountered insurmountable obstacles when he tried to keep the business entirely in the family and finally took the route of recruiting outsiders. “I had three brothers-in-law go through the business, and none are there now.” His key executives are non-family members who have come via the recruitment route. “Now my son is considering coming into the business. He’ll come in to a vibrant organization with lots of very capable people.”

    Making the move to outsiders was no easy matter, either, he recalled. “When we first hired a high-priced professional, my father said to me, ‘I just want you to know that this man has a wife and two children. If we have to let him go, you’ll be the one who has to tell him.'”

     

  • Moving to a different style of management. Each generation has its own style of managing and moving from one to the other can be traumatic for all concerned, especially when there’s an effort to professionalize operations. “When you’re moving from one person to many people you’re talking about a completely different kind of company,” said one participant. Suddenly there may be quality circles, team meetings, formal planning sessions, and other indications of a formal management organization that the previous generation finds difficult to handle.

One viable approach put forth by a participant was to find ways to involve members of the older generation in the business, even when they’re no longer handling day-to-day operations. This participant noted that he has kept busy for a number of years handling special management tasks that were being neglected, like computerizing operations and locating new sites for future expansion.