Survey shows many family businesses need to plan
Memo to family businesses: The future is real. And if you don't prepare for it, it may not be as sunny as you expect it to be.
"Research shows that strategic planning is highly correlated to long-term family business success," the authors wrote.
But while the survey found much optimism about the future among respondents, the percentage who had actually prepared with written or formal strategic, ownership succession and management succession plans was not nearly as robust. Smaller companies were particularly likely to come up short on those areas.
Mike McGrann, executive director of the college's S. Dale High Center for Family Business, said it's not hard to understand why family businesses might put off planning.
Maybe they haven't yet seen a need for it. Maybe proceeding intuitively has served them well so far. And, of course, strategic planning is hard and it's easy to view it as time away from conducting actual business.
But those objections aren't good enough. McGrann said no matter what size the business, he believes failing to plan is a mistake, and those who put it off "wake up and they're on the wrong side of the market."
Investing in the future
Sudden change is one reason to plan, McGrann said, but so is the normal progression of business: Planning tends to encourage professional development, which, according to the survey, was a top concern.
Specifically, businesses said their leading internal challenges were lack of managerial competence in the next generation; lack of ownership and family unity; and lack of entrepreneurial spirit in the next generation.
The concerns are not unfounded: Often-cited research by the Family Business Institute says that only about 30 percent of family-owned businesses make it to the second generation.
Franco Lombardo, who spoke recently at the center's fall event, told members that people often think of succession planning as a process, but the focus should really be on the relationships involved.
Lombardo, founder of Veritage and author of several books, said, "Values create valuables — yet when it comes to transferring power, we focus on the valuables and completely ignore the values?"
Stressing the need for honesty and consideration on all sides, Lombardo also urged families not to overlook the value of involving and becoming accountable to a third party. And, he said, just as a parent shouldn't give a child keys to a Ferrari without some practice driving it, neither should he try to transfer a business to someone who has no experience running it.
During the interactive session, several center members attested to the value of Lombardo's advice. One described the process of transferring his business to his children as "the most difficult thing in my life and the best thing at the same time."
PK Dennis said afterward that relationships were what enabled her father, Richard K. Dennis, founder of Die-Tech Inc. in Newberry Township, to successfully transition leadership to her and her siblings.
It was "the way our parents raised us, really," she said — and although her father stepped down just a few years ago, he started talking about and planning for the transition in 1996.
Today her brother, Richard W. Dennis, is president of the company and she is its marketing manager. There's a third generation in the building, and they're already working on the next transition plan. Some credit for that goes to the business center and its other members.
"We're exposed to people who are ahead of us in the process," she said. "We're also exposed to people that are behind us. It helps."
Conducted by Elizabethtown College's business department and the S. Dale High Center for Family Business, the survey featured responses from 72 family business representatives in Lancaster, Dauphin, Allegheny, Luzerne, Indiana, Bucks and Montgomery counties.
Here are some key findings:
• Two-thirds expected their gross sales revenues and net income to increase in the next year.
• Three-quarters thought their family would retain controlling interest in the business over the next five years.
• Half had a written strategic plan.
• Two-fifths had a formal ownership succession plan.
• Just under a third had a formal management succession plan.
Authors of the study were Cristina E. Ciocirlan, assistant professor of management at Elizabethtown; Sanjay Paul, associate professor of economics and chairman of Elizabethtown's business department; and Michael McGrann, executive director of the Center for Family Business.