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Family business survey says . . . the recovery is moot

Blackman Kallick & FFI’s "Adaptability and Innovation" survey finds that family-owned enterprises are acting, not waiting.

We have been speaking with a number of financial-market prognosticators over the last few weeks. As usual, the opinions run the range from cautious enthusiasm to fear of a “second dip” into the Great Recession.  While the context of these discussions has varied, we had the opportunity to compare these expert remarks to the initial findings from the first round of our Adaptability and Innovation of Family-Owned Enterprises Survey. This survey, conducted in conjunction with the Family Firm Institute, reaches out to hundreds of family-owned enterprises in order to gauge their both their ability to innovate and their ability to withstand economic pressures.

These companies are not components of the Dow or the NASDAQ. However, as family-owned and closely held businesses, they are part of the group that will most likely be at the forefront of job creation and fueling the next economic cycle. In fact, in speaking with the leaders of these companies, we have seen a theme emerge: “THE” recovery, whenever it happens, is not guaranteed to be “OUR” recovery. In other words, there is recognition that to ensure continued survival and growth, these companies are going to have to make it happen for themselves and cannot depend on the government or other external factors to do it for them.

In a series of conversations with the leaders of over 50 businesses, we asked about the major changes they made to ensure that their businesses made it through and were then positioned for future growth.

Listen to the customer
Listening to the customer was an almost universal theme. In many cases, the leaders spoke about personal visits being made to current and former customers to ascertain how they and their performance were being perceived? The key line of discussion started from trying to understand the customers’ issues, and then finding ways to make the customers’ lives easier by addressing some of those issues. It is important to note that these were relationship-building conversations, rather than sales pitches.

Develop ad-hoc partnerships
Interestingly, a number of the business leaders spoke about creating new partnering relationships with suppliers, customers, and, in a few cases, even former competitors, to seize particular opportunities. These are not formal partnerships with multi-binder legal agreements. Rather, they are strategies for sharing risks and rewards and assessing future relationship opportunities without any legal overhang of formal partnership entanglements.

• Thought experiment: Next time you are across the table from someone (i.e., vendor, customer, competitor, etc.), imagine you are on the same side, with someone else across from both of you. What could you offer, together, to help that third party? It turns out that many family-business executives used this technique to get through the recession and are powering it into the future.

Damn the torpedoes when it comes to line introductions and new markets 
Along the same line of thinking, about 43% entered new businesses during the downturn! Rather than exploring totally new ideas, most extended into complementary product lines, services, or customer bases. In some cases, this even meant addressing international markets for the first time. Many of the business leaders mentioned their new offerings having a real connection to the existing businesses, i.e., pushing boundaries, not airdropping into new arenas.

Add two or three more brains to your brain trust 
We also discussed where the business leaders were seeking advice and counsel. While there were a number that belonged to a peer group or that had an advisory board, the majority of the respondents seemed to turn initially to those who knew them and their businesses best. Most often this included professional advisors such as their accountants and attorneys and also, in a number of instances, consultants. For critical decisions, respondents indicated that, on average, they turned to over two outside resources for advice. This pointed out to us that advisors and advisory boards are not an either/or proposition. They are viewed as a consolidated whole to facilitate and support an on-going decision-making process.

Ratchet up the transparency
While they were making changes to their businesses and attacking new opportunities, these leaders also spoke of changes being made in their day-to-day operations. At the top of the list was how they are now viewing the importance of internal communication. While, in many cases, communicating internally was not new, the frequency of communication regarding both the challenges and the opportunities that lay ahead had been increased. Furthermore, the leaders spoke about the need to paint a picture of what they expected their organization’s new reality to look like. The goal? To give all employees a feeling of inclusion — “that we’re all in this together,” a vision of the road ahead, and a sense of shared purpose.

Take this opportunity to pare the dead wood
Staffing changes were mentioned frequently in our discussions and surveying efforts. The decisions leading to these changes were characterized as gut wrenching, which is not surprising since family-owned businesses often see their employees as part of their extended families. However, many spoke about using the economic environment as “air cover” for upgrading staff. These upgrades included replacement of long-term employees, as well as family members.  Furthermore, while 44% of those surveyed spoke about cutting staff, 33% indicated that they had made no change and 23% indicated that they had actually increased staff over the preceding 12 months. We found the last two numbers heartening in light of the prevailing economic conditions during the period surveyed.

In conclusion: Don’t just sit there
People take action for many reasons. Actions, or more appropriately, reactions, most often occur in response to pain or fear. Planned actions result from a careful consideration of the environment and an understanding of the desired outcomes. Moving toward this desired outcome does not necessarily constitute a major step, but can be an incremental step along the right path. The key notion, one repeated again and again and again, was that the time for purposeful action was yesterday, it is today, and it will be tomorrow. In other words, waiting for the recovery is like Beckett’s Waiting for Godot. It might never come and, even if it does, it might not be helpful.

Since family-owned and closely held businesses can adapt and innovate quickly, the ones that made it through the downturn with the least disruption are the same ones that will succeed in the near future, regardless of the rebound or no rebound at all.

While public companies tie launches and new efforts to quarters or annual reports, family-owned and closely held enterprises see time as more fluid. They think in longer stretches (sometimes even generations), but act in the moment. And that moment, despite the economic environment, always seems to be right now.

So . . . are you still sitting there? Your competition isn’t.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.