Innovate or Die

What’s not to like about running a family business? There’s a history of success. The family has been running it and understands the business. And the next generation is ready to step up and take over, so succession planning is a no-brainer.

Continuing the success of an established family business sounds easy. But guess what? The facts prove otherwise. According to an article in the Harvard Business Review titled: “Avoid the Traps That Can Destroy Family Businesses,” by George Stalk and Henry Foley: “Some 70 percent of family-owned businesses fail or are sold before the second generation gets a chance to take over. Just 10 percent remain active, privately held companies for the third generation to lead. In contrast to publicly owned firms, in which the average CEO tenure is six years, many family businesses have the same leaders for 20 or 25 years, and these extended tenures can increase the difficulties of coping with shifts in technology, business models, and consumer behavior. Today family firms in developing markets face new threats from globalization. In many ways, leading a family-owned business has never been harder.”

We live in an age of innovation and disruptive technology. As a result, changes in the marketplace are happening exponentially. Therefore, what worked for the grandfather founder of the company has little relevance to what’s happening in the marketplace today.

Family businesses face a daunting challenge because of the inertia created by habits. We all need habits to survive but they also make it very difficult to change or alter course from what’s known and understood.

Habits are important to our daily existence. If you had to relearn starting your car every day it would take a whole lot longer to get to the office. But with that said, innovation of any kind arises out of the ability to break habits and discover new ways of doing things.

Charles Duhigg, the author of the book “The Power of Habits,” makes an interesting comment about companies in general: “Companies aren’t families. They are battlefields in a Civil War.

“If that’s the case then it becomes problematic to survive as a family business which is, after all, run by families.”

Historically, family businesses tend to make incremental improvements to products and processes. That’s invaluable and explains why many do survive.

However, making something better is not the same as innovation.

A family company making telephones when smart phones disrupted the industry usually spelled the death knell for the family business.

According to Vince Shiely, a partner at Lubar & Co. with a track record of leading operations in major manufacturing companies, our current Wisconsin business climate has become far more challenging for family businesses. “Over the past three decades, globalization has substantially transformed the southeastern Wisconsin-centric manufacturing footprint of our largest local manufacturers, severely impacting a multitude of smaller local family businesses that had built their foundations on supplying these operations,” he said. “The resourceful owners found ways to reinvent themselves to survive.”

Tom Bentley, CEO of Bentley World-Packaging, faced a similar dilemma. His family business started as a general contracting business in 1848. It was responsible for many historic landmarks and churches. But when the construction industry suffered a downturn starting in 2007, he recognized that there needed to be a different future.

For years, he had been testing the market by using Bentley’s core competency in construction to do specialty and custom packaging for clients. That business was starting to grow robustly.

Tom also had a son who was coming into the business. Was it time for him to take over? He was, after all, a Bentley with all of the genetic “right stuff.”

Tom did what most CEOs of family businesses are reluctant to do: he pulled the plug on its historic mission as a construction company and focused on his packaging business. At the same time, he recognized that turning this business over to his son might be premature because of his age.

He brought in outside help when he hired Dennis Axelson to serve as the company’s president and to mentor Tom Bentley’s son and prepare him for eventual leadership.

The transition is proving to be a success. The company’s market share has been growing and it is acquiring other packaging companies. It now have added packaging facilities in several other states. Bentley has become a leader in product innovation, introducing new environmentally-friendly wooden shipping and storage crates with stainless steel and nylon inserts that can be reused numerous times.

Tom Bentley claims he’s innovative by nature. I can buy that. At his core he is an entrepreneur willing to face the brutal facts about the industry and his own family, and recognize those facts also represent an opportunity rather than a dead end. His kind of courage and willingness to take risk is a rare commodity.

There’s no reason a family business with the resources available to it can’t survive through innovation.

Dan Steininger is the president of BizStarts Milwaukee and is president of Steininger & Associates LLC, which helps companies grow revenues through innovation. He can be reached at Dan@BizStartsMilwaukee.com.

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