Personnel e.bulletin – Sept. 2013

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The plumbing-heating-cooling industry is ripe with family owned businesses and the dynamics that go along with them.  If you are a family business owner, take pride in some of the family business ownership facts.  Family businesses:

–  Are built to last – the average life span is around 25 years

–  Grow against economic odds – out perform non-family owned business in tough times

–  Feed new job creation – over 75%

–  Are inherently entrepreneurial

–  Take a long term view – focus on resilience more than performance

–  Contribute to the greatest part of America’s wealth – close to 90%

That sure is a nice list to be associated with.  How exciting to be a part of the American dream – yet how daunting it is to keep the dream alive by keeping the right level of focus on your most important asset, your people. Only about 40% of U.S. family-owned businesses turn into second-generation businesses, approximately 13% are passed down successfully to a third generation, and only 3% can expect to last to a fourth or beyond.

Employees Impact Your Business
The “people as your most important asset” assertion may be over used, but for good reason. Many companies claim it; many fewer use practices that substantiate it. If people are your most important resource, then you need to understand the role of human resources in your family business.

Many owners believe that because they have only a few employees (and many are family), they do not need to focus on human resources issues. The reality is quite the opposite – you need to focus more attention in support of your people because, effectively, they can make or break your business. Do the math – if your business has only 5 employees, each of those employees has the potential to have a 20% impact on the business. The impact of a bad hiring decision or an underperforming employee – even if they are a family member – gets amplified every time. Talent engagement has an impact even in the smallest of businesses.

HR Practices and Your Business
Family-owned businesses experience even more challenges when it comes to HR practices, especially when a mix of family and non-family employees are working in the business.  It is often more difficult to make objective business decisions, especially as it relates to pay, discipline or other compliance-related issues. It is critical however, that all employees (family or otherwise) be treated consistently.

Here is an exploration of some common mistakes family owned business make when it comes to people practices.

 

Practice Bad Idea Good Idea
Attracting Talent Family members as your priority supply chain – failing to recognize the positive impact non-family employees have on a family business is a huge mistake. Hire top talent from the marketplace – non-family employees add balance and value to your business because they have an ability to view the business from an unemotional position.
Job Descriptions Keep them loose. Apply rigor to your job descriptions– ensure that roles and responsibilities, expected results, and accountabilities are specific.
Promotions Promote a family member over a top performing employee – say goodbye to talent who could have propelled your growth. Develop promotion criteria, communicate it, and apply it fairly and equitably.
Pay and Rewards Pay family members more – nothing will create a bigger flight risk of non-family employees. Commit to a compensation strategy/practice and again, communicate it and apply it fairly and equitably.
Culture Who needs it – it is a family business. Culture does matter, so be explicit about the culture you are trying to create.  Every “people” decision you make will be culture defining.
Values Those that benefit the family. Values that all employees can identify with are so important in family owned businesses – they can become the connective tissue – gracefully connecting family members to non and beyond to the community.
Access to Information Cut it off from anyone who is not family. Your success depends largely on your ability to promote open and collaborative exchanges of information among your employees.  How will your people develop an understanding of the collective view of your company, your products and services without access to information?
Participation in Decision Making Strong dependence on a few family members.

 

Involve everyone who can contribute the most to decisions.  Bad decisions result from lack of knowledge/expertise.


Succession Planning and Your Business

The ugliest mistake family owned businesses make is to ignore succession planning. Everything is at stake when the patriarch or matriarch steps down and no plan is in place. Not properly planning for succession sets the stage for succession failure and greatly increases the odds of business failure.

Here are some succession questions to consider:

–  Do you actually want the business to continue to exist once you are ready to leave?

–  Does it make more sense to sell the business to another company and let them take over operations?

–  If you do want to pass on the company to someone else, what’s the ideal profile of your successor?

–  Does that ideal profile exist within the company now, family member or not?

–  If not, what is your plan for finding that person, hiring them & training them? Do you actually have the time required to implement that plan?

–  If you plan on passing the company on to a family member, have they been groomed for the responsibility? Other employees may resent a new owner who “inherited” but didn’t “earn” the corner office job.

–  If you are planning to pass the company on to multiple family members, remember – one person must be ultimately be in charge. Nothing is more stubborn than two chiefs with opposite viewpoints.

–  As you go from one generation to the next, will family members continue to work together?

–  If you have a succession plan in place – do you re-visit it regularly?

–  Do you have a clearly written succession plan with specific goal points along the way?

–  Do you have a clear rationale for the decisions in your succession plan? Have you made it fair and transparent?

–  What do you want your legacy to be? Perhaps the greatest legacy of an effective leader is to have positioned great people on staff who can take over and run the business even better than you did.

There is so much good to enjoy about being a family business owner, especially of you avoid the most common pitfalls. Remember to run your business in a way that is fair, equitable, and transparent for all. Plan ahead for the day when you will leave. By doing so, you will boost the odds of creating a successful a multi-generational family business.

 


This content was developed for the PHCC Educational Foundation by TPO, Inc. (www.tpo-inc.com). Please consult your HR professional or attorney for further advice, as laws may differ in each state. Laws continue to evolve; the information presented is as of September 2013. Any omission or inclusion of incorrect data is unintentional. Please note this article is not intended to provide legal advice or to substitute for supervisor employment law training.

The PHCC Educational Foundation, a partnership of contractors, manufacturers and wholesalers was founded in 1987 to serve the plumbing-heating-cooling industry by preparing contractors and their employees to meet the challenges of a constantly changing marketplace. If you found this article helpful, please consider supporting the Foundation by making a contribution at http://www.phccfoundation.org.

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