Who gets to be in charge of the family business?

By Terri Sniegolski, Creative Colors International

The statistics involving the lifespan of a family business are kind of grim. While there are a lot of family businesses in the United States — 5.5 million, per some accounts — they don’t all stick around. According to Harvard Business Review, 70 percent of family businesses never become a business run by the second generation. Only 10 percent make it to a third generation.

So, what is that 10 percent’s secret?

As a second generation-er helming a family business, I think I know. I’m the CEO of Creative Colors International, a national franchise that specializes in on-site restoration, cleaning, protection and dyeing of leather, vinyl, plastic and fabric. My parents, JoAnn and Jim Foster, started our company in 1980 as J&J Creative Colors, which was then solely an automobile upholstery repair business. Here are some of my theories on why some family businesses thrive.

The emphasis should be on the business, not the family. 

Some parents want so badly to be able to pass on the business to their kids that they practically will it to happen. But many children don’t want to follow in their parents’ footsteps. They need to chart their own path, and your kids should be encouraged to do that.

Besides, if you really want your business to be your ever-lasting legacy, you should be considering who would be the best people to take over. That may be somebody else’s children.

Your kids should earn the right to take over. 

Even if you have an enthusiastic kid who loves the idea of taking over someday, your employees may not be as enthusiastic. If your kid leapfrogs over everybody else into a prominent position upon being hired, you’re going to create a lot of hard feelings.

This is why everybody’s going to be more supportive and have more confidence in the new leadership if your kids pay their dues first. They need to have some time doing grunt and mid-level work, getting as much experience working everywhere in the business as possible so they can really understand how to run the entire operation. 

Your kids may not be on the same timeline you are. 

When I first started working at my parents’ business, I was way too young and inexperienced to have taken over — if somehow Mom and Dad had been foolish enough to ask. I was fresh out of high school and working for them became overwhelming, with the lines between family and work impossibly blurred. I saw my parents 24/7 and was thinking about work 24/7.

This is why I left and started working toward becoming a paralegal in downtown Chicago. Five years later, in 1988, I returned. I was pulled by an inner voice that I needed to get back into the business. My mother didn’t make it easy for me to come back. I had to build up my sales from scratch, but she was there for me 100 percent after my decision was made. Several months after I came back, we talked about taking the family business to a higher level — franchising. And so, in 1990, Creative Colors International, Inc. was born. I have no regrets about coming back to the family business. Had I not left and experienced the world on my own, I wonder if I’d be able to say the same. 

There’s nothing wrong with your kid earning some of their stripes somewhere else.

I’m far from the only CEO of a family business to have left and later returned. For instance, the CEO of Our Town America, Michael Plummer, Jr., initially opted against joining his father’s family business. Instead, he joined the military and became a medic. Plummer loved it. However, he returned in 2001 after his father had a major heart attack. Plummer remained and while he considered going back to his old job, he came to realize he also loved what his father had built.

Sadly, Michael Plummer, Sr., passed away in 2009. His legacy lives on with his son running a very successful national franchise. And Our Town America was almost certainly better for it. It’s good for generations, before they take over, to learn life skills and about the world beyond their own business.

Put everything in writing before handing the business to the next generation. 

Before my parents handed over the reins to Creative Colors, which consists of myself, my brother-in-law, brother, sister, husband, niece and daughters, we spent a lot of time developing an operating manual with family policies and procedures where we would outline voting rights, pay structures and responsibilities of each owner.

It may seem very non-family like, to say, “Well, we’d better draw up contracts,” as if nobody trusts each other, but we’re all human. Misunderstandings happen. People can get very emotional over money, time and a business. Contracts between family members are designed to make sure everybody wins.

When everything is clear cut, you’re protecting your business and family ties.

You’re also keeping both your business and family intact. Of course, your family is far more important to you than the business, but to your employees, your business is what provides everything for their families. Since you care about the people who work for you, it really doesn’t matter whether it’s your family’s next generation or somebody else’s that takes over. You really do have a family business in every way.

Terri Sniegolski is the CEO of Creative Colors International, Inc. Find out more about Creative Colors International, Inc., here.

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