How to Build and Sustain a Successful, Enduring Enterprise

by | Jan 21, 2021

Blog
Articles

How to Build and Sustain a Successful, Enduring Enterprise

by | Jan 21, 2021

Laurie Barkman works with entrepreneurs, closely-held companies, and family businesses to develop innovations that create enterprise value and facilitate transition. Drawing from over 25 years of experience, Laurie hosts the Succession Stories Podcast speaking with CEOs and experts about how to create and transfer business value.

While starting and running a family business is no mean feat, finding the right successor is a whole other ball game.

You’ll be hard-pressed to strike the perfect balance between keeping everyone happy, giving people the positions they feel they deserve, and leaving the business in the hands of a person or group that will manage not to run it down.

Or so it seems – if shows like Succession and Dynasty are anything to go by.

But is it all doom and gloom? Is the common belief that one generation starts a business, the second enjoys the fruits and the third brings it all tumbling down unfounded, or does it hold merit?

Josh Baron is among those best placed to give insight on that.

As a co-founder and Partner at BanyanGlobal, Josh has spent more than a decade advising family businesses on factors critical to their success. One of these is the issue of transition. Josh is also an Adjunct Professor at Columbia Business School where he teaches family business management.

The expertise he has gained informed his new book co-authored with business leader and BanyanGlobal co-founder and partner, Rob Lachenauer.

Aptly titled How to Build and Sustain a Successful, Enduring Enterprise, the Harvard Business Review Handbook delves into how family businesses can navigate key decisions, maintain vital relationships and sustain success amidst changes at the top.

In my conversation with Josh on The Succession Stories Podcast, we talked about these themes.

What was the inspiration behind your book, How To Build and Sustain a Successful, Enduring Enterprise?

“The reason why my colleague Rob Lachenauer, and I wrote it with support and guidance and help from the rest of our firm, is that we’ve been doing this work out in the field for a long period of time.

I believe that there are things that we’ve collectively learned in working with families, that will be of real benefit to others.

It’s part of the Harvard Business Review’s handbook series and it’s intended to be a kind of practical guide to working through some of the critical issues that come with being part of a family business.”

Let’s talk about the heart of the book, the Five Rights Framework. Could you share some of your experiences as we go through each of them?

“Ownership is incredibly powerful because as the owner of a business or any asset you have rights. You have the ability to do things that no one else does. Through these five core rights, you can influence almost everything of importance about a family business.”

The “Five Rights” are:

  • Design
  • Decide
  • Value
  • Inform
  • Transfer

Design

“When we talk about design, what we mean is that as an owner of a business you get to give it its basic shape. What’s the basic architecture of your family business? For some, it’s the business. Others want to also have shared philanthropy, shared investments, other things together, and so it comes down to deciding how much of an overlap you want to have.”

Decide

“As the owners of a business, you can take literally every decision if you want to. There are some founders or even second or third generation folks that still continue to hold on to lots of decisions. But as you grow, as a business grows, as the family grows, it becomes important to really think about what you want to hold on to as the owners of the business.”

Value

“One of the examples we give in the book is Vitamix, which is a successful, high-performance bender company. What they’ve decided is that the value of the ownership goes through the descendant lines.

But, according to their shareholder agreement, the CEO buys a super-majority of the voting shares in the company. They operate by consensus like most families do. But if there’s a breakdown in consensus, and they need to make a decision, the CEO who’s a family member gets to make the ultimate call.”

Inform

“You have to be willing to and able to work on your communication, work on that dialogue, work on making tough decisions together.”

Transfer

“All of these things, I think, and more are part of making a successful transition happen. A lot of that means not just focusing on the current who’s going to be the CEO, but who’s going to be on the board. How are you going to make decisions as owners? Do you need an owner council? Do you need a family council? How are all those things going to work together to really position that person for success? Then making sure that those in the next generation are prepared for the different roles that they’re going to play.”

When you sat down to put the book together, was it difficult to come up with the context of how to organize it? There’s so much information here from you and your collective team’s experience. How did you decide what was most important from a thematic standpoint?

“That’s a great question. The book is really broken up into three core sections. One is understanding how family businesses work.

We talk about how to decode what’s happening in the family business in the first section about the power of ownership because it’s something that isn’t necessarily as clear and talked about.

The second section really goes into the five rights. That was, in some ways, the easiest part to structure because that’s really the core of our practice as it’s evolved over the last eight to 10 years, in particular with Banyan.

It emerged from our work and knowing that these are the topics that are most critical to work on for family businesses to succeed and to last across time.

Then the last section was a bit of a grab bag, but basically, these are critical issues that we see people facing that are a little bit kind of more of a deeper dive. So there’s one on conflict, one on different disruptions that happen in the family, and how to try to manage some of those things.”

The Four Room Model is very interesting. Could you explain what it is and why it is important?

“We found this Four Room Model to be a really simple, but effective way of thinking about governance in the family business. The idea is, just like in your house, you do different work; you make different kinds of decisions in the kitchen versus the living room.

In a family business, you have to do different kinds of work and make different kinds of decisions, and the four main types are these four rooms.

You have the management room, which is where you’re running the business on a day to day basis, making tons of operational and strategic decisions, people decisions, all those kinds of things.

You have your boardroom, which is where you’re hiring and figuring out who ought to be in those management leadership seats, you’re thinking about the strategy of the business.

The board then also ultimately reports up to the owners and the owner room, and the role of the owners in this structure is to make a relatively small number of really important decisions. So things like do we stay private or do we go public? Do we reinvest the earnings that we’ve made back in the business?

Then we have the family room. It’s critically important because the role of the family room and a family business is not to make business decisions. It’s to bring the family together. To organize, to gather, to stay connected, to develop family talent, and to create ladders into each of those rooms into management board and owner roles.”

With more interest in sustainability and diversity and inclusion, the whole way of recruiting to boards might not be so effective anymore. Can you talk a little bit about how family companies interested in diversifying their boards can approach that?

“Absolutely. I don’t like the term best practices much, because I think there are very few things that always work for every family.

But I would say that when your business gets to be a certain size, having independent advisors or formal directors is about as close to a best practice as I found in our work.

They’re useful in so many things; having that outside perspective, changing the nature of the dialogue, and otherwise, the family dynamic that having outside people brings, and helping to make some tough decisions.”

Is conflict a big part why clients start working with you? Or is it the opposite, where these are firms that are just extremely proactive, and everything’s working swimmingly well? Or is it somewhere in the middle?

“I think it’s human nature not to want to work on generational transition because it involves things like death rights that none of us want to talk about. What we find is that sometimes things are blowing up and someone needs to come in and put everyone in their corner and start to do some sort of mediation.

More often than not, it’s because things are starting to bubble up, and people are feeling something internally that there are some issues that we need to work on that no one’s really talking about, and we don’t know how to talk about them.

And in this class I teach on managing conflict, one of the things we talk about is that conflict is a Goldilocks problem. That too little conflict is actually just as much of a problem as too much conflict.

Although the ‘too much conflict’ stories are the ones in Succession and all those shows that make for the best drama, most families – at least that I’ve seen in my experience – are actually on the too little conflict side. They’re conditioned not to argue about things because they’ll say, for instance, ‘It’s not worth ruining Thanksgiving or Christmas’.

We have to get along as a family. That means not having any conflict. But of course, there are differences. Differences are real, they’re inevitable.”

I think there are ways to encourage the next generation to embrace change, to listen to their ideas, to mentor them to be successful. So I wanted to hone in on that in terms of the next generation. What do you think about most when you talk about this area of transfer?

“Well, what I found is that when people are thinking about transitioning a business from one generation to the next, too often there’s a singular focus on finding “the one”.

I think there are some problems in that that we need to highlight. First, even if you find the next CEO that person’s role is going to be very different from that of the current CEO. It’s a different role, and sometimes you’re looking for a different skill set. Another aspect is who’s going to be on the board.

Even those that may not be in the business at all day to day, are going to be playing a critical role in this owner room, and making sure that they’re prepared to step in.”

I always love to ask guests if they have a favorite quote or mantra. You teach at Columbia where you talk to a lot of students, and you talk to a lot of people in family businesses. What comes to mind that you can share as a lasting mantra?

“Well, I think maybe I’ll share a negative one, because this is the one that I hear probably most commonly in class, and that we spend a lot of time trying to rebut.

This three-generation idea that the first generation builds it, the second generation rests on their laurels, and by the third generation, the family’s poor again.

What I’ve seen, and what really frustrates me about this saying is that it creates a self-fulfilling prophecy of sorts.

The next generation is not destined to blow it up. If you do the work, and you’re willing to make the choices and put the effort in, there’s no reason you can’t have a family business that lasts for generations.”

For more incisive conversations, subscribe to Succession Stories wherever you listen to podcasts, and share a rating and review on Apple Podcasts.

Sign-up for the Insights newsletter to plan your transition and build value in your company.

Connect with us

Ready To Take the Next Step?

We’ll guide you through the process. Schedule an initial call today.

Sign Up For SmallDotBig Updates

Get updates on insights, events & more

More Blog Articles

Ready To Take the Next Step?

We'll guide you through the process. Schedule an initial call today.