E236 | Driving Growth And Generational Change In Family Businesses with Jonathan Goldhill
What are the differences and similarities between regular businesses and family businesses? Can family businesses be as successful? Our guest on The Melting Pot this week argues that family businesses can prove to be successful in the long run, as long as they focus on fostering the next generation of leaders while preserving the legacy.
Jonathan Goldhill is a business coach, having been in the field since 2003. He is passionate about family businesses and his book, Disruptive Successor, is a guide for family business owners wanting to drive growth in their businesses. He has a deep understanding of the complexities of multigenerational family businesses, and is well-versed in the challenges of transitioning between generations.
After exploring his passion for family businesses, Jonathan Goldhill discovered the unique challenges of transitioning from one generation to the next. He witnessed first-hand what it took for his father and uncle to join the family business, and how the tension of preservation and growth could be difficult to balance. Regular businesses and family businesses have different time horizons when it comes to making profit. In family businesses, success is usually determined by maximising family value, not shareholder value. Jonathan concluded that a crucial factor to success was to ensure that the older generation was encouraged to transition out of the business, whilst the younger generation was given the opportunity to grow it.
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On today’s podcast:
- The differences and similarities between family and non-family businesses
- Family before business
- Generational transitions within family businesses
- The unique dynamics of multigenerational family businesses
- Measuring performance in a family business
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How to transition a family business to the next generation
Jonathan Goldhill is a masterful business coach and personal strategist specialising in guiding next-generation leaders of family businesses to scale up their businesses as they take control over the leadership and ownership of the family business. He left New York for California at age 20 after his family’s large, privately-held men’s apparel manufacturing company—started by his great-grandfather—sold to a conglomerate in its third generation of family ownership. Within ten years, Jonathan had established himself as the go-to expert for entrepreneurs looking to find their version of freedom. Today, he brings thirty years of experience to his clients advising, coaching, consulting, training, and guiding entrepreneurial and family businesses.
Jonathan got into coaching in 2003, becoming the first franchisee of a company called The Growth Coach. He’s been coaching businesses ever since. His passion for coaching family businesses came upon reflection, prior to writing his book, on who was his ideal client, and he realised that the ones that stayed with him the longest were family businesses. There was a sense of loyalty that is not present in a non-family business. Also, he looked at his own family business.
“It’s always been a really big fascination with family businesses because families are, like they say, blood is thicker than water, and they stay together. And the economic unit in some countries, like India, is all about the family. So 97% of all businesses in India are reportedly family businesses. And think about that. That’s mind-blowing.”
Jonathan wrote a book where he introduced the Seven P’s framework (purpose, planning, products, people, priorities, processes, and performance) that all businesses need to address. It’s simple enough to understand that we need to put technology and tools and applications in where the business probably wasn’t run like that. But there are other questions that are dealt with within normal businesses (e.g. do we enter new markets? Do we come out with new products or services? How do we enter those new markets?) which are all a standard part of any type of an operating system.
“But I think what’s a little different in my book is I introduce some communication tools that need to happen to have difficult conversations to keep or to install healthy team dynamics and communication is where we run into problems in family businesses.”
After writing his book, Jonathan decided to amplify the Disruptive Successor brand with a podcast where he brings on experts in the family business space to talk about family dynamics, and family business owners and leaders to talk about the challenges they’ve overcome, or that they’re going through.
“Family businesses have some needs that are similar to regular businesses but are more commonly discussed, like Estate planning, wealth management, putting together buy-sell agreements, talking about an ESOP. These are topics that I don’t think are commonly addressed in other business podcasts. So I thought, let’s put on something that’s really focused on family issues that family business owners will appreciate.”
Generational transitions within family businesses
Jonathan’s grandfather, his brothers and their father built a very large clothing manufacturing business in the United States that made it into the third generation of family members. But that third generation was mostly in-laws and, when they had the opportunity to sell, they did. In family businesses, the transition from one generation to the next can be very sticky, says Jonathan. The baton passing doesn’t happen all that well if the founder or leader feels as if nobody else can do it as well as them.
“There’s this ego that goes along with entrepreneurs and founders and people who have worked really hard and they have a difficult time passing the baton to the next generation, thinking, that my son, he just doesn’t have that drive, he doesn’t have that hunger.”
And the problem is, they’re never going to pass the baton or develop the next generation if they don’t believe in them, or haven’t encouraged them. What Jonathan often finds is that family businesses that focus on the family first and not on the business oftentimes have healthier relationships, and the baton passing is a lot easier. Sometimes it’s the sons and daughters stepping up and taking the responsibility. They feel they have to take over their parents, to reach the full potential of the business and help them retire.
In multigenerational families, the transition can get very complicated, especially when family members like cousins or in-laws come in.
“You’ve got to create all sorts of rules of engagement. You have to come up with a family constitution, a council where you’re laying out who can join the family business, maybe what the rules are that they have to go work in industry or at another corporation before they join the family business. Maybe the ascension to the C-level suite requires certain experiences”.
But, what happens when the next generation doesn’t have that entrepreneurial drive? In Jonathan’s family, for instance, none of his grandfather’s grandchildren had it. Jonathan argues that when one generation works really hard to build something, and the next one works hard to manage it, but not to grow it, the following generation is usually so spoiled that they don’t have the hunger, the drive or the discipline to maintain something.
When it comes to succession in a family business the successor and the predecessor should have a very close mentoring relationship where the predecessor is grooming the young adult to become the person who will take over and run the business. And you have to develop that hunger by having discipline and boundaries around, without spoiling them. They have to earn their way, learn about the business, and how to be an entrepreneur.
Putting family first
Jonathan affirms that the most successful family firms are the ones that put family first. These are functional families. But, how do they do it? Jonathan says that it’s about splitting their discussions and not mixing family issues with business issues.
Typically, managers communicate with managers. And so there might be a manager’s room where they’re having management-level conversations. Then there’s a leadership team or executive team that might be in a partitioned room where they’re having separate conversations around how to lead and manage and hold people accountable. That’s a different conversation. A third room is the owner’s room and these are the shareholders. These are people who have some vested interest and want to understand the direction the business is going. And then there’s the family room where they’re talking about family issues.
As Jonathan explains, these family issues go into this family charter, or family council. But, when family occasions like Thanksgiving, Christmas or holidays come they should be able to get together to celebrate and just enjoy the family without business conversations.
“So we want to have different conversations in those different rooms and keep them separated so there isn’t a bleeding over in the owner’s room where we’re now talking about family issues, or in the leadership room where we’re talking about ownership issues.”
Dealing with generational culture change
One of the challenges that Jonathan sees more frequently with clients is next-generation or second-generation leaders who are ascending to the CEO position or president, and they’re having to contend with workers who are very talented, and that their parents leaned on and relied upon, but who don’t fit the culture that the new next-generation leader is trying to put in place. And this leader is not only trying to bring some culture initiatives that are unfamiliar to the predecessor generation, but they’re also now layering in the application of technology to track people’s time or track job costs.
Jonathan illustrates this with the story of machine shops in San Fernando Valle, where there were a lot of aircraft manufacturers. The older craftsmen knew how to work with metal or machine tools. The younger generation didn’t understand anything about this old equipment. They knew how to use computerised numerical control machines and programming.
“And these two didn’t speak the same language, and they didn’t have a healthy respect for one another. So it’s very difficult. You have to make these transitions in life and in business, right? Could you imagine not knowing how to use a smartphone and being older? You get left behind.”
When coaching, Jonathan always works for the CEO, or president. But often it’s a younger person, and he’ll do some individual coaching of the older person in the form of life coaching.
“I’m trying to help them to see that there’s another world out there outside of their business and help them to discover or find out what it is. If you could do whatever you wanted to, if you had more free time, if you had more money, these types of life coaching questions, what would you do? Would you travel more? What is it that you would do? And I try and get them to move and transition out of the business so they’re being pulled towards other interests and not feel like they’re being pushed out.”
Being pushed out is not a good feeling. And if you feel like you’re being pushed out, you’ll grasp for control and you’ll sabotage the CEO or ‘child’s’ plans. So it’s communicating in between the two.
This kind of tension between predecessor and successor happens equally in a family business and in a non-family business. A professionally hired CEO has got the same challenge of trying to drive a growth initiative. This next-generation leader wants to bring technology, tools and processes that the older generation don’t understand, or wouldn’t see the need for. Whereas a younger person in their 20s or 30s has a long life to make mistakes and grow back up, a 60 or 70 years old doesn’t have that time. They want to preserve what they have.
“So that tension between preservation and growth and the challenge between the two, they have to meet in between and find a happy medium.”
Maximising value for the family
A business is not just about making money and, usually in a family business, profit is not the primary driver. The time horizon is very different, and they’re not trying to maximise shareholder value. Instead, they’re trying to maximise something that’s for the family, the family value.
In Jonathan’s own family business the mindset was that everyone in the family had a place in the business. And, even if they hadn’t done that before. He tells the story of how his father and his uncle – both sons-in-law, started in the business when there was no place for them. The decision-makers decided to come out with a new line of clothing – a knockoff line that would have no expenses, and no cost of goods associated with it. So we’ll give them a really good head start, and we’ll name it after them.
“But they weren’t in the naming business because everything they had been doing up until then was private label manufacturing. So you had the department stores. They were coming out with a brand label that was given to them by the department store. And they were the largest private-label men’s suit manufacturer here. They came out with their own line, and they create a place for these kids.”
Measuring performance in a family business
When new members of the family are brought into the business, there can be a lot of pressure on them to perform and live up to the standard, says Jonathan. In the case of his own father and uncle, they didn’t want to disappoint their father-in-law. Doing that would suggest that they weren’t taking care of the daughters. With businesses that Jonathan has coached over the last ten years, for sons or daughters who didn’t perform, they would find a place for them where they either could perform or they would help them transition out of the business.
Ultimately we’re living in a time when everyone wants to be self-actualised. If you don’t and you’re really a poor performer, hanging around because you’re getting the spoils of the money that comes in from the business, you’re going to kill that child by enabling them. And a parent recognises that they need to do something with their child.
If a leader wants to grow and work with a growth coach like Jonathan, they can’t tolerate poor performance. A C-player pulls the whole team down, especially if they’re a family member and they’re an owner. So, sometimes they’ll have to fire them or ease them out.
“If you accept mediocrity from your family members, then what will you expect from non-family members? And the business is only going to rise to the level of the leadership that you allow. If you don’t train leaders to lead and be a better leader than you were, then you put a lid on the growth of the business.”