10 best moves for growing a family business: by following the advice of B.E.'s experts, your company can be profitable for generations to come - includes resources for family-owned businesses

Black Enterprise, June, 1994 by Adrienne S. Harris

MOST OF US ASSUME THAT FAMILY business issues apply only to mom-and-pop operations. But consider Maxima Corp., the $45 million data processing and computer services company.

Last December, founder Joshua I. Smith Sr. sued his son, Joshua I. Smith II, and two other Maxima employees for the unauthorized diversion of $675,000 from the parent company to a new division. (See "The Big Mess At Maxima," Newspoints, May 1994.) The younger Smith, insisting that his father approved the new venture and the transaction, filed a countersuit against him. The squabble comes at a time when the company can little afford the strain. Revenues have been declining since 1988, and the BLACK ENTERPRISE 100s firm hasn't turned a profit in four years.

And consider Daniels & Bell Inc., the first black-owned Wall Street securities firm. In 1988, founder Travers H.J. Bell Jr. had a heart attack and died before the successor he'd chosen, his son Darryl Bell, was experienced enough to handle the responsibility. Darryl, who played Ron Johnson in the TV series A Different World, had no business training and little interest in running his dad's company. He took charge of it anyway and, through a series of bad decisions, lost several major accounts and valued employees.

Sad-but-true stories like these are not limited to large companies. Small businesses make up the bulk of the nation's family-owned firms. Conflict between family values and business needs is part and parcel of a growing company's often painful maturation.

The average age of the BE 100s companies is now 21 years. As the first generation of black entrepreneurs matures, their adult children are coming to work for them or moving into more responsible positions in the family business. Some tensions are inevitable.

It's estimated that 90% of all U.S. firms, including 46% of the BE INDUSTRIAL/SERVICE 100 companies, are owned or managed by families. But only one in three family firms survives two generations, and only one in six survives three generations.

That's sobering news in light of the fact that by the year 2010, family business owners, ready to retire and pass the baton, will transfer an estimated $8 trillion of wealth to the next generation.

"This is the first time African Americans will be transferring major assets," says Nathan L. Eddrington, a partner in Eddrington, Roman Capital Management, a consulting firm in Roswell, Ga. "We won't achieve economic parity if we lose our companies during that transfer."

To find out what family businesses can do to ensure that they keep going--and growing--BE interviewed some of the nation's top family business experts. They all concede that addressing family business issues can be difficult, but insist it's worth the effort if your goal is strength and longevity for your business. The consultants also stress that there are no pat answers; specific strategies and solutions will depend on your particular situation. The 10 recommendations that follow are designed to help you get started.

1. Establish clear criteria for joining the family business.

In its broadest sense, a family business is one in which the founder's family members own stock or are actively involved in the day-to-day operations of the company According to a recent study of family firms, conducted by Massachusetts Mutual Life Insurance Co., spouses and sons are the relatives most likely to join a founder in the family business. But experts say that sharing your last name with people isn't the best reason for inviting them into your business.

"Family members should have something to offer when they come into the business," says Dr. Leslie Dashew, president of Human Side of Enterprise, an Atlanta-based management consulting firm. Qualifications, including education, skills and related work experience, should be weighed more heavily than family ties, she says. That may mean throwing out old stereotypes about roles and relationships. You must recognize when a daughter might be more qualified than a son, a younger child more adept than an older child, or a brother-in-law a better choice than a brother.

If you expect family members to work in the family business as a prerequisite to inheriting ownership in it, make that clear up front, the experts say. Also, make clear to those family members who own stock but who do not work in the family business how much (or how little) that ownership entitles them to take part in the affairs of the company. And what if no one in the family wants to join your business? Consultants advise that you respect those wishes. But first, be sure your assumptions are correct.

Patricia Frishkoff, director of the Family Business Program at Oregon State University, says that children of business owners sometimes don't express an interest in working in the company because they're waiting for mom or dad to extend a formal invitation. "It may be a good idea to set an age by which kids have to say what their intentions are," Frishkoff says. "Certainly by the end of high school, kids should know what's expected of them in terms of education, outside experience and a time frame if they want to join the family business."