Trends in family-owned businesses

February 1, 2007 By    

Family owned businesses are unique in personality, behavior and culture. They operate with the complexities associated with the three overlapping components of ownership, the business and the family.

Since more than two-thirds of the 3,000-plus businesses in the retail propane industry are family owned, it seems right to give some attention to the special needs associated with this business type. These macro trends that are specific to family-owned companies are derived mostly from my observations in our industry, but the overall concept is from an article by Craig Aronoff entitled “Megatrends in Family Business.”

 Carl Hughes, LP/Gas Magazine Columnist
Carl Hughes, LP/Gas Magazine Columnist

Generational Transitioning is Replacing Succession Planning – In the old days, the family would select the son, daughter, or another from the family to take over the helm. Today, more complex issues are present in areas of estate taxes, legal, cultural and social matters. As a result, more companies utilize a transitioning process that involves the needs of the family as well as shareholders, board members and management.

Management is a Team, Not an Individual – I observe that even in the smallest of successful retail propane companies it is no longer the one top individual who is “management.” Rather the successful family business grasps the reality that a team of skilled professionals working as a unit can out-think and out-perform the traditional single leader of the past.

Financial Sophistication is a Necessity – A common thread among all successful retail operators is their level of financial expertise. In fact, you can find many small- to mid-sized, family-owned retailers whose financial expertise could be found in much larger organizations. These family companies recognize that having financial expertise is critical. Weaker companies generally will not see the benefit in retaining high quality financial skills. They typically do not have the grasp of the financial standing of their companies on a real-time basis, and do not understand fully the financial ramifications of their decisions.

Professional Management is Replacing Entrepreneurial Management – The business launched by the stereotypical hard-driving entrepreneur who built the business one account at a time – and which now is a business with employees who support his central role – is being replaced. More often now the family-owned retailer recognizes the need for professional, objective leadership that creates a broader organization of skilled professionals comprised of both family and non-family members.

Retirement is Being Redefined – The old entrepreneurial game plan of “They will take me out in a box” or “Pick a successor and get out of the way” is being replaced. Demographics of longer, healthier lives mean that many years of productivity remain past the traditional age of 65. Often the senior family member accepts an active role on the board or as an adviser. Their experience and wisdom can be valuable to the family business, as well as provide a positive influence in supporting the new leadership.

Professional Service Providers are More Valuable – This is true on two significant fronts. Lawyers, bankers, accountants, and insurance specialists are more skilled than in the past in the specialized needs of a family-owned propane company. Plus, recognition of the need for experienced, outside advice has grown as the complexities of the business continue to increase.

Strategic Management is More Prevalent – The dynamics of change require a new way to look at the future. The top family-owned propane companies approach the future with a strategic sense. Involvement is broad, addressing the complex needs of the three components of family, ownership and business. There are many family owned retail propane companies that – for lack of having a strategic sense and process – decline and die a slow and directionless death.

Ownership is Becoming Broader – Our industry still has many single shareholder companies, but we are finding more companies where multiple family members are beginning to share a stake in the company. It also is not uncommon to find companies where majority ownership does not rest with a single individual, but with equity control spread among family members.

I hope you find these trends useful as you reflect on your own family owned business.

Carl Hughes is vice president of business development for Inergy LP. He can be reached at
Chughes@InergyServices.com
or 816-842-8181.

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