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Home On The Range?

by Dave Pratt

Many of us hope and fear that the next generation will want to be part of the family business. We hope because we feel validated that we must have done something right when our kids want to follow in our footsteps. Many of us see it as our role to create opportunities for our kids. Deep down we may also wonder who will be there to work the ranch (and take care of us) when we no longer can take care of the ranch (or ourselves).

But we have reason to fear the transition too.  For some the ranch is barely big enough to support one family, let alone two. And what if our other kids want to come back? Children struggle with holding their parents accountable for the things they say they are going to do.  Parents struggle with letting go of managerial authority. Negotiating a path to the future when the kids may be comfortable embracing more risk than their parents is hard. The kids have a lot of time to recover from mistakes. The clock is ticking louder and louder for the parents.

In previous ProfitTips I’ve written about families who handled this challenge by separating the land business from the operating business. The kids, who own the operating business, rent the land from the parents, providing them with retirement income.  That’s a great solution when Dad is older and ready to step back, but what do you do when the kids want in and Dad is too young, or can’t afford, to retire?

The question of generational transition was a topic in a recent Executive Link board meeting.  The central question was, should the kids become part of the family business, or should they build their own business that works collaboratively with their parents’ place?  Most ranch families assume that they should incorporate the kids into the operation. But there are compelling reasons to consider other options.

When each kid has their own operation:

  • They don’t answer to Dad and Mom.  They answer to the bottom line, their partner and their banker.
  • Mom and Dad aren’t pressured to make dramatic changes prematurely. They can conduct business as usual until they are ready to change.  
  • It requires the next generation to develop the entrepreneurial skills needed to thrive in business.
  • They can avoid DILS (Daughter-In-Law Syndrome) which puts sons smack dab in the middle of one of the most uncomfortable places on the planet, in between his loving wife and his loving parents. SILS (Son-In-Law Syndrome) can also be avoided.
  • It sets a smart precedent for any other children who want to be part of things one day.

On top of all of this is the issue of where they will live. The assumption is that they should live on the ranch, but there are compelling reasons to consider other options. I’ll talk about that in the next ProfitTips.

If our kids do come into the operation, rather than expanding the operation for them, shouldn’t they be expanding it for us? If there is simply too much work and we were going to hire an employee anyway, it may make sense to hire Junior as that employee. But even that is tricky. Our kids expect to have more influence on big decisions than other employees would normally have. Even if paid a fair wage (which they should be paid) they tend to assume they are entitled to “sweat” equity.  For these and other reasons, Don Jonovic makes a compelling case for a family employment policy that specifies the ground rules for hiring family members.

Jonovic suggests that before family members come back to work on the family ranch, they go to work for someone else for several years first.  He also suggests that they not be hired for anything less than managerial positions. Having family members answer to a manager who may one day be working for them is loaded with problems.

Successional issues are among the toughest we will ever face.  The stakes are high and our perspective is clouded with the weight of the legacy we are trying to move forward, questions of our own mortality and the complexity of the most emotionally intense relationships most of us ever have.  Executive Link members working through these challenges find that discussing the issues and options with their board members who have already blazed this trail can be extremely helpful.

Please take a few minutes to post a comment about your experiences and advice about bringing family members into the family business.  I’m sure ProfitTips readers will find them helpful as well.

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