John Marce had dreamed that Alex, his son, would take over the family business someday. John was the second generation of business ownership since his father had founded the company 47 years earlier — Marce Distribution Co.
It had a large presence throughout the Midwest. Clients included wholesalers, retailers, Amazon and other online channels generating over $30 million a year in revenues and pre-tax earnings of $550,000 per year. The company had an excellent reputation, low employee turnover and a “family” culture environment. Each year’s growth goals were met for the past 10 years.
When Alex graduated from college, John put him in a managerial role almost immediately. Alex had a strong personality and had always demonstrated leadership skills while growing up. Alex’s first assignment was managing the warehouse logistics and the supply chain of the firm.
Things started off fine, but soon it became clear to other managers that Alex had little affinity for the business. He appeared uninterested in filling and shipping orders accurately and on time. Vendor relationships began to deteriorate. Employees soon became discouraged and resented Alex’s presence.
Alex treated warehouse employees with disrespect — displaying a condescending attitude toward them. As a result, productivity and morale declined. John begin to realize that he had a bigger problem as longtime trusted employees were handing in their resignations.
As time went on, revenues began to decline, and customer complaints began to increase. Soon John received calls from customers complaining that they had not received their shipments on time or that their orders were improperly packaged, or short of the merchandize they had ordered.
John investigated the situation. The employees unloaded on him about all of the problems that his son was creating. They told John that his son was abrasive, abusive, arrogant and downright mean to them.
John now realized that the rise in employee resignations and customer complaints were because of his son’s personality and lack of management experience. However, John ignored the red flags and created a new department. He assigned Alex to develop and launch new product lines. But, one initiative after another failed. The sales department complained bitterly that Alex refused to listen to their feedback and advice. They told John they could not sell the new products as designed. Customers would not buy them.
As time went on, revenues and profits continued to fall. Disappointed, John reluctantly realized that Alex was not a good fit and would not be capable of leading the company in the future. If he kept Alex on, he could very well damage the company beyond repair. There was simply no place for him in the company.
Questions looming in John’s mind were: “Can I really fire my only son?” John kept asking himself, “What will this do to the family? How will it affect Alex’s and my relationship?
The fact is there is no easy way to fire your children. According to Harvard Business Review, “The consequences of firing your children are life long … no matter how well it is done.”
So, here are some recommendations to help you survive one of the most difficult times in your life both personally and professionally.
- Sit down and have a heart-to-heart discussion with your child just as you would with any other employee.
- Treat you son/daughter with the same respect that you would treat any other employee.
- Keep your demeanor low-key, but firm, and nonaccusatory.
- Don’t downplay the seriousness of the situation.
- Be objective and show him/her the data and the financial performance.
- Compare the financial performance to the expectations that they had agreed upon.
- Elicit his/her reactions to the problems being discussed.
- Provide an exit plan for your child.
John would not be in this position if he had asked himself the following questions as put forth by the Harvard Business Review:
- “Are expectations clear and mutually agreed upon?”
- “Are you unintentionally setting up your child to fail with amorphous or unrealistic expectations.”
- “Are you clearly defining his/her roles?”
- “Does your child have the right experience and skill sets to be successful”?
- “Is your child being held to the same standards as other employees”?
- “Are there clear metrics to hold him/her accountable”?
- “Is your child in the right role?”
If there was any doubt in John’s mind about the answers to the questions, he should seek a trusted third-party adviser such as a board member, a close business friend, or a business consultant for an independent assessment. If he had a close relationships to any of those resources, he could ask one of them to mentor Alex.
In John’s case, he didn’t hire his son based on skill sets needed for success. He had no succession plan in place. He didn’t analyze the cultural fit requirements for his business. He just hired him because he was his son.
According to The Family Firm Institute, only about 30% of family businesses survive into the second generation, 12% are viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond.
Some family businesses simply have a life cycle that will not go on forever.
Gary Miller is CEO of GEM Strategy Management, Inc., a M&A advisory firm advising small and medium sized businesses throughout the U.S. He represents business owners throughout the transaction process from preparing them to go to market, selling their companies, acquiring companies and raising capital. He has been a frequent keynote speaker at conferences and workshops on mergers and acquisitions. Reach Gary at 303.409.7740 or [email protected]
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