Family Affair

Family Businesses Are a Cornerstone of Furniture Retailing—Here Are Ways to Help Keep Them Thriving

"My sister handles our store layouts, all our designers. She follows up on big jobs. My son Michael is a junior at Seton Hall. My son Christopher's in high school now, and he's worked with us some. My sister's daughter Hilary is interested in the business.

"Our generational move was moving from the transportation side to the furniture store side," Massood said. "Now we're having our own second generation moving into the retail business. They're still a little young, but what we do with our children is give them tasks and let them run with those tasks. They come up with the plan, and at the end of the task we sit down and talk about how it went."

For example, the younger Michael Massood handled the opening and closing of a clearance center by himself while he was a freshman in college. The key in developing future leadership sometimes leads to a few hard knocks.

"You have to let them learn," Massood said. "Even though you can see potential mistakes—and we will prevent the big ones—you have to let them make their choices. They have to enjoy their own wins and feel their own losses."

PASSING THE BATON The handoff from one generation to the next is the single biggest key to a family business' future, said David Lively, president of Lancaster, Ohio-based furniture retail consultancy The Lively Merchant. The issues facing family business have him refocusing his business to concentrate on that area.

"Management succession planning focuses on the four key departments of the company: administration, finance, operations and customer fulfillment, which includes sales and marketing," he said. "Management succession planning has nothing to do with who owns the company, but what happens when you unplug a key executive from the equation. How does this company operate when the key executive dies or retires? Ownsership succession planning deals with estate planning, taxes and wills, dealing with the transfer plan. It's about sitting down and saying, 'OK, kids, this is how it will work.'

"We're dealing with the technical issues, the how-to. What we're trying to eliminate is dealing with companies where the dad has died and it's now a triage. Without a plan, the assets of the business move to a surviving spouse who might not have been involved with the business. That leads to technical mistakes popping up."

He cited studies showing that the transition from first to second generation leads to a third of family companies going out of business; and the transition from second to third generation leads to another 66 percent closing shop.

"With the transition from third to fourth generation, less than 5 percent of companies survive," Lively said. "The numbers are the same transferring from sibling to sibling. Businesses just don't get this. They think its only about writing a stock purchase agreement and transferring ownership."

For his family business clients, Lively conducts an eight-step "Family Health-Risk Assessment."

"We interview every family member, whether they work at the company or not, and any management within the organization who has decision-making capability, one-on-one, face-to-face," he said. "Based on the results of those interviews, you have to deal with a lot of different issues—legal, financial and interpersonal. You have to line up the reasons why family businesses get themselves into trouble with the transition."

Nine reasons typical reasons for trouble include:

• Lack of common vision

• Poor self or time management

• Poor next-generation leadership-skills development and preparation

• Poor technology

• Lack of clear roles and responsibility

• Poor operation, sales and financial metrics

• Unwillingness or inability to address problem issues that are sources of conflict

• Ineffective succession planning

• Failure to grow

Failure to grow?

"Failure to grow creates a lot of problems," Lively said. "A retailer might have a $6 million store and say, 'We have a good life, I don't want to be a $12 million business.'"

Problem is, that might not leave a big enough pie for the next generation.

"When business is good in our industry, a $5 million store puts 5 percent on the bottom line—the parents take some out, Brother Bill takes some, and before you know it there's not a lot there," Lively said. "Then when the parents retire, they take assets out of the business. ... I know of a $7 million company in Ohio that's closing now. The owners have three kids, and the only way the parents can retire is to shut it down. This happens all the time."

WHO GETS THE BIG CHAIR? OK, let's assume the business is large enough and in strong enough financial shape to support two or more children who'll work in the store going forward. Who runs the show? Here's an area where family dynamics can raise friction.

"A family business is a natural form of business, but remember Adam and Eve ended up with transition issues with their kids," said Wayne Rivers, president and co-founder of the Family Business Institute, a Raleigh, N.C.-based consulting firm specializing in management, processes and business practices for family owned companies. "Who gets the reins in an ideal world is the individual best suited for the long-term success and growth of the business, whether or not he or she is a family member.

"Say you have two kids," Rivers added. "One is an MBA, a go-getter; and the other works doing odds and ends, repairs, or handles one area such as merchandising."

The decision there is pretty easy from a business standpoint. Where it gets tricky, Rivers said, are situations such as where one sibling might handle all the business' accounting and finances, and the other is the star salesperson.

"You have two smart people who play important roles in the business," he said. "You have to have a process—the first thing to do is forget the people and design the job description that lists the skills, attributes and education necessary for leadership of the business. Hold it up to the kids. You might find out that it's not either one."

One solution is "bridge management."

"Say you have two bright 35-year-old children in the business," Rivers said. "They both have leadership potential, but what they are lacking is the experience."

In such cases it might be worth it to bring in a professional from outside the family with the experience you need and let them develop the kids for five or 10 years.

"It also helps in the family relationship itself—this person's detached," Rivers said. "The guy also has to pay his way for you. He needs to bring serious marketing, merchandising and efficiency ideas to the table in addition to grooming the second generation."

For companies that are too small to consider bridge management, another possibility is an informal board of advisers to help the transition and evaluate the children's aptitudes.

"What you're looking for is objectivity," Rivers said. "Often the parents know the right choice intellectually, but can't get past the emotional aspect. Pay [the board] something, maybe $300, their expenses if they come in from out of town—make it worth their while.

"How you tread lightly with emotions is to get someone else to blame—an outside board, bridge management or a consultant."

Sibling rivalry can be a problem, but it pales in comparison to the potential havoc a will rewritten to accommodate an owner's second marriage can wreak.

"Say Mom dies, and a while later Dad marries again—the stepmother might even be the same age as the children in the business," Rivers said. "The horror stories you can hear about children getting disinherited by a step-parent result from no planning."

For that reason, Rivers advises that family businesses should have a buy-sell agreement in place for siblings or children.

"A buy-sell agreement where you have a willing buyer trumps a will, but there's no such thing as a simple buy-sell agreement, and they are emotional land mines for family businesses," he said. "The buy-sell itself can trigger family disagreements, but it also triggers all kinds of long-term thinking, which can be rare in a family business. Prenuptial agreements, buy-sell agreements and lifetime transfer of stock ownership can help resolve issues related to second marriages."

A lot of family companies find themselves so wrapped up in day-to-day operations that it's easy to put such planning on the back burner. Beware, said Rivers: "Planning doesn't sell furniture, but it can save hundreds of thousands, even millions of dollars if there's a sudden transition."

THE VOICE OF EXPERIENCE A good transition of a family business doesn't happen overnight.

"The best transition process, not the planning, but the planning, the execution, the re-planning, takes 10 years," Rivers at The Family Business Institute said. "You have to give yourself time to screw it up and go back and do it better."

Retailers who've taken that approach like the benefits—number one being the opportunity for the next generation, which might already be involved, to learn from their elders what it's like to have total control.

"I'm lucky in that we've had a very smooth transition generation-wise. We have two separate store operations, so that makes it pretty easy," said Elie Samuel, president of Samuel's Furniture, Ferndale, Wash., which also has a Vancouver, British Columbia-area store run by Elie's brother, Oren.

Elie's father, Moe Samuel, remains president of the overall company, but Elie and Oren call the final shots for their respective stores.

"The key is my dad's willingness to stay involved but be able to allow us to make the decisions," he said. "He knows if he's going to let go of the reins and let someone take over, he needs to really let them take over. ... It was also such a long transition. I've been in my position for 18 years, though at first my father was still listed as store president."

Samuel said that when there are problems with a transition, they involve personalities more than anything else, "and while we all have strong opinions, we're pretty lucky in that way."

Mark Bograd and Joe Bograd are president and chairman, respectively, of high-end Riverdale, N.J., retailer Bograd's Fine Furniture. Over the past 10 years, Joe and his wife, Marcia, have transitioned day-to-day operations to son Mark. The business is entering its third generation—Joe's father and uncle founded the original store in 1930.

A little respect on both generations' part has gone a long way for Bograd's during the process.

"As important as the whole financial aspect of this is, even more important is how (parents and children) deal with one another," Joe Bograd said. "I recognized my father was a wise businessman, and when Mark came in, he realized I wasn't so stupid, either. I know of some businesses where there really is an assumption on the part of the second generation that their parents' success was all due to luck. My advice to them is that whatever changes they want to make, do them one at a time. If you do it all at once, you won't know which ones failed."

Mark Bograd said he and his parents have been blessed with a reasonable working relationship, and the decisions he'd make independently are essentially the ones he'd make with his parents' input.

"But there's not always a lot of respect on either side" in some family businesses, he noted. "There also are cases where the transfer process cash-strapped the business [by] buying out siblings or parents, or when the parents just dump the business on the next generation. "I'm lucky in that my father's notion of retirement is to work less, not stop working.

"I entered into this business knowing I'd need at least five years to figure it out, and there are some things I'm still working on after 10." HFB