Goldilocks Advises a Family Business (Part II)

Last week we looked at advisers who work with business families, bringing the perspective of an outsider to a family system. 

That perspective allows them to see things that the family members themselves have difficulty noticing.

With time, such advisors can learn enough about the family’s workings to also begin to benefit from the knowledge of the family insiders.

Of course, there’s a fine line to be struck here, and it’s one that experienced family business practitioners clearly recognize and constantly try to manage.

Getting Too Close

Much like when Goldilocks tries one of the bowls of porridge and finds it too hot, she gets burned, consultants can also be too quick to act and get too close to the situation to properly maintain their objectivity. 

This can happen very early on in situations, especially where there’s some conflict between family members.

Any outsider needs to be extra mindful of how they enter the family system, in order to maintain an objective stance towards everyone.

If one sister “brings me in” to a situation with her family, and there’s an issue with her sibling, it won’t take very long for me to be branded as “her guy”, and then my chances of being seen as neutral will be lost.

Who Hires FamBiz Consultants, Anyway?

A few years ago, in Notes from a Great Keynote, I related some statistics from Craig Aronoff, one of the founders of FBCG, about the percentage of families that actually hire an outside consultant at some point.

He stated that somewhere between 2% and 4% of family businesses actually avail themselves to what he called “private lessons” from an outside party.

That means that 96% to 98% of families never hire an outside consultant to work with them, which seems high to me.

Not as Easy as It Looks

Part of the reason the numbers are so low comes from the fact that this work is not easy to do. 

Family businesses are very common, all over the world, but that doesn’t mean that they’re simple, or that there’s some magic formula to the business model.

When I’m invited into a family’s inner circle, it’s always a privilege and an honour to be there, in a place they do not typically allow just anyone to enter.

And when you’re there as a “process person”, there are plenty of things that you need to be on the lookout for.

Watch Out for the Hornet’s Nest

There are potential hornet’s nests around every corner, and if you aren’t careful, you might accidentally kick one and cause more of a stir than you had planned for.  So it’s best to tread slowly and carefully.

In addition to being mindful of not being seen as one person’s “guy”, it’s also important to develop and maintain individual relationships with each of the key family members, even those who might appear to be “less important” at the outset.

In a family, every person is important, even though they may not all appear outwardly to be, and even if some members act as if they are more important.

In fact, outsiders who work at these relationships on the “lower rungs of the ladder” will eventually be rewarded.

Another Way to Go: Just Coach One of Them

Being on good terms with all family members can be a balancing act, and some consultants master it better than others.

There is another way to go that I’ve been discovering and liking more and more lately, and that’s to just work with one person from the family, as a coach.

Last week I mentioned that a family is a system, of interdependent people. 

A system typically finds an equilibrium, but if one person changes, the system will necessarily change too, eventually, assuming the one person has the strength to maintain the change themselves.

One Family Leader Can Make a Huge Difference

In many ways it’s a much easier starting point, because getting the agreement to work with a single person is typically quicker and the learning curve is shorter when you’re only dealing with one person.

Naturally when I coach a member of a business family, I learn about all the other members too, but I’m not the one who interacts with them.

It’s still all about process, only I’m working with the “family leader” on the best way for them to interact with the rest of their family.

And in the end, sometimes that’s “just right”.

Writing a weekly blog and being one’s own editor can involve making some interesting choices at times.  This week I decided to use a term in my headline that’s actually one that many of my colleagues try to avoid.

But, the term “soft stuff” (and its derivations “soft skills” and “the soft side”) does in fact nicely convey the stark contrast between the work that we do compared with that of others, including many folks with whom we often collaborate.

There’s no shortage of words I could’ve used to make my point, but I settled on the Soft/Hard contrast here, for reasons I hope will be appreciated.

The “Normal” Uses of Due Diligence

Actually, my choice to go “soft” was mostly related to its contrast with the other phrase in the headline, “due diligence”.

And thanks to Google, we can quickly type in “due diligence meaning” and get this:

• Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.
• A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities

Those definitions seem clearly aligned with what most people would agree are “hard stuff”, or quantifiable, legal matters that all businesses need to consider, especially when looking at a company’s ownership transition.

What About “Emotional & Interpersonal Due Diligence”?

Let’s start with a hat tip to Ron Reece, a US colleague I met recently as part of an FFI Course that’s part of their Advanced Certificate Program. 

As the FFI faculty member, I reach out to all the students in the course to arrange a Zoom meeting early on, to get to know them and where they are in their journey. 

The course is about Family Governance, and everyone in the class comes to it from different angles, so it’s truly a privilege to learn about their personal experiences.

During my intro call with Ron he shared a term that he’s been using to make his point about the importance of the work he does with families.

He told me he calls it “Emotional and Interpersonal Due Diligence”.  

“Wow”, I replied. “I’m gonna have to write a blog about that”.

The Most Important Due Diligence?

Ron’s a psychologist, so he can pull off this kind of lingo better than most, but even guys like me who come from a business background can see how this can actually be the most important part of any due diligence process.

In fact, it deserves to be highlighted, especially in cases of family business succession, precisely because there’s likely to be less of the “regular” due diligence going on because the “transaction” is probably more of a “family transition”.

I’m having an A-Ha moment as I write this, so bear with me as I flesh this out.

Transactions Require Regular and Thorough Due Diligence

Transitions Require Emotional & Interpersonal Due Diligence

That thought wasn’t in my head when I started writing this, which is why I blog every week, for moments of clarity like this.

Some Important Work Needs to Be Done

If you are going to sell your business to someone, the buyer should/must/will conduct some form of due diligence before completing the transaction.

So when the business is going to go from one generation of a family to another, would it not make sense for some similar form of work to happen, to make sure that everything is going to work out as planned?

Is the Shoe on the Other Foot?

What makes this trickier is the fact that every outside buyer would insist on due diligence and it will happen or else there’s no deal, BUT, in a family business situation, the “buyer” is often in a position of feeling like they are getting a favour, so the seller typically calls the shots.

And that’s precisely where (and why) things so often go wrong.

When there’s a group of related acquirers, who are beholden to the one who’s divesting, not enough attention is given to the cohesion and interpersonal relationships of the group of new owners.

What If It Doesn’t Work Out?

If the leading generation (seller) is in charge of the deal, they don’t want due diligence to screw up their deal.

They need to be made to fully aware that a failed deal will come back to haunt them, and only some “soft side due diligence” can clear that up in advance.

Where IS everybody?

One of my recent Zoom calls began with someone asking “Where is everybody?”  

It wasn’t someone having a problem with technology and experiencing trouble with her screen. She was actually asking a much deeper question.

You might think of it as a modified version of “How is everyone”, which it likely was, but in these tumultuous times, it likely was more about “where” we each were along this journey we’re all on right now.

And make no mistake, even though most of us are confined and sheltering in place much of the time, we are all on a journey.

Stumbling Around in the Dark

Now the question “Where is everybody?” could also be something we say when we venture outside these days. 

There isn’t as much “doing” going on out there for us to see, so a lot of people are now concentrating more on their “Being” rather than just their “Doing”.

When our world gets shaken up, there’s a natural tendency to look inward and reflect, and spend some time thinking about what’s truly important to us.

Even that question from earlier “How ARE you” is very different from “What are you doing?”

And even though we may not be on a physical journey, many of us are on a journey to what’s next, even as we stumble around in the dark, not knowing what lies around the next corner.

Who Do You Want to BE?

As we get a bit more introspective, we sometimes begin to think more about who we want to be, instead of simply what we are going to do.

It’s somewhat more of a long-term view.

To me, the things that we do, over and over, are a huge part of who we are, and especially who we become.  It’s all part of the habits that we get into that make us the kind of person we are.

How Do You Want to Be Remembered?

Let’s now bring this back to the subjects we normally deal with in this space, enterprising families, and their challenges in attempting to transition their wealth from one generation to the next.

There comes a time in the lives of family business leaders when they start to think about how they want to be remembered. 

Hopefully they begin this process early enough in the arc of their lives to still make some changes in their focus.

The current crises (that’s crisis, plural, because there are several going on, even if you haven’t separated them in your head yet) may be forcing people to think more about who they are and how they want to be remembered. 

And that’s a good thing.

Legacy Definitions Vary

How you will be remembered is part of your legacy, in fact, some would say that that’s the essence of your legacy, the basic definition.

There are variants, of course, and different versions of the definition of legacy resonate better or worse with people, depending on a host of factors.

I’ve always liked this version: “Legacy is how people feel when they hear your name”, although I’m not sure where I got it. I just typed it into Google to see if I could find the source and nothing quite matched.

Perhaps my version makes more sense if we add “after you are gone”, but I prefer to think that one’s legacy need not wait until after their death.

I know that “how people feel” about me is also important to me while I’m alive too!

Maya Angelou Version

One quote that did come up during my Google searches is from Maya Angelou, and I think it fits into my conclusion”:

                “I’ve learned that people will forget what you said, 

                       people will forget what you did, 

               but people will never forget how you made them feel.”

At a time when there is so much uncertainty in all of our lives, I think it makes sense for many of us, especially those of us in the second half of our lives, to begin to shift more towards this kind of focus.

Doing, Being, Feeling

Working with family members typically get emotional, so our feelings are never too far away.

That doesn’t need to be a bad thing, if we can focus on what’s important, and making sure we remember how what we do and who we are will always affect those feelings.