[Hitch]

Originally Posted by DMcCunney

Family businesses have inherent problems that not all overcome. If the family is dysfunctional, the business will be too.

One problem is attracting and retaining competent subordinates. If it's known that Junior will inherit the business and become CEO when Dad retires, there's an absolute ceiling on how high and employee can rise. Some folks who would like to be a CEO someday will leave for someplace where that's at least possible.

Another is whether the next generation is interested and/or competent. In some cases, the siblings simply aren't interested in the family business, and have other interests. Years ago, for instance, I was taken to dinner at a high end Italian restaurant by a friend. We got into a conversation with the Maitre D, who stated that Italians didn't own/run any Italian restaurants in NYC these days. The grandparents had come over from Italy, got into the food trade, and worked 12 hours a day seven days a week to establish themselves and built a successful and prosperous restaurant. Their kids largely didn't want to recapitulate that experience. The wanted to go into other middle class careers like law, medicine, or brokerage. So the next generation of immigrants filled the void. He recounted interviewing a guy for a job as a waiter. Asked where he was from, the prospect mentioned an Italian village across the border from what was then Yugoslavia. "Who are you bullshitting?", responded the MAitre D. "You're a Yugoslav! You're from my town!"

(Dennis: I have ZERO comprehension as to why that is coming out italicized. I don't see anything in the BBC that would cause it. )

Well, one of the first things you learn as an entrepreneur, whether that's a newsstand, a restaurant, or an eBook company is that nobody else is going to love and slave over your company like you do. Or hate and slave. Mach nicht. You can't expect any paid person to labor over an 80/hour/week business like you do. And, unless you're extraordinarily fortunate, you can't reward them adequately in order to induce them to do so, either through direct salary or other forms of compensation. Believe me, I know this. ;-)

A third issue is that there may be multiple siblings, but not all will be fit to run the business. In earlier eras, you had the concept of the remittance man. This was typically someone like a younger son of a noble who would not inherit the title. He was given an allowance and encouraged to go live somewhere else. The Rothschilds made use of the technique. They recognized that not all of the younger members of the family were suited to be managers of the business. They were given allowances sufficient to maintain themselves in a suitable fashion, and sent to live elsewhere, where they would establish themselves at high levels of the local society, and make a point of keeping the family informed of what was taking place that might offer opportunities, but they wouldn't actually be making the deals.

Yes, but the Rothschilds were never...kid-blind. They were nearly cruel in correctly assessing the attributes of their offspring and their offspring's offspring. That's a rare talent, it seems. My mother suffered from kid-blindness, in the case of my late brother. She simply had an utterly boggling double-standard in everything--from behavior to capability to you-name-it. As one of the affected offspring, I can tell you, it was beyond infuriating. We had our own familial issues, surrounding monies and some other bits and orts, so yes--I can see the problems quite clearly.

And a fourth issue is that multiple siblings who are interested in running the business may fight over who does what and who gets to be the top boss. (See above about dysfunctional families.) The Bancroft Family had owned and controlled Dow Jones, whose properties included the Wall Street Journal. They sold out to Rupert Murdoch's News Corp in 2007. Among other things, there were reports of disagreements in the family about the mqanagement of Dow Jones, and they decided to simply get out of the business instead of fighting over it. (Many folks including me are less than thrilled over what happened since Murdoch took over.)

See above. Oh, yeah. You bloody betcha. Our fights were almost a disaster. Caused a major severing of familial ties for a year or two.

The hired hand mismanaging things is yet another issue. A friend recounted the problems at his company, a computer/network consulting outfit, where the owner had haired a woman to handle day-to-day management. As it turns out, she had ambitions, and was deliberately running the company into the ground so it could be picked up for a song by people she was involved with, and leave her as CEO after the ownership change. She got caught, and tried to purge the evidence. He talked about employees voluntarily coming in on Sundays to do computer forensics on her machines and resurrect the stuff she tried to delete to cover her tail. The last I heard, she had fled, tried the same thing at another company elsewhere, and was currently a wanted fugitive facing racketeering, embezzlement, and other criminal charges. The owner had to resume management of the business. Whether he learned from the experience is unclear.
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Dennis

Well, most of us don't have to-be felons as our issues; it's just, as I said above--having enough $$$ in the profit to PAY someone good enough, their actual worth. One alternative, of course, is to use equity...but that's tough, again, with most family businesses. We've had several businesses, in our family, for the better part of the last century, into the first part of this one. Each has faced one or another of these issues. (Not to mention, the ubiquitous, "the kid that wanted to take it over was the LEAST capable of so doing" issue.)

NONE of them worked out really satisfactorily to ALL parties. They all ended up compromises, which, natch, means that everyone felt that they'd been screwed, somehow. ;-)

Hitch