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Laundry in Transition: Continuity in Family Business (Part 1)

Each generation needs to conquer the business, says family business expert

ALEXANDRIA, Va. — The family business is the major player in the U.S. economy. According to the Family Business Review, 80% to 90% of all businesses in North America are family-owned.

That number includes many laundry operations.

The challenge is to keep the laundry business in the family.

Justin B. Craig, Ph.D., clinical professor of Family Enterprise, co-director of the Center for Family Enterprises, Kellogg School of Management, Northwestern University, has dealt with many types of family business dynamics and transition issues.

“If anybody ever suggests to you that family businesses aren’t good at succession, I encourage you to go back to them and say there is a reason for that and the reason is we don’t do it very often,” he says. “The public companies, they rotate their CEOs every three to five years. Here, you’re going at a much longer tenure and you stay around and you absorb the misery from these financial cycles and these other shocks to the industry.”

During the Textile Rental Services Association (TRSA) webinar titled Family Business Dynamics: Innovation in the Family Suite, Craig discussed transition planning for family-run laundries and how to train up the next generation.

“There are a diverse range of issues you’ll be facing, depending on where you are in the life stage of the business and also the life stage of the family,” Craig says. “And, also, you’ll be at different levels of sophistication as far as your preparation for transition goes or your governance structures.”

‘EACH GENERATION NEEDS TO CONQUER THE BUSINESS’

Craig says the idea that “each generation needs to conquer the business” is relevant as the 21st century progresses, with the rate of technological change that’s going on.

“If you look from my point of view as I study family firms across the globe, each generation brings something new to the business,” he says. “But now we’re finding that each generation needs to conquer the business, bring more than one thing to the business, because with product life cycles and technology, there’s increased flux in the system.”

Innovation is needed in the business and in the family, according to Craig.

“We’re observing increasingly that there is significant innovation in how the leader of family firms are preparing the next generation,” he says. “They are truly being innovative. Your role as the leader of the business is coupled with your role as leader of the family or the incumbent, those who are leading the business now.

“They are driving change in the business, but as well as that, there is the increased necessity or increased focus on preparing family members for their roles, not only in the business, but roles as owners of family systems.”

Craig notes that family businesses, like all businesses, including public companies, have an ownership system and a business system. However, these systems are also coupled with the complexity of the family.

“This is exponentially more complicated when you look at involving the family and second generation of family,” he says. “It’s a network of families, and their expectations of what they will get from this business will vary, potentially considerably, so it’s a balancing act for that person who sits in the middle of this.”

FAMILY-OWNERSHIP-BUSINESS

To show the complexity of a family laundry business, Craig groups the people involved into three categories, or circles, that overlap: family, ownership and business.

“Some family members work in the business. There are some who don’t work in the business,” he says. “There are some who work in the business who are also owners. They populate all three circles.”

When it comes to running the family business and looking at transition, the continuity of the business, Craig says that the leaders need to understand the perspective of people who are in other circles.

He says the family members not involved in the day-to-day operation of the laundry need to understand the business challenges. They need to be part of the conversation to grow the business in a complex, increasingly competitive landscape, including the technological side of the industry.

“That typically requires an understanding of commerce, what does it take to actually reinvest in technology, and the cost involved,” Craig says. “That’s a big conversation with people, and they’re not understanding business as much as they’re only in the family circle. They need to understand the intricacies, not in the details, but in the basic nuances of commerce.”

Members in both the family and business circles create another complex issue, Craig says. 

“Oftentimes there’s an impatience to be owners, and that may mean you need to understand the perspective of the owners and the challenges that they face as they conduct their estate planning,” he says. “Look at the intersection between family and business, and the tension that occurs between those two systems, that’s where you next need to engage strategic human resource development so that you’re actually preparing the family for roles in the business.”

Craig says that the innovation in the family often means that family members understand that there is a role for them in the business and that those family members need to be equipped for that role.

“We need to make sure it’s not just an expectation that they will receive a job in the business,” he says.

The intersection of the ownership and the business circles is where the strategic planning needs to take place to ensure that the laundry is looking to the future, according to Craig. It’s the strategic planning that stakeholders, non-family business managers, need in order to understand where they fit in with the industry.

“We need to understand that we have objective measures and targets and that we do have a strategy in place,” he says. “That strategy may be to diversify, it may be to grow, it may be to consolidate.”

Finally, the intersection of owners and family is where the most “delicate” planning procedures takes place, Craig says. That’s the estate planning, with clear guidelines in place—what’s going to happen as the laundry transitions ownership from one generation to another.

“I would urge you to sit and see what planning have we got in place as far as the human resource development planning between the family and the business, the strategic planning between the ownership and the business and the estate planning between the ownership and the family,” says Craig. “If you collect those three plans together, they come under the umbrella of continuity planning.”

Check back Thursday for the conclusion on training and transitions.

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Family-run businesses should have a plan in place to educate the next generation when it comes to leadership transition. (Image licensed by Ingram Publishing)

Have a question or comment? E-mail our editor Matt Poe at [email protected].