Fast Company

How Great Family Businesses Skirt The Feuds, And Other Pitfalls

Even in an age of juggernaut enterprises such as Amazon, Apple, and Google, about 80 percent of the world’s businesses are family owned. But only a third will survive to the next generation. Here's how to navigate the trials of working with relatives and pass the torch successfully.

Scott Moorehead started working for his parents' business, The Cellular Connection (TCC), during the summers when he was still in high school. When he went away at college, he landed a position at one of their retail outlets.

So as a newly minted graduate from Purdue’s School of Business Management Moorehead, he said, “it made all the sense in the world” to go into the family business. And why not? In addition to TCC’s “cool culture,” the company was well on its way to becoming the largest Verizon premium wireless retailer in the U.S. In 2008, he took over the CEO’s chair from his father, Steve Moorehead.

Scott Moorehead’s path is more common than you think. Even in an age of juggernaut enterprises such as Amazon, Apple, and Google, about 80 percent of the world’s businesses are family owned. In the U.S., they account for around 60 percent of total employment and more than half of the nation’s gross domestic product, according to annual research from the Kennesaw State University Coles College of Business.

But that doesn’t mean Moorehead, or any other second- or subsequent-generation owners, can simply slide seamlessly into positions of power because of their surnames. After all, there’s a reason for the old chestnut advising against going into business with a relative. There are challenges. According to Moorehead, they started with changing the mindset of veteran employees who thought he was “an entitled, snot-nosed brat.”

Fast Company rounded up a multi-generational group of family business owners who are making it work. Here’s what they had to say about collaborations, conflict resolution, and transitions.

Step Outside the Family Box

When Sarah Lynne Howie was still a student at the University of Georgia, she made a conscious choice not to follow the path of three previous generations working in the railroad industry. Howie chose health care, a track that took her to Maxim Health Services, where she learned about operations, payroll, human resources and recruitment, and even sales, during her tenure. 

Though she couldn’t have known it at the time, her experience was just what her father, a veteran locomotive engineer and supervisor, would need when his startups Rail Training & Consulting, Inc. and RailSoft Systems, Inc., were growing, but he was considering retirement.

Howie explains it was “the best combination for her father” because he didn’t have the business background and the training in regulatory compliance that the new software company needed. 

Get To Know Everyone (And Do Their Jobs)

Moorehead never worked anywhere else except his family’s business, but he didn’t immediately move up from retail sales to the corner office. His father, Steve Moorehead, points out that Scott was put through a training program masterminded by his mother, Phyllis, who headed up HR. 

Moorehead worked at nearly every position in the company, from delivery truck driver to accounts payable assistant. His father said the experience won the staff over but led to other positive changes such as a change in the pay structure that led to a decrease in employee turnover.

Who’s the Boss?

Ziv Kedem started Zerto, a business continuity and disaster recovery solution, with his brother Oded in 2010. Prior to that, the Kedems worked together for 12 years, including teaming up at Kashya, an Israeli data storage company that was sold to EMC.

Though they are close in age (Ziv is 37 and Oded is 36), Ziv says he was the natural choice to be CEO of Zerto, and not because he’s the elder brother. “It was the experience,” says Kedem. As founder of Kashya, Ziv ran all sales and led successful funding rounds for both it and Zerto. His brother’s expertise as a director of software development for EMC more naturally led to his position as CTO. 

Conflict Resolution

Ziv admits the two do fight, but they’ve also learned how to put things aside. “Otherwise, we couldn’t make it work,” he says. As CEO, he says his job is to resolve any conflict in the company and make good decisions, something he says is actually easier with his brother than with an employee. “There is never a long-term dispute,” he asserts.

Handing Over the Keys

Only about 30 percent of family-owned businesses survive to the second generation, which indicates that passing the baton is a challenging process.

Within two weeks of taking over as director of operations in 2004, Howie was signing her father’s paychecks. However, Tom Howie retained his title as president of both firms. “We report to each other,” Howie adds.

At TCC, the elder Moorehead has already “retired” and decamped for a new business venture, leaving Scott Moorehead alone at the helm. But it took about two and a half years before the transition was complete. Though Scott was essentially running the day-to-day operations during that time, his father says, “He didn’t have the title because I wanted to be able to overrule him for a couple of years.”

Once the keys to the corner office were passed from father to son, Steve Moorehead stepped away completely. It’s a lesson he learned from his own father when he took the reins of Moorehead Electric in 1969. “My dad decided I was ready and he walked out the door,” says Steve, ensuring that there was no confusion among employees about who was in charge.

Bottom Line

Scott Moorehead says that one of the keys to building a successful family business--or any growing enterprise--is to cultivate employee loyalty along with a strong customer base. “Certain people said 'Oh gosh its the boss’s son,' but it didn’t take long for them to find out that I had a real desire to understand them as people as well as workers,” says Moorehead. “I can’t do much about being entitled,” he quips, “but I can take out the brat.”

[Image: Flickr user Library Of Congress]

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