When kids run the family business

Written by Joanna Pachner

The gauntlet was thrown down over bookkeeping. Boaz Shilmover had been working at his dad’s roofing business for six months when his review of the Calgary-based company’s accounts revealed a quarter-million-dollar hole. Worse, one of the creditors was tougher than a tattooed loan shark—the Canada Revenue Agency. “My response was: €˜Holy shit, we’re dead,'” Shilmover recalls. It was a huge obligation for a home-based outfit with no real employees or assets, and just $500,000 in annual revenue.

Shilmover, a recent MBA graduate, viewed working by his father’s side as a temporary stint while he mulled over his career options. “I saw it as an opportunity to see what it’s like to be self-employed,” he recalls. But that day in 2002, when he discovered his father’s liabilities, he made two decisions: first, to stick with the company and help his dad clean up the balance sheet (and salvage his retirement nest egg); and second, to persuade his father to make some significant changes to his business.

Today, Arte Roofing & Construction is an $8.5-million-a-year company employing 100 staff at peak times. It got there through a delicate but effective combination of the father’s industry knowledge and the son’s management savvy and drive for growth. Yet, for every family business that successfully blends the parent’s and child’s unique skills, there are many more that disintegrate over conflicts that plague intergenerational transitions. As kids enter a company that their parents built, bursting with their own ideas and ambitions, tensions rise, often unacknowledged, until they balloon into a crisis and someone—typically the offspring—threatens to walk out.

That’s largely because leadership change within family businesses isn’t just about control, says Grant Robinson, a Guelph, Ont.-based consultant whose SuccessCare Program helps families navigate business transitions. “It’s about identity, about who’s going to fulfill the legacy.” And it taps into family relationships that are entrenched and fraught with pitfalls other than mere disagreements between colleagues.

The grim statistics on family business longevity are well known: 70% do not survive to a second generation, and 90% do not make it to a third. What often destroys these companies is what Robinson calls “the soft stuff”: parents resisting a new strategy the child advocates, a father and a daughter frustrating the staff by pulling in different directions, and other ways in which familial relationships interfere with the good of the business.

With the leadership of roughly three-quarters of Canadian family-run firms expected to move to the younger generation within the next 15 years, more and more offspring will have to convince their parents and long time employees that, hey, the kid may have something there! They’re bound to face many objections: it’s too risky; we’ve always done it this way; the staff will never go for it; I know what I’m doing, and this is my company. Here’s how three entrepreneurs pursuaded their parents to change their ways—and were proven right.

For Shannon Bowen-Smed, it took the threat of resignation to persuade her mother, Laverne Bowen-Kruger, that she needed to accept her daughter’s input or lose her as a business partner. Bowen-Smed had joined Calgary-based Bowen Workforce Solutions Inc. as a receptionist in the 1980s; by the mid-1990s, she had risen to general manager. As she took on more responsibilities, she pushed the employment agency to respond to changing customer expectations and new competition on the Internet. “I saw it was essential to broaden and become a recruiting and contracting company,” she says, offering clients payroll, outplacement and career-transition services. But her mother—who owned 75% of the business and, despite being semi-retired, remained president and CEO—resisted, seeing no need to mess with a winning formula.

Bowen-Smed advocated other initiatives, such as implementing environmentally friendly practices and helping staff achieve work/life balance through flexible hours or telecommuting. “Today, people expect to be developed, trained and challenged. That wasn’t a consideration when Laverne was running the business,” she says. “In my mom’s day, the benefit of working was a paycheque.”

Her threat to quit was a wake-up call for both women. Bowen-Kruger agreed to step back into the role of chairwoman without direct involvement in operations. Her daughter, meanwhile, realized that she needed to adjust how and what she communicated with her mom. Aside from monthly financial reports and other formal communiqués, Bowen-Smed began updating Bowen-Kruger about new developments in the industry at large, so that Mom would have a context for the initiatives her daughter was implementing. Bowen-Smed also makes a point of linking the corporate culture she fosters to the bottom line, a goal to which Bowen-Kruger could relate. Bowen-Smed informs her mother when clients ask about the company’s turnover rates in their request for proposals. She also commissions annual client surveys, which have shown that the top reason clients choose Bowen is its employee engagement. In essence, Bowen-Smed began treating Bowen-Kruger as the majority shareholder whom the management needed to persuade rather than the mother who wasn’t letting her have her way.

“Today, I’m not telling her how things need to be done in her company but engaging her, so she feels like she’s part of that decision-making,” says Bowen-Smed. She also highlights how her initiatives are a different way of pursuing the same goals her mother aimed for in her day. “Laverne has always cared deeply about philanthropy and delivering expert-level service. We may not have agreed on how that’s going to happen, but we never wavered on those fundamental values.”

As for that diversification Bowen-Kruger had doubted? Since 1996, when Bowen-Smed took over management of the firm, annual revenue has grown from $1 million to $33 million. What’s more, the additional services ended up helping Bowen survive the recent recession, when few companies were hiring administrative support.

“That core area was a declining business, while the expansion areas proved huge growth opportunities,” reports Bowen-Smed. Which leads to her ultimate conclusion about how to bring a parent-founder onside: “The big part is not just to communicate it well but to deliver on it.”

Leo Benne has been working at Bevo Farms Ltd., his father’s Langley, B.C.-based greenhouse operation, since 1993. Over that period, he has pushed new strategic directions—such as expanding beyond growing plants in Bevo’s greenhouses to supplying seedlings to other greenhouse operations—and found his father happy to explore new revenue streams. But as time passed, the men increasingly began to butt heads over their different management styles.

Jack Benne, who founded the company in 1986, was used to being a hands-on manager, making decisions both big and small on the fly. Leo, as general manager, had meanwhile started to implement a corporate structure, with department heads given decision-making authority, formalizing the organization to set it up for future growth. Yet, Jack refused to abide by it. “He came out of an entrepreneurial generation where the way to deal with people was: €˜My way or the highway,'” says Leo. “That doesn’t work in today’s work environment, when we employ managers and supervisors. You can’t circumvent them and go to the person on the floor. There’s a hierarchy.”

About two years ago, the issue boiled over into open conflict. “It was a very difficult few months,” recalls Leo. “We would have the discussion about him having to back off, and it’d be better for a little while. Then he’d revert to his ways.” The tension between father and son was creating a split among the staff, with older employees waiting to check with Jack before following the instructions of their supervisors. Disheartened, Leo—like Bowen-Smed—considered leaving.

What he did instead was bring in an objective third party. John Radford, co-owner of Transpectives, a family-business consultancy in Vancouver, helped guide the difficult heart-to-heart talk about Leo’s need for his dad to cede operational control. Jack says the conversation made him realize that he didn’t really want to run the business, and that by interfering with operating decisions, he was deeply frustrating his son. “Employees listened to me more than to Leo,” Jack admits. “If I said it’s round and he said it’s square, people would say, €˜Jack says it’s round.'”

One morning, soon after that meeting, Jack came to Leo and said simply, “You can run the company. I’m not involved anymore on the floor.” Then, to formalize the power shift, the two men switched offices. “That physical office change is like a daily reminder,” says Leo, that he, as president, calls the shots. Shortly after the office switch, Jack led a staff meeting during which he announced that Leo would now be fully in charge.

While the senior Benne still has the title of CEO, his focus now is on investor relations (the company went public through a reverse takeover in 2000) and R&D. Leo has seen a big change in his dad: Jack rarely comes into the greenhouses, and “he’s learned to observe and report, rather than observe and try to fix.

“Now, I go to him for advice instead of him coming to me with advice,” says Leo. “It’s subtle, but makes a big difference.”

Back in 2002, when Boaz Shilmover realized the trouble his father’s business was in, he didn’t hesitate to give his dad, David, an ultimatum: either Dad would establish an immediate debt-repayment schedule and stop using his chequebook for accounting, or Boaz would leave. Boaz knew how this sounded from his dad’s perspective: his youngest son, who knew nothing about roofing, was telling him how to run a business he had led for 25 years. “To me, though, there were two options: bankruptcy or growing the business to pay back the debts,” Boaz recalls of those tense discussions. “If he wasn’t my father, I would have walked—and he knew it.”

To David, however, the debt wasn’t an urgent problem. “He figured he’d wait for a new project and eventually deal with it,” says Boaz. “I see this sometimes with companies that owe us money. You get buried, and you push the problem aside.” For the son, this attitude came out of a broader approach his dad took to the company: it wasn’t really a business but a job. “It wasn’t a growing concern,” Boaz recalls of the early days. “We’d sit in his basement and wait for his phone to ring with a lead. There was just my father. He gets hit by a bus, there’s no business. He’d say, €˜Well, this is what I do.’ I’d say, €˜I think we can do more.'”

Boaz opted to deal with the immediate crisis first. He persuaded David that the taxman couldn’t be held off much longer, and proceeded to set up meetings with creditors. He made it clear to each one that if they didn’t accept his proposals, his father would declare bankruptcy. Then he reorganized the company’s books. Until then, his father hadn’t any financial records to speak of. “It wasn’t that kind of company,” says Boaz. “At end of year, you did your taxes.”

To Boaz, a graduate of the University of Western Ontario’s Richard Ivey School of Business, this was unthinkable. But he knew that David was a classic small-business owner: “He’s been a lone wolf for 25 years. He runs everything: sales, project management, accounting. You don’t hire people; everything is done per job.”

To pay back their debts, however, the pair needed to grow sales, so David focused on selling while Boaz upgraded operations. They rented an office, bought an old dump truck and tar kettle, and hired their first hourly employee. The investment paid off. Within one year, the duo almost doubled their sales and managed to pay off all the creditors. That achievement proved to suppliers and clients that the Shilmovers’ business, Arte Roofing, was a reliable partner.

It also proved to David that his son’s approach had some real merit. Boaz’s next challenge was to persuade his dad to change how he thought of Arte. Boaz urged him to reinvest in the company, hiring salespeople and installers and, to improve their margins, buying equipment rather than renting it. His father preferred to pocket any profits instead. “He didn’t see it,” Boaz recalls. “It’s a trust issue, being unable to detach yourself” and look toward a larger goal. Their diverging visions of Arte’s potential proved to be the source of continuing tensions as the duo went about getting the firm back on its feet.

With sales growing, Boaz managed to convince David that they needed staff to do the work. By 2004, Arte had a superintendent and up to eight staff. As the company continued to thrive, David became less resistant to Boaz’s ideas. In 2005, Boaz became a partner in the business.

Today, Arte has two divisions, as well as a separate entity devoted to building modular structures for the oil-and-gas industry—an initiative that David spearheaded. As president, David provides support to division managers. “He’s like the senior salesman,” says Boaz, who serves as CEO.

Boaz believes that growing the company was the best way to overcome familial tensions. “With growth, you must hire talented people to take on roles or stagnate. By hiring people, we can’t have disagreements on day-to-day operational matters because we’re not in charge of them.” They still sometimes disagree on larger initiatives. But now, the arguments are not between a father and his son in the dad’s basement; they’re between two senior executives of an established company.

Originally appeared on PROFITguide.com