and Other Issues in a Family-Owned Business

One of the most famous lines from Francis Ford Coppola’s classic movie, “The Godfather,” was delivered by the raspy voice of actor Marlon Brando playing Don Corleone: “It isn’t personal, it’s business.” Well, when it comes to family business, it’s always personal, as the saga of the Corleone family clearly testified.

Multi-generational and family-controlled businesses have long been part of the American dream, and many have proven highly successful; giants like Walmart, Anheuser-Busch, Johnson and Johnson and Smuckers are just a few that come to mind. It may surprise you that, according to the Small Business Administration, 90 percent of U.S. businesses are family-owned and it is an even higher percentage in many other nations.

Edward Hess, author of The Successful Family Business, contends that family business owners face challenges that other types of businesses don’t. He wrote, “The added complexity of family dynamics causes most family businesses to operate differently from non-family businesses. Leaders of family businesses must learn the processes and attitudes that are needed to manage the family, in addition to those needed to manage the business. You cannot manage both the same way. Families factor family needs, hopes, and fears into their decisions regarding the business, and family dynamics, family ways of communicating and making decisions all can be involved with business decisions. This is the beauty of and challenge of managing a family business.”

What Does It Take?

One local couple that has been successful in making it work is Mike and Dr. Kristin Cavanah Mirda of Sunshine Smiles Pediatric Dentistry, which specializes in dentistry for infants, children, adolescents and “special needs” patients. Mike explains how they got there: “Kristin always had this vision of working at her own practice and I supported her in reaching her dream. We still separate our own businesses, but we knew we had to make it work as a couple, sort of like putting all your eggs in one basket.”

Then he adds, “We complement each other’s weaknesses well.” Kristin is the pediatric dentist and Mike is the business manager. “This way we separate Kristin’s true skills in dentistry and working with kids from the not-so-fun financial world – marketing, payroll, insurance, QuickBooks, stuff like that. I worked on the business plan, getting the money and a good deal on a commercial building in a solid location.”

Gene Sego who runs Sego’s Home Medical Equipment, along with his sister Juliann, also sees the upside of working with family. The business, founded by their grandfather as a pharmacy in Titusville in 1947, was taken over and expanded by their father, Gene Sego Sr., in 1977 and expanded into the durable medical equipment business soon after. In 1985, Gene’s wife Bonnie left her job at Kennedy Space Center to help manage the company, which they then expanded to Orlando in 1992 and Clermont in 1993.

Said Gene, “The advantage, which definitely outweighs the challenges, is knowing you can always count on your family, that they always have the best interest of the company at heart. You get to see your family on a daily basis, and learning from your family members – as Juliann and I have done from both our father and mother – is the best business course we have ever had!”

Clear Roles

The Mirdas and the Segos discovered early on that one secret of success in a family-owned business is identifying the strengths and weaknesses of the key players and then clearly defining the roles each person is going to serve. Gene Sego explained, “Juliann and I are very different, which works extremely well in business because we complement each other. We were always told, ‘When two people in business think alike, one is unnecessary!’”

In the Mirdas’ case, Mike puts together business proposals as a living; his expertise was essential in developing the plan they would take to bankers. So while Dr. Kristin (a very friendly doctor name for the kids) is the face and heart of the practice, Mike is the behind-the-scenes producer.

In the fast-growing Southeast Petro Distribution (see feature pg. 36), Mike Shah is the company president, while his wife Rashmi serves as the comptroller. He said, “In the beginning, when you’re husband and wife – mom and pop – both of us are involved in everything. But now, there are departments. If I’m doing something, that’s my side, so don’t interfere and question me too much. And if you’re doing something, I don’t want to interfere too much. That is how it works,” he laughed. “Otherwise, I don’t think a husband and wife working together can last too long.”

Planning For Growth

If a company stays small, then keeping it “all in the family” works. However, if the business grows, which most small businesses want to do, new and complex issues arise. Many large corporations that started as a family business are no longer family-controlled because it wasn’t in the company’s or the family’s best interest to continue leading them.

Paul Morin, a writer and consultant, put it this way in his CompanyFounder.com blog, “On the one hand, most senior/founder generation family business owners would like to see their progeny take part in and eventually assume leadership of the business. But the reality is that if the younger generation is not interested in working in the family business, it is of little use to force the issue. The prudent approach is to bring in professional, non-family executives and allow the younger generation to pursue their dreams elsewhere. With this approach, they may come back to the business later, with useful skills and experience that can be deployed in the family business.”

The other critical issue students of family businesses have observed is that the surest way to alienate the people that work for you is to create a company culture based on nepotism. Everyone wants to help out their family, but preferential treatment in hiring, promoting and paying based on a familial relationship versus merit is a formula for disaster. The bottom line is that non-family employees will lose motivation and the desire to be vested producers. Also, complacency can arise in family employees because they don’t face the same stiff consequences for non-performance.

Research indicates there are two main reasons non-family employees will leave a family business: growth opportunities are limited and family conflict. Without opportunity to advance many gifted and goal-oriented employees will move on.

Business leaders need to realize that every business needs a mixture of qualified people to help the company grow. Non-family employees add balance to the organization because they have an ability to view the business with a sense of emotional detachment. If given the opportunity, they can offer valuable input on how to make the company better. Failing to recognize the positive impact non-family employees have on a family business is a major mistake.

Successful Succession

According to the Family Business Institute, 88 percent of current family business owners believe their family will control their business in five years, but succession statistics undermine this belief. Only about 30 percent of family businesses survive into the second generation, 12 percent are still viable into the third and only about 3 percent into the fourth generation or beyond. According to the Institute, “Research indicates that family business failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.”

One of the best and well-known examples of a local family business that has defied the odds is A. Duda & Sons, which built the community of Viera. Scott Miller (see pg. 50), who is part of the fourth generation of Duda family leadership, described the opportunity and the process that was used to expose and filter family members who wanted to work in the business. “In 1992, I was able to avail myself of the ‘Rotational Training Program’ the company set up. This is a one-year training program that exposes you to almost all the disciplines in the business.”

Miller added that retiring CEO Joseph Duda spent the last years in his leadership position ensuring the company’s transition was smooth. For their family it was more than the preservation of financial assets, but the preservation of their values and vision. Thus far it looks as though the baton pass has been very successful.

Doing What You Love

In recent years, a popular philosophy for starting businesses has followed the book Do What You Love, The Money Will Follow by Marsha Sinetar. While this approach sounds great and many family businesses, which we document in this month’s edition of SpaceCoast Business, serve as fabulous examples, career coach Dr. Marty Nemko digs deeper. “Millions of people have followed their passion and still haven’t earned enough money to even pay back their student loans, let alone earn a bare middle-class living doing what they love.”

Nemko doesn’t fault the book, rather the lack of due diligence and self-examination that is necessary to honestly identify both what you love and what you are capable of. Add to that equation going into a partnership with a spouse or family member and you may have the ingredients for a winning team or something a little more combustible. Nevertheless families continue to be the primary incubator for America’s and the Space Coast’s economic engines, so for your passion, courage and perseverance, we salute you!