The secrets of success in a family business: owners tell
Tuesday, May 6, 2014/
Australia is home to thousands of family-owned businesses. Think of iconic brands such Akubra Hats, Haigh’s Chocolates and Bundaberg Brewed Drinks. Around 70% of Australian businesses are family-owned and operated, and the sector is estimated to be worth $4.3 trillion.
So how do they do it? While there are a number of notable local family businesses that have recently collapsed, the sector also shines with success stories.
With most Australian family-owned businesses employing between 20 and 200 employees, Robin Buckham, chief executive of Family Business Australia, says they face many of the same issues as other small businesses.
The two major family business challenges
However, Buckham told SmartCompany successful family-owned and operated businesses are those that have dealt with the two major family business challenges: succession planning and governance arrangements.
“It’s amazing how many people won’t have the conversation,” says Buckham of succession planning in family businesses. “It’s important to sort out succession as early as possible. Stop saying ‘if I die’ and start saying ‘when I die’.”
“It can take up to a decade to work through these issues,’ says Buckham. One reason for this is many first-generation business owners are entrepreneurs who have invested their entire lives in their business and find it difficult to let go. Buckham tells of cases where “dad simply won’t stop coming into work”, believing that he is helping the business.
In other cases, the founders of the company are able to let go of the day-to-day management of the business, but nothing happens around ownership.
It gets even trickier when there is more than one child who is involved in the business, or you have what Buckham calls the “cousin conundrum” – a third or fourth generation business with 10 cousins all involved in the company. Who should become chief executive?
A related issue, and just as complicated, is governance arrangements. Buckham says that for many family businesses, a family charter that specifies ownership arrangements – and who can and can’t join the company – can be one of the ingredients for success. “It doesn’t matter what the arrangements are, it matters that there are some and that [the owners] have had the conversation.”
Udder Delights, South Australia: “We pooled all our resources”
South Australian family-owned cheese-maker Udder Delights is in the midst of a massive expansion and is eyeing off a place among the shelves of supermarket giants Coles and Woolworths.
The 15-year-old company, which turns over approximately $4 million each year, employs around 30 staff and is growing at an annual rate of 50%. The business includes a cheese-making factory in the Adelaide Hills town of Lobethal, a cheese cellar in the nearby town of Hahndorf, and three cheese brands: Udder Delights, Divine Dairy and Cremeux Provincial Cheese.
It’s a long way from the two goats purchased in 1995 by Trevor Dunford, a flying instructor from Adelaide who dreamt of owning his own diary. By 1999, Trevor’s cheese-making factory was a reality, with wife Estelle managing the administration of the company and daughter Sheree Sullivan joining the business. Sheree and her husband Saul purchased 50% of the company in 2004.
Sullivan, now director and general manager, puts the company’s success down to two factors: the way she and her parents shared their resources and the skill set the family members developed.
In the company’s early days Sullivan said her family “unconsciously followed the migrant-family model”. “We lived on the same property and pooled all of our resources,” she says, recalling how she “worked for virtually no salary” for the first five years while her parents continued to work full-time in outside jobs to get the business off the ground. “We ran one household together and it worked for us,” she says.
Sullivan says each of the key players in the business also brought “a unique and very diverse skill set”. Estelle managed the administrative side of the business and Trevor maintained all of the buildings and equipment, while Sheree and Saul focused on strategy and growing the company.
However, Sullivan says it was also important for her family to find a balance between work and family time. “The challenge is that you work together and play together, and what we have done now is brought in director meetings. It helps us define what is playtime [and] we have some clearer boundaries,” she says.
On the verge of collapse
It has not always been smooth sailing for the Dunfords and Sullivans, with Sullivan telling SmartCompany that, just two years ago, the company was on the verge of collapse when Estelle died after a short illness. The company was still reeling from the effects of the global financial crisis and a shortage of goat milk.
“It just showed me that you could spend 12 years building a business and you could lose it all in 12 months,” says Sullivan of the time. “By the end of that year, there was no money in the business. I think we all just hung on, personally and professionally.”
Since then, things have been looking up, with the family digging deep to get the company back on track.
“What I learnt from that time is that you have to plan for tomorrow but you absolutely have to live for today,” says Sullivan. “You know that saying that what doesn’t kill you makes you stronger? Well there is some truth to that, but if too much comes too fast, you can buckle. You’ve got to grow your business but you can’t do it too quickly.”
Haigh’s Chocolates, South Australia: Talk about succession before you need to
Perhaps one of the most well-known Australian family businesses is Haigh’s Chocolates.
Founded in Adelaide in May 1915, this iconic Australian company is gearing up to celebrate its 100th birthday next year. The company is run by joint managing directors Alister and Simon Haigh, the great-grandsons of founder Alfred Haigh, and has annual turnover between $40-$50 million.
Alister Haigh told SmartCompany his main focus as the owner of a family business is “how to separate out ownership from management”.
“A lot of family businesses owners say ‘none of my kids are interested in running the business so I have to sell’ but they don’t have to,” says Haigh. “Why can’t you have family members as shareholders but not managers?”
“It can be a very difficult and fairly long process,” said Haigh, who oversees six Haigh’s stores in Adelaide, six Melbourne stores and one outlet in Sydney, and more than 300 employees.
“And it is more difficult in younger family businesses,” he says. “At least we have two members of the fourth generation of the family, so it is a little bit easier to separate ownership and management.”
When it comes to managing the culture of a family business, Haigh says the team “tries to manage culture in the same way as any company would manage the culture of their organisation”.
He believes that luck is on the side of family businesses which can draw on their “family associations”, although he points out that this “does put pressure on the family members to lead by example”.
Haigh says working out succession plans can be “challenging, time-consuming and emotionally draining”, and family business owners have to deal with these issues on top of the everyday challenges of business.
But his advice is to start talking now. “Because there have been some very well-publicised cases of contested wills and that sort of thing, we’re trying to get everyone talking about succession before it needs to happen,” he says.