By Matthew Wirth

Throughout the history of the water industry, people chose a career in water treatment because their family was in the business. Daughters and sons of water professionals followed in the footsteps of their family. While the water treatment industry is often a generational career, times are changing. Water treatment careers compete with digital age careers, such as computers, coding, IT, robotics, communications, and networking. These career areas can attract the next generation because younger generations grew up with screens and apps that are exciting and offer immediate gratification. It’s not just the water industry, but all trades that are suffering from family business attrition from career competition with new and exciting white-collar jobs.

A digital native is a person raised in the information age. Millennials, Generation Z, and Generation Alpha digest digital information—processing it quickly and comfortably through devices and platforms such as computers, tablets, cell phones, and social media. For the family-run business, likely controlled and managed by Baby Boomers and Generation X, how do they compete with a screen-raised person for future workers? Can they, or should they, try and grow their own workforce? Can the family business be passed to future generations?

Here are a few things to consider about family-owned businesses from someone who is the second generation of water professionals and with experience working with hundreds of family water businesses. This author supports these opinions with a Bachelor’s degree in organizational management and communications plus 20 years as a family business owner and 20 years working for other family and corporate interests.

To start this discussion, here is a look at some facts about family-owned businesses (FOB):
•Of the 28.8 million small businesses in America, 19% are family owned.
•The average life span of a FOB is 24 years.
•About 40% of U.S. family-owned businesses transition into a second-generation business. Approximately 13% are passed down successfully to a third generation, while 3% survive to a fourth or beyond.
•Almost a third (30.5%) of FOB owners have no plans to retire, ever; and nearly another third (29.2%) report that retirement is more than 11 years away. With the median age of the current leaders being 51, this means that many owners plan to stay as the principal for years to come. This poses unique challenges to the succeeding generation. Further exacerbating this risk is the fact that nearly a third (31.4 %) of FOBs have no estate plan beyond a will.
•In nearly half (47.7%) of all FOB collapses, the failure of the business was precipitated by the founder’s death, or in 29.8% of the cases, the owner’s unexpected death. Only in relatively few instances (16.4%), did the business failure follow an orderly transition, and in situations where the owner was forced to retire, the figure drops to 6.1%.

Facts vs Feelings
Family businesses are different than other types of firms. Some say there is no such thing as a “family” business. Business is a quantitative endeavor while a family is qualitative. A business’ main concern is to make money and employees are assets assigned to roles designated toward generating profits—business deals with facts. A family unit is an emotional concern and family members share deep bonds—members are protected and cared for in ways people from outside the family are not. Families deal in feelings.

There are many businesses that operate successfully where family members work in a business together. But anytime a decision is made about an employee where the result of the decision involves nepotism, then the business is operating in a qualitative manner—not quantitative.

Most employees are in an at-will relationship with the company, but a family member often receives different consideration. It is this dynamic that creates negativity and noise in a company where some employees are outsiders, and some are family. This makes managing an FOB difficult at times and rewarding at other times. It is important to remember that in business, every employee is responsible for the tasks and results for which they are assigned. Showing favoritism for one employee over another is not good business. People need to belong in their roles because they are the best person for that role. If family comes before business, that is understandable—just be prepared for the result. It goes back to facts or feelings.

Keeping Company Knowledge
Any small business, including FOBs, can be fragile. The nature of an FOB is that the resident knowledge is held by a small number of people or even just one person. If a person-of-knowledge is lost, the knowledge goes with them. In addition, the assets of the FOB are likely owned and controlled by the principal. One catastrophic event or poor business decision can be disastrous. Resident knowledge should be distributed throughout the organization and the people-of-knowledge be stakeholders in some manner—be they family, partners, or senior staff.

In addition, a water treatment business requires many pieces of technical understanding. One must be competent in chemistry, hydraulics, thermodynamics, physics, geometry, mathematics, and electronics. This is in addition to sales, business practices, and human resources.

Employees tend to be content when they feel they have some level of control over their work lives. People need affirmation and thrive when respected and rewarded. If they feel unfairly treated or disrespected, they leave. The number one reason people leave their jobs is management. Therefore, managing an organization, including family and non-family, offers unique challenges. The FOB must have blinders on when promoting, placing, and managing job assignments—easier said than done when family is involved.

This knowledge of quality work and knowledge of their craft are the cornerstones to success and those with the knowledge must be kept. Retaining this know-how is the primary goal of management if the company plans to survive into future generations. It is said that there are three core reasons why people do not do their job:

1.They do not know what their job is.

2.They do not know how to do their job.

3.There is an outside influence stopping them from doing their job.

Starting and Supporting Employees
The responsibility of communicating expectations falls to management. Every employee, be it family or general new hire, needs an onboarding program to get them started on the path to being a successful employee—an asset that reflects the company’s core values and operating practices that made the company a profitable enterprise. Gone are the days where someone is hired and required to be self-funding on their first day. Note: A self-funding new employee is possible if one hires a person-of-knowledge away from another organization who failed to retain their workforce.

Today’s new hires insist on continuing education and a path to growth and advancement within the organization. Look for programs within the water industry that offer continuing education. Insist on lifetime learning within the organization and licensure where applicable. Never fear new knowledge that comes from outside the company—it is how the company evolves and grows.

Recognizing that an employee, family or otherwise, is struggling takes extra attention. Observing people during planning sessions and meetings and tracking work performance helps identify if there is an outside influence affecting an employee or causing “noise” in the feedback loop that affects multiple people. One must always be aware, and self-aware, of internal issues—management may be the cause of the noise. If an individual is struggling with a non-work issue, do not attempt to council or advise unless trained as a counselor. Instead of possibly offer­ing incorrect and/or unwanted advice, have a list of counselors that can offer help and consider offering company assistance with costs.

Third-Generation FOB Example
An interview with a very successful third-generation company offered an example of one way that worked to for this commercial plumbing and industrial sheet metal firm. When the daughter and son showed interest in being part of the FOB, the mother and father insisted that they go to school first and learn mechanical engineering, plumbing and HVAC practices, bookkeeping, and accounting. The door to employment was only open once they showed a desire, aptitude, and commitment to being valuable assets for the company. There was no short path to success offered just because they were family.

Once the children were hired, they felt that management was harder on them than other employees. More was expected of family hires because it was critical to managing and maintaining the 55-person highly skilled work force. This company, created as a collaboration between the grandfather and father, learned early on that they had no business without a skilled workforce. If family wanted to be part of the firm, they had to comply with all the requirements for hire as any other employees.

The onboarding plan included outside learning, mentoring, and apprenticeship. The son and daughter did not start as manage­ment. They started at the bottom and worked their way through the ranks for 10 years before they earned management roles—they are not owners yet. When the parents were asked if the succession plan included the children and if the parents expected a fourth-generation transfer, the answer was interesting. The parents did not see ownership transferring to the children but instead see a succession going to an employee-owner organization. In this way, the company lives on, and skilled people enjoy ownership and the affirmation it offers.

One caveat to this example: The son, while investing in a career with the FOB, wanted to build a business outside the family. He and his wife established a microbrewery using their knowledge of commercial piping and eatable processes—and a love for beer. It is very successful and growing. This venture was encouraged by the family and the brewery’s success is a product of FOB culture and vision.

Planning for the Future
Owning and managing an FOB requires short-term (1-5 years) and long-term (5 -10+ years) planning. The business must be monetized and have a succession plan—never forgetting that without a knowledge pool, there is no business. Along the timeline of any FOB there are events, tragedies, and unforeseen consequences of outside factors, i.e., government and acts-of-God, that create struggles and difficult challenges. This is not any different for non-FOBs, except the consequences can be catastrophic on the family dynamic.

There is nothing more precious to most parents than their children, but the business may be their baby too. There are no solid answers to how to protect an FOB and pass it on. Be aware that what was right for the originator is not necessarily right for the successor. Sharing one’s passion for the business and career they love with their family may create an interest with the family to carry on. Keep in mind that the next genera­tion may see another path—encourage that path (if it’s practical) while keeping a path open for them if later they find their way back to the FOB. Always be clear about expectations and requirements necessary to work in the FOB and be prepared with a “For Sale” sign.

References
https://www.johnson.cornell.edu/smith-family-business-initiative-at-cornell/resources/family-business-facts/
https://www.inc.com/encyclopedia/family-owned-businesses.html
https://www.prnewswire.com/news-releases/family-owned-businesses-create-78-of-new-us-jobs-and-employ-60-of-the-workforce-300613665.html#:~:text=Of%20the%2028.8%20million%20small,run%20by%20a%20married%20couple
https://rbj.net/2022/05/24/succession-plans-critical-for-survival-of-family-owned-businesses/
https://hbr.org/2021/07/do-most-family-businesses-really-fail-by-the-third-generation

About the author
Matthew Wirth is a Water Professional with 42 years of experience, working at multiple levels in the water industry. The scope of his experience includes heavy industrial and commercial systems to public and private well applications – both customer direct and nationwide distribution. In addition to front line field support (including design, application and service troubleshooting), Wirth is an approved trainer for several industry organizations, state CEU programs and an author for trade periodicals. He holds a Water Conditioning Master license in the State of Minnesota, a BA Degree in organizational management and communication from Concordia University (St. Paul, MN) and received his engineering training at the South Dakota School of Mines and Technology in Rapid City, SD. Wirth is the General Manager of the Pargreen Sales Engineering-Water Division in Chicago, IL. He can be reached at (630) 433-7760.

Share.

Comments are closed.