Are You an Outsider In,
or an Insider Out?

by Johnny Dollar


The vast majority of the independent food-service distributors in North America are family-owned companies. Life is good if you are “part of the family.” But what about the legions of non-family employees who “make it happen” every day? Those who selflessly help to secure the family dream? What motivates these individuals working in the minefields of siblings, cousins, in-laws, and aging owners or founders? Maybe it’s the way they are viewed by the family.

Family-owned businesses represent a sizable portion of companies in the USA, and they tend to be either “family first” organizations or “business first” organizations.

In the “family first” business, innovation and change are subordinate to taking care of family and extended family. Contribution measurement is of secondary importance to ensuring family security. Change is slow, investment in innovation measured, and non-family employees typically are tolerated as necessary to fill educational and experiential voids. Many a family-owned business misses out on innovation and productivity improvement opportunities by not recognizing the ROI non-family members bring to the company. All too often, the unintended result is a frustrated and unmotivated employee who occasionally rises to the level of adequate.

In the "business first" company, the business focus and process is paramount, and the owners have an eye turned toward innovation, growth, and profitability. Contribution is measured by individual input, effort, and return for the company. Change is driven by market forces, competition, and genuine desire for business growth. The security of the business is paramount, and business planning and decision making is focused on securing the business for the next generation. Non-family members are valued for their talent, expertise, and experience. They understand and are involved in business planning and execution. They are valued for their merit and rewarded for their contributions. The non-family member is motivated, and seeks out and develops detailed recommendations for innovation and profit improvement opportunities. Together the family and their non-family employees thrive and survive in good times and bad.

Those who are fortunate enough to be part of the family in a "family first" business should seriously consider the benefits of fully employing the capabilities of their “outsiders.” Take a lesson from your “elder” companies, the multi-generational "business first" family-owned “survivors” who meticulously seek out, hire, and extract the full benefit of ROI from their “outsiders”—who are not viewed or treated as “outsiders,” but as ”insiders” whose fresh ideas help ensure the survival of the family business into the future! So are your Outsiders in? Or are your Insiders out? That is the question!

Impediment to Innovation:  WE HAVE MET THE ENEMY AND HE IS US!

There are approximately 15,000 Independent Food Service Distributor companies in the USA. The vast majority are family-owned businesses. As such, they run the gamut from first-generation start-ups to multi-generation survivors. So what sets family-owned businesses apart from standard corporate-structure businesses?

The family-owned business typically has embedded family infrastructure that permeates the organization. Whether they stifle or stimulate innovation and creativity within the organization is the key to their survival. And, the smart ones recognize the inherent value that non-family employees bring to the party.

By nature, the family-owned business tends to operate close to the vest. They are choosy about sharing information with anyone outside the family. This poses a particular challenge for the non-family employee who seeks job security and motivational opportunities to excel and contribute to the growth and productivity of the organization.

The non-family employee’s basic motivation is to help secure the future for “their” company and achieve job satisfaction from what they do. While loyalty is expected, such loyalty can easily be turned into apathy by internal roadblocks and barriers (intentional or unintentional) to their innovative ideas and suggestions.

Roadblocks and barriers in the family-run business can come in many forms and from many directions. For example:

Family member occupies key position without relevant education or experience

Family member opposes current direction of the company

Family member dislikes subordinate non-family employee

Family business fails to recognize significant market changes

Family business has an aversion to innovation and/or investment

Family business fails to understand impact and importance of cash flow

Family business has flawed internal reporting structure

Family business has no strategic plan

Family business promotes incompetence from within

Family business doesn't focus on long-term survival

If the family business views the non-family employee as a true asset (though employees are actually resources, not assets) and recruits talent with an eye towards ROI of that asset, with the mutual understanding that innovation is an expected result, then good things should happen. Unfortunately, family businesses often view non-family employees as a necessary evil or as spot-holders whose presence is essential to the daily routine.

The non-family employee, on the other hand, views their job as an opportunity for professional growth. Nothing will stifle and de-motivate them quicker than unjustified rejection of—or outright refusal to even consider—well thought-out and documented business growth and productivity proposals to help secure the future of the family business.

Who has the best interests of the non-family employee in mind? Who is responsible for the utilization of this asset? How do they fit into the overall strategic plan and tactical execution process? What is the company process for allowing non-family employees to propose and submit growth and productivity alternatives with a specified ROI and payback time frame? What company policy facilitates the contributions of non-family employees to the organization in a way that is meaningful and rewarding to them?

Instead of inspiring your non-family employees to rise only to the level of mediocrity day after day, why not nourish and encourage these professional assets to actively pursue and propose innovative and creative business solutions that measurably contribute to the ongoing benefit of the family-owned business? Or are you just happy slogging along, status quo?

Is that the competition I see coming to eat your lunch? Can you count on your non-family employee to help prevent that from happening? Or will they help feed you to the dogs? Yep! We have met the enemy and he is us.

Will It Survive the Third Generation?

"Padre noble, hijo rico, nieto pobre." Father noble, son rich, and grandson poor. The gist of this old Mexican business saying is that most family-owned business go out of business by the third generation due to the lack of business focus and wasteful spending.

What do you suppose was the genesis of that old adage? Take a look around you in the independent foods service distributor industry segment today. How many examples of the above saying can you apply to family-owned businesses that have crashed and burned in the recent past? How many of those had talented non-family employees who could have made the difference between success and failure? But the family owners could not come to grips with what it takes to transition a business from a family-protective cash cow into a revenue-generating machine capable of standing on its own for generations to come. Could any of them have been saved by this recognition and better utilization of non-family employees?

It has been reported that family-owned businesses are responsible for 50% of US gross domestic product, 60% of the country’s employment, and 78% of all new job creation. Unfortunately, less than one third of all family-owned businesses make it to the second generation, and only one tenth make it to the third generation. Clearly there is a problem with the family-owned business formula. Snipers in Afghanistan have a higher survival rate than family-owned businesses in the USA.

One of the biggest challenges to family-owned independent food-service distributors is tunnel vision, or living in a bubble. The lack of outside opinions about how to actually operate a profitable business is a major impediment to their growth, success, and survival. All too often, the family has unrealistic expectations of junior members and upcoming generations. These expectations work to undermine the true potential of the business team required to sustain and grow a profitable business in today’s highly competitive economic environment of big food-service distributors and group purchasing organizations.

Add to that the tendency to hire family members who are not qualified or lack the skills and abilities (or the interest) to meaningfully contribute to the growth and success of the organization, and you got real problems, bunky! Then compound all of that with the inability to fire this incompetent deadwood (as you could do in a heartbeat with a non-family employee), and you have a smoldering recipe for family-owned business disaster.

So what are the symptoms of family-owned business sclerosis?

The business is stymied by systematic thinking:  decisions are made day-to-day in response to problems. There is no long-term or strategic planning.

Paternalistic or materialistic centralized control:  management is influenced by tradition instead of good management practices.

Excessive conservatism:  older family members try to preserve the status quo and resist change. They are especially resistant to ideas and changes proposed by the younger generation and non-family members.

Business valuation:  no understanding of the worth of the business or the factors that make it valuable or decrease its value.

POINT 1:  Enlightened family-owned business owners, executives, and “members in waiting" recognize that to sustain the family-owned business for many generations to come it is critical, starting with the second generation of the business, to transition from a “family focused” to a “business focused” company.

POINT 2:  Enlightened family-owned  business owners and executives recognize and accept the need to hire non-family talent and seasoned, experienced business management, and they understand that this is critical to the survival of the business for generations to come.

POINT 3:  Enlightened family-owned business owners and executives take a pragmatic approach to the employment of family members and relatives, working to ensure that only those who have the talent and motivation to make a positive contribution are allowed to become a part of the business team.

BOTTOM LINE:  If you are a “non-family employee” and you are witnessing any of the above symptoms  in your family-owned food-service distribution organization, no matter how much you think you are being treated like “family,” trust me—"YOU AIN’T FAMILY.”  A prudent businessman would give serious consideration to his own personal career path and aspirations and the odds of getting there vs. maintaining the status quo with the family business. Unless something drastically changes in your organization, remember the old Mexican saying:  "Padre noble, hijo rico, nieto pobre." Father noble, son rich, and grandson poor. If you are working for the “third generation,” you may want to give it some serious thought.

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