When it comes to American institutions, the family-owned business ranks right up there with baseball and apple pie. Yet whenever I am called to meet with business owners from more than one generation, I do so with mixed emotions.
Friendly faces always gather at the conference table, but beyond that point — as the ancient mapmakers used to inscribe at the edge of the page — there be dragons. In some instances, the family dynamics are evident immediately. In others, it can take months to decipher everyone’s true feelings about where the family business should be headed.
The two most common situations when a family is choosing between succession and a sale tend to be the following. Either one or more of the children want to take over the business, but the parents have other ideas, or mom and dad want the children to take over but the children have other plans for their lives. Even when everyone’s motives are clear, making the decision to sell can be tough.
For Lyle Clapper, there wasn’t much question that he would take over his parents’ business. His mother had a knack for creating craft ideas — she swears to this day that she invented the sock monkey – while his father had a passion for printing. In 1951, the couple started Pack-O-Fun, which they say is the country’s oldest craft magazine, out of their home in Park Ridge, Ill. Lyle, who was 9 at the time, used to sew magazine bindings in the basement.
After a stint working on the Univac in his 20s, Mr. Clapper came back to work in the family business, which he eventually bought from his parents and two siblings. In 1975, he introduced another magazine, Crafts ‘n things. By 2005, he says, it had 50 employees, $12 million in annual sales and the largest circulation of any crafting magazine in the world. It also had Mr. Clapper and his wife, Marie, thinking about retirement. The option of selling was always on the table, but with six children, it stood to reason that one of them might want to take over the business.
“I was ambivalent about my career choice throughout my business life,” Mr. Clapper said. “It gave me a leg up on the path to financial rewards, but the journey was unsatisfying. Marie and I took great pains to see that each of our kids was free to chart his or her own course.”
Mr. Clapper’s sentiment is consistent with those of many second-generation business owners, according to Thomas William Deans, a third-generation business owner and author of “Every Family’s Business: 12 Common Sense Questions to Protect Your Wealth.” “I see the second generation falling into two distinct camps when it comes to succession planning with their own children,” Mr. Deans said. He draws a clear distinction between second-generation owners who have bought the business — or risked some of their own capital to acquire it — and those who have been given the business through an estate plan.
“The first camp would never want to put their kids through the same grinding issues that they endured with their parents — the founders — so the option of selling feels right on so many levels,” Mr. Deans said. “Most of these Gen 2 owners come to understand that ‘legacy’ doesn’t feed a family. Cash has always worked better.” (You can read an extended interview with Mr. Deans here.)
The most likely successor among Lyle Clapper’s six children was Jeff. Having started his first business at age 26 — a video game that he sold four years later to World Golf Tour — he had clearly inherited what Mr. Deans calls the “entrepreneurial gene.” Despite his parents’ insistence that he chart his own path, Jeff found it hard to break with tradition and leave the business behind.
“Even though my parents had always been very clear that they wanted us to pursue our own interests, I felt like doing something different would be abandoning what my father had been working on his whole life,” said Jeff, whose latest two ventures help entrepreneurs sell their products to the mass market and train companies to work with Wal-Mart. “I was definitely concerned that I’d hurt my parents’ feelings if I didn’t get into the business — especially my dad’s.”
Jeff describes his family members reaching a critical moment when they needed to decide whether to sell the business even though it had not reached a peak in valuation, or risk much of Lyle and Marie’s retirement. “My dad and I both clearly remember a pivotal conversation when I finally had to tell him that I thought we should sell and move on,” Jeff explained. “It wasn’t easy for either of us, but it was the right decision.”
As much as there is to love about family-owned businesses, they tend to be riddled with nonbusiness issues that complicate decision-making, especially when it comes time for mom and dad to retire. “Most business owners completely underestimate their influence over their children,” Mr. Deans explained. “It is the rare child — even adult child — who says no to their parent’s invitation to join the family business.”
For Lyle Clapper, the decision to sell was one he has never regretted. While the business was an integral part of his life for 55 years, he concedes that it eventually became a burden. “We were relieved and elated to leave it in someone else’s hands,” he said. “On the rare occasions that we look back, we wouldn’t change a thing.”
Will your generation be the one that sells the family business?