The owners of Book City, one of Toronto's independent book chains, announced recently that they would be closing the doors to their flagship store after 40 years. As a final salute, CBC Metro Morning interviewed the store’s third generation owner, who shared the heaviness of that heart wrenching decision.
The reporter reminisced about how stores serve as land marks in our neighbourhoods and Book City was no exception: its iconic yellow logo brand was appreciated by Torontonians.
While in recent years customers have migrated to online book stores, the question remains: is there anything the family business could have done differently? Could succession planning have helped preserve the company’s legacy?
“For the most part it is easier, and generally more fulfilling to work ‘in’ your business than ‘on’ your business, so entrepreneurial families continue to dwell on the day-to-day tasks that come from operating a business,” says David Simpson, founder of the Ivey Business Families Centre. “Planning for future transitions, while always somewhere on the planning horizon, never seem to get done."
Many first generation - let alone third generation (3G) - business owners have gone the same route. They stick to a dated business model that served them well in the past; after all, change is risky.
Those who step into the family business, may become trapped by a significant and public brand created and developed by generation one and two. They put grandpa on a pedestal, his oil painting is in the boardroom and refuse to refresh the model.
Mr. Simpson agrees: "There may also be a tendency for second generation (or third) to have guilty feelings if the challenging questions that come with considering transitions – including potentially selling a business. This comes in conflict with the feelings of protecting a legacy that was provided by an earlier generation."
Yet, the entrepreneurial first generation would probably be the first to say "sell the business."
"I tend to remind this generation that the greatest legacy is to remain as entrepreneurial as the founders, and ensure a strong family tradition that includes knowing when a business doesn’t fit the times,” adds Mr. Simpson.
To help business families remain entrepreneurial, he offers the following advice:
1. Once a year, ask the hard question: “If we were starting out today, would this be the business our family chooses to be in?” This forces a family to remind themselves that a business takes time, energy, talent, capital and most of all relevance. Take out the emotional attachment.
If your family was in the buggy whip business as cars were arriving on roads, there would be little point in continuing as is. This question provides the nudge to reinvent the business, perhaps into a travel accessories and suitcase retailer.
2. If we conclude that this is a good business to be in, ask yourself this: “Are we the right ones to manage or steward the business further?” To survive in the global market, growth is vitally necessary. Expansion capital is available for companies over a revenue size threshold, and a family business can bring on board a professional CEO capable of managing a larger enterprise. There is no need to remain stagnant. The skill-fit question forces families to think like owners, and be less concerned about viewing the business as a source of family jobs. The best leadership of a business will change over time as requirements change, and families need to look to what serves the business best.
3. Let outsiders inside your tent. Mr. Simpson says outside eyes are critical: “Overall, remember that families often view their businesses as their babies, and human parents tend to be ill-equipped to value their babies. We either overestimate the ‘uniqueness’ of our child or are often too hard on our kids and overlook their hidden value as a result.”
Yet, so few family businesses take on an advisory board because they believe no one will understand their business as well as they do. Ensure that the business has an outside advisory board, or an active fiduciary board or at least a mentor with skills in the particular field. Engaging an advisory firm early and sharing your hopes and dreams will also ensure that a competent firm with transition experience can give you the hard reality of the day which helps families make decisions.
Jacoline Loewen is a director at Crosbie & Company, which focuses on succession advice for medium-sized enterprises, family businesses and closely held private companies. Crosbie develops customized strategies, particularly in relation to sale of companies, M&A, financing and corporate strategy matters. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen and @crosbiecompany.