NJBIZ panelists offer insights to building a better family business

As part of NJBIZ’s latest virtual panel , participants spoke on the topic of how family-run businesses can remain resilient and relevant across multiple generations.

Moderated by NJBIZ Editor Jeff Kanige, the July 16 panel featured:

• Kristin Calandra , vice president of Newark-based Calandra Enterprises , which owns and operates three bakeries, several hotels, restaurants and apartment buildings in North Jersey;



• Jay Levine , partner at advisory and accounting firm Prager Metis ’ office in Hackensack;



• Robert Mascia , CEO, founder and financial planner of Green Ridge Wealth Planning , a Montville-headquartered financial planner

 

During the 90-minute roundtable discussion, participants delved into the current thinking on the best governance structure and how to balance professionalism with maintaining familial relationships.

A more detailed recap will appear in the July 22 issue of NJBIZ.

While many companies begin as a family-owned enterprise, the majority do not remain as such. According to the Smith Family Business Initiative at Cornell University, the average lifespan of a family business is about 24 years.

About 70% of these companies won’t make it to the second generation and will either fail or be sold off, the Harvard Business Review found. After that, roughly 10% are passed down to a third generation and only about 3% survive to a fourth generation or beyond.

Helping hands

Levine said, “I think there’s a few reasons for that. The first generation had no choice but to be successful and they were the driving force. They didn’t have the economic abundance. If the company is very successful, then the next generation grew up in a much more comfortable lifestyle and maybe didn’t have the work ethic or took some of the things for granted."

Mascia said, “I also think that some people fall in line because they think that is what they're supposed to do in terms of next steps of life. But, the reality of it is they have no interest and no passion. They may have the drive, but it's a drive for something else We see a lot of like, ‘oh yeah, my dad built this or my mom built this and I'm here and I'm doing it.’ And it becomes status quo.”

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In addition to navigating complex family dynamics in the short term, companies run by families have to set themselves up for success in the future. And, like all businesses, they need to stay competitive amid an ever-changing economic landscape.

When it comes to the challenges, panelists advocated the need for trusted advisors particularly ones that have worked with multi-generational companies in the past.

Mascia said, “They’re really going to guide you away from the bad decisions and they might give you things that you've heard already before, but it's always nice to get that tool of verification where you can click off that box and say, ‘You know what? I did my due diligence. I got the right people behind me that are going to help me make decisions along the way.’"

Beyond understanding the technical aspects, Levine said it’s crucial to find a team that understands “the emotional component.”

An entrepreneurial start

Many of these businesses are typically launched by an individual who then taps family to help run the company after it achieves some level of success.

For example, Calandra’s family business began in 1962, a few years after her grandfather, Luciano Calandra, immigrated from Italy.

“When he came here in 1958, he worked at his brother’s pizza shop and gained some familiarity of how to make pizza and bake some bread,” she said. “And then once he gained some knowledge and saved some money, he opened up the store on First Avenue in Newark and we became famous there for our breads and pizza. Then, we expanded to pastries and desserts.”

“But he was a solo entrepreneur He was the first one to come to America. So, he definitely took that big risk. He met his wife here, came here with no money. I feel like that's usually what happens with the first generation. They don't have a lot, but one way or another they made it happen. And then it's the successions, the sons, the daughters, the grandchildren - sometimes the parent hands it off to them after they show hard work and interest,” she said.

Earning a place

As family members became more involved in the company, Calandra said there was a push to ensure they were qualified to be part of the business.

“Qualified through book smarts but then also in terms of being on the ground with the staff, working on holidays, working the registers in our bakeries and not just sitting in the back office,” she said. “ The practical work is equally, if not more important, because it’s about being there and learning the ins and outs of your specific company versus just what you’re learning in college.”

Levine said ensuring that a family member is qualified to work in the business can lead to “some tough discussions.”

“It’s a business, not a charity and not a hobby. If this is going to be a livelihood, then you need to operate like a business. And that means that if somebody's not qualified, they can't have a position because ultimately you're hurting everybody,” Levine said.

It’s a business, not a charity and not a hobby. If this is going to be a livelihood, then you need to operate like a business.

Jay Levine, Prager Metis

Mascia noted that in some instances, a family member can “earn their stipes” someplace else and return with “a vast amount of knowledge and expertise” they can put into the business.

“I think this goes into a broader conversation of really communication and transparency, which is usually limited in family businesses, especially in the onset. When you talk about finding somebody, bringing them in as a family member but also treating them like the employee more often than not nepotism becomes an issue,” he said.

Roles and responsibilities

“But also it's communicating and clearly defining what their objectives are and what defines success in their role ... There’s a difference between nurturing, developing and bringing them into the right spot. Just because you’re the next generation doesn’t mean you have to be the CEO. You may have another role in the company,” he said.

At a family-run company, Levine said it’s critical to “clearly delineate” the roles and responsibilities.

“Sometimes it becomes self-evident. A lot of times it doesn't. And you need to be able to identify who really is going to be it from the corporate structure and in the boardroom, even if they're not in charge in the dining room. And that can be very difficult, especially when the most qualified person to take over and be the CEO is not the next senior member in line, not the oldest sibling, the older brother, but it's the younger daughter that's really more qualified,” he said.

Levine also said it’s smart to anticipate the emotional response such decisions will have and give family members an opportunity to express their feelings.

“That's critical as well to keep the family going. That's the whole purpose of the family business. You don't want to destroy the family,” he said, adding, “It’s very much a juggling act.”

Getting organized

As for company structure, panelists there’s no “one size fits all.”

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Levine said, “What worked for one company might not work for another because the circumstances are different, the dynamics are different. What you are trying to accomplish are different. You need to take a look at the facts and circumstances who are the owners going to be? Who are your potential future owners? What are the goals? What kind of assets, what kind of liability issues might you have? So, there's a myriad of things even though there's not a ton of different options on the surface of it that you could just take into account and figure out what you should be.”

When it comes to preparing for the next generation of the company, panelists stressed the importance of being respectful, honest and upfront with family members involved in the business.

Mascia said, “When we’re having conversations with business owners, it's really about how do you get to the business to the point where you're not relevant anymore because that transition, that succession, that sale, everything happens a lot smoother when you extract yourself out and when you can just sit more on a board as an advisor and setting your business up for that is really setting your family up for success.”

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