Some businesses face a myriad of challenges when there’s no next generation to carry on
Story by Rick Berg
Walt Tack, owner of Jet Stream Car Wash in Fond du Lac and Oshkosh, faces an uncertain business future that’s becoming increasingly familiar to second-, third- and even fourth-generation family businesses: There will not be another generation of Tacks to carry on the business.
A 2013 PricewaterhouseCoopers survey of U.S. family businesses found that just over half of those business owners plan to pass on their businesses to the next generation to own and operate.
“Concerned that junior members might not have the drive and aptitude to steward the business into the future, family businesses are increasingly looking outside the family for the kind of fresh thinking and vision that will propel their companies into the future,” according to PwC’s survey report, Playing their hand: US family businesses make their bid for the future.
That might seem to be a stark change from the past, but it’s not. Most family-owned business, historically, have not passed into future generations. According to the Wisconsin Family Business Forum at the University of Wisconsin Oshkosh, only 30 percent of all family-owned businesses survive to the second generation, only 12 percent make it to the third generation and 3 percent survive to the fourth generation.
That includes a lot of businesses that don’t survive at all, but still leaves a lot of instances in which the older generation chooses not to pass the business to the next generation, or the next generation is not interested in taking on the business. Often, the key driver in the decision to look elsewhere for future leadership is a result of the younger generation wanting to chart its own course in life.
“I have two daughters and two sons who have worked here at one time, but none have chosen to pursue it,” says Tack, who took over the business from his father in 1990. “All of them became educated and found other things they wanted to do.”
The legacy challenge
Tack is not particularly chagrined by their decisions, but it does leave him with the challenge of finding non-family members who will eventually acquire the business and carry on the legacy created by Tack and his father.
“It’s something I think about a lot,” says Tack, who adds that retirement for him is still a few years off. “This has been an important part of my life for so long I would be distressed if I knew that the person or people who follow aren’t producing the quality we did. It would bother me a lot. In fact, if I knew that would happen, I probably wouldn’t sell to those people.”
Still, he understands his children’s preference to do something else with their lives.
“I didn’t try to encourage them to come into the business,” he says. “It’s a hard job and sometimes it pays well and sometimes it doesn’t. I’ve been in this for 38 years. When my Dad asked me what I thought about coming into the business, I said, ‘Sure, how hard can it be?’ I didn’t know any better,” he adds with a chuckle.
David Gneiser faced a similar challenge when he decided to sell Fond du Lac Bumper Exchange last year. The third-generation owner’s two children were not interested in carrying on the business started by his grandfather, Rudy Gneiser, in 1956. So, he sold the business as an asset purchase to Chicago-based Keystone Automotive in October 2013.
“We were looking at fourth-generation ownership and have non-family run it, and we had been working on that for probably five years,” Gneiser says, “but we never got to the point where that was an option. This is a highly competitive business with shaky profits and we had to look at ‘Can we survive as a business?’”
Beth Wenzel and her sisters, Darcy Zander-Feinauer and Kris Bastian, will also likely be the last generation of their family owning and operating Zander Press in Brillion. None of their children are interested in continuing in the business. Their biggest concern is finding a new owner or owners who would carry on the tradition of community involvement.
“This is a business that really needs to be owned by someone who cares about the community,” Wenzel says. “We have a newspaper that’s been in existence for 120 years. Our great-grandfather really cared about this community and so did his son and so did our Dad and so do we. That’s really the stress we have for the future – finding someone who is going to care.”
Fortunately, the sisters are 10 to 20 years from retirement, so they have some time to work it out.
Facing the challenge
“The thing is we don’t talk about it. In our business, we can hardly plan for next week, let alone 10 years from now,” Wenzel says. “That’s another part of our problem. If you ignore something long enough it will work itself out, but then you’re not in much control of how it works out.”
That’s a common theme in family business succession, says Shipra Seefeldt, owner of Strategic Planning Solutions in Appleton.
“Because of the complexities and the uncertainty of transitioning a business, what we see is a huge process of denial and avoidance on the part of the current owners,” Seefeldt says. “They don’t want to touch this whole issue of succession because it’s going to cause all this conflict in the business and the family. The process is fraught with anxiety and conflict and unresolved issues, so no one wants to go there. The other thing that affects people’s willingness to address the issue is that the older generation has to give up power and control and so it’s a process of huge change for them, even though they want to step back.”
Seefeldt comes at the issue from a dual perspective as a consultant who specializes in family businesses and as a business owner herself, with her daughter, Anjali, and son, Greg, as part of the business. That helps them identify with the business owners they consult with.
“We are living day in and day out with the issues our clients face,” she says.
Weighing the options
For businesses without a next generation to take over operation, there are multiple options: selling the business to outsiders, selling the business to existing employees, or keeping ownership in the family while bringing in outside leadership. Each has its pitfalls, of course.
Seefeldt says non-family leadership is an attractive option in many cases, because it retains family ownership and frees the next generation from day-to-day business responsibilities. However, if family members “play the ‘I’m an owner’ card,” conflict with non-family leadership can doom the business.
“Unless there is a true alignment from the beginning which translates to actual behavior, there can be problems,” Seefeldt says. “Ownership and leadership are very different things, and when we work with businesses we separate that. The structure of non-family leadership with family ownership is not in itself set up for failure. Any structure can work as long as people are sincerely willing to work at it.”
Selling a family business to an outsider may seem the easiest (and least conflicting) course, but that option comes with its own perils – especially for owners who worry about the impact on their employees and their community.
Selling internally to non-family employees might preserve the company culture, but the financial complexities often interfere with that path.
Wenzel says it might be possible for existing non-family employees at Zander Press to assume ownership someday, but that’s far from a simple solution.
“If we were to lean in that direction, we’d have to work in that direction,” she says. “We were able to do it because our dad did the financing for us. If we’re selling it to someone else, there’s not going to be that possibility unless it’s someone from inside the business that we treat as family.”
Tack at Jet Stream Car Wash says he would be open to a group of existing employees purchasing the business when he decides to retire – in part because they already share the culture and values of the company.
“We have a core group of people here and we know each other very well. A lot of the way the business has evolved has come from them, rather than just from me on high,” Tack says. “I would feel comfortable with the people we have if they decided to get into it.”
Whichever path the current ownership chooses, there’s hard work ahead to make the transition successful, Seefeldt says.
“This is not just about a transfer of wealth and it’s not just about transfer of knowledge. It’s about family legacy and it’s about company culture,” Seefeldt says. “There are a lot of complex emotional issues in the business and in the family. If you go with a leader from outside the family, how do you deal with that?”
Rick Berg is a freelance writer and editor.