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The Family Business

By Michael Collins, MPC ManagementSmall, family-owned organizations have inherent characteristics that give them a strong competitive advantage in a marketplace dominated by changing customer needs and niche markets.

There are 344,000 manufacturing companies in America. Ninety-eight percent of these establishments are manufacturers with less than 500 employees. Most of these small and midsize manufacturers (SMMs) are family-owned. In terms of numbers of manufacturing companies, it is fair to say we are a nation of predominantly small and family-owned manufacturing businesses.
Small, family-owned organizations do not operate with the cold logic and efficiency of large manufacturers. But herein lies their virtue. Family-owned companies are often labors of love and in this day of downsizing, can offer employees the communication, care, dependability and security that are all too often missing in companies who owe their day to day existence to stock prices.
Family-owned companies also can offer their customers:
• Uncommon integrity and commitment
• Speed and flexibility in getting things done
• Communication directly with owners
• A personal touch to quality and service
• A willingness to customize and offer innovative products/services
This is very good news — these inherent characteristics give them a strong competitive advantage in a marketplace dominated by changing customer needs and niche markets.
When discussing any kind of manufacturing company, it is important to point out the fact that those in the U.S. are not homogeneous groups. There are at least four distinct groups. (Table A shows there are logarithmic differences in the four types in terms of resources, knowledge, experience, staff, and the wherewithal to deal with change.)
Most Type 1 and Type 2 manufacturers are family-owned businesses, as are many of the Type 3 companies.
A Type 1 manufacturer might be just a few people managing a small shop with very little operating capital and a day-to-day fear of generating enough cash flow to keep the doors open.
A typical Type 2 manufacturer is family-owned business with 50 employees, known customers, and decent cash flow. Type 2s, however, are generally very good technically, but lack the systems and staff to grow into a Type 3.  
Type 3 manufacturers are midsize companies from 100-500 employees that are usually managed by a professional staff and well-developed systems.
These 3 types of manufacturers are so different in their knowledge and resources, that one solution does not fit all three. Hence suggested solutions and strategies need to be tailored to the type of SMM. 
The following comments refer to Type 2 small manufacturers and Type 3 midsize manufacturers. 
The organizational challenges facing Type 2 family-owned manufacturing companies are much different than those facing the Type 3 professionally-managed companies, who have evolved into larger organizations with sophisticated systems and professional staff. Family-owned Type 2 manufacturing companies have five unique problems:
Delegating — Delegation or “Letting Go” is a big problem for virtually every family business owner, both for psychological and practical reasons. Many owners need a lot of help in letting go. There is a psychological fear of losing all that they built because the company’s success had so much to do with their personal commitment, strengths, skills and leadership. There is an understandable reluctance to change the habits and behaviors that “got you there.” 
Still, most family owners know that the challenges their companies face are severe, and it’s “change or die.” What worked in terms of management when the company was only four employees really doesn’t work for the fifty-employee company. The owner did not have to delegate authority when there were only three other employees. With 50 people it is a totally different management situation. If the owner can’t delegate authority and responsibility, he or she will become obstacles to growth and the company will reach a plateau. At this point, most family-owned companies need help to address their fears and develop a plan to reorganize and push decision making and authority down to the employees.
Family Agenda — Another important problem is the Family Agenda. Whether it’s stated or not, virtually all family-owned manufacturers have a family agenda. Most professionals who work with family-owned businesses are mystified by the anomalies of this family agenda. Many of the complaints are valid — such as promotion of non-qualified family members, business decisions based on emotion and the domination of the business by the family agenda.
If you don’t understand the family agenda, nor have the patience to deal with them in their process and at their speed, all of your good advice will be to no avail. The question is how does the family agenda affect the company’s ability to change with the customers and market? Family agendas always affect the organization’s ability to get the right people into the right jobs. Many Type 2 manufacturers will also need help in finding a balance between the family agenda and the realities of creating a new, more efficient organization.
Communication — Communication among family members and non-family managers and advisors is a critical factor in managing change. After assessing the family agenda, any professional advisor will have to find out how the company communicates. I have clients who are very verbal, clients who like memos and reports, clients who must visualize problems on a blackboard, and clients who can only be reached through their emotions. The bottom line is that they won’t make decisions or accept change unless you communicate with them on their terms, not yours.
If you are part of a family-owned operation, one key issue you will have to address is how truly effective communication and persuasion works in your own company. And, of course, what is your role in that family dynamic? The good news here is you know the players and you already have some inherent characteristics that will help you implement change.
Resource Limitations – Another important point is that all small manufacturers are restricted by resource limitations. "FACTS" is an acronym that best characterizes the reality of the small manufacturing environment described as:
 F - Fear of making a wrong decision
 A - Limited access to capital
 C - Cash flow problems
 T - Time constraints
 S - Small or no staff  
Family-owned small manufacturers are not small versions of large manufacturers — One of the most popular approaches to helping small manufacturers is the assumption that the same theoretical concepts or solutions pioneered by giant manufacturers will also work for small manufacturers. If the solution does not consider “FACTS” and the type of company, it can harm rather than help family-owned manufacturing companies.
Family-owned manufacturing businesses are a very large and important part of american manufacturing. But in reorganizing their companies, they will need help with the issues of delegating authority, communication and defining the practicality of their family agendas. They will also need help in improving many of their systems (such as cost accounting) and developing a proforma forecast and budget to manage their limited resources.
If growth is the objective, finding solutions to each of these issues in today’s economy may mean the difference between success or failure of the family manufacturing business.
Michael P. Collins is president of MPC Management, a manufacturing consulting company, and the author of the book, “Saving American Manufacturing.”