The hurdles for long-running family businesses

Picture this: three family businesses which have been in existence for 530, 300 and 210 years respectively, all with great heritage products, which could become big brands, but all of them have a reluctance to embrace the compromises of a modern business.

This is the frontline of family business reality.

This is the war between real and manufactured brands, between the product that is and the one the consumers think they may prefer, between managing a family business life and managing for margins, banks and tax and equity efficiency.

Over the next few months join my search for answers for three long-surviving family businesses facing more challenges, they feel, than centuries growing through wars, depressions, revolutions in politics, economics, technology and consumer demand, let alone the sometimes warped, always intriguing and rarely rational ways of families.

We are in France to review these businesses both for their business potential, but also to offer any views on managing the family.

Offering insights on family business to families with their history comes with foreboding. But they asked because centuries of well practised rules and nostrums are struggling in globalised markets, far more invasive government and competitors (families can’t hide their behind the scenes issues) and just as great changes in people, the fabric of the family is fraying.

And there is another critical issue that was only apparent after the initial interviews. As people live longer, the members of long running family business cover a far greater range of people, moralities, respects and needs. The dominant patriarch or matriarch is no longer as dominant. In fact, if they keep dominating into still lively 80 and (in one case 90) year olds, with the final decision, how are the up and comers three and four generations behind kept involved?

The up and comers have the energy and ideas for the 21st century, which their great-grandparents look at with a wary eye. And the family advisor and banker finds life so much safer sticking firmly to the batten down the hatches approach of the elderly. Such conservatism has one of these businesses on the brink of ruin, but could be offering a necessary pause for another to rebalance in an unbalanced world.

As we introduce these businesses, excuse some inexactitude about their products and persons, because this is a live exercise, so there are some privacy issues.

The 530 –year-old business has a large domaine built up over five centuries but with a diverse family. Two cousins (several removed) of similar age run the two major divisions, a large wine domaine and a more modern contracting arm. Their family challenge is whether to split the business, and how to allow family members to choose which part to stick with. The business challenge involves how to better brand their wine to use the heritage to rise up the value chain. The contracting business is successful, but the uncertainties of Europe make any planning difficult when lower risk considerations of a broader family have to be taken into account. Energetic cousin M would like to bet the domaine, and its low cost borrowing ability, to take advantage of distressed situations that are starting to arise. He may have to do this largely alone, which lowers the family risk, but greatly increases his. Reasonable possibilities exist, but merely the thought of extra risk has caused massive digging up of family memories of the winners and losers from risk in past centuries.

The 210-year-old business is an example of great risk taken in the past. The decision by an ancestor to back Napoleon resulted in the award of a food supply contract that led to the development of a much loved food product. Gourmands travel across oceans to enjoy it.

Everyone wants to buy it around the world, but there is only one outlet, inconveniently high in the mountains. And the base product price has not changed in the last four years from 6.94 euros, I suspect because the handwritten table with calculations of multiple quantity sale prices would be just too much effort for Ger, 64, and sister Jos, 60. And their mother Gis, 90, still does some of the cooking.

Neither of her children are with issue, so their dilemma is what they vaguely term “the future”. Ger refuses to think much more than at some stage he would like to go on a cruise.

Major food globsters and brand managers have traipsed up the mountain with offers to look after the product, or those foolishly enthusiastic who promised to take it to the world and make the trio immensely rich. All offers have been rejected. The current status is to close up in October – ending 210 years of brilliant heritage in a cheap cruise in the Caribbean. Can we save the trio from their lack of ambition, and the taste buds of gourmands?

As my driver and cultural advisor Fred says, “Andrew, you cannot be Anglo Saxon about family. This is more important than business for them. It is about life.”
But I detect a little interest from Gis…

As for the 300-year-old business, it’s a different prospect, with the patriarch suddenly dying and leaving five siblings, two of whom are happy to cruise along on falling dividends for doing very little, two who live on other continents and are interested in any Lotto style money payout, and the emerging entrepreneur who in middle age has found his feet. He has developed the heritage, which goes back to when the Romans mined and smelted here, into an exciting new product. But unless he can get control of the estate’s major assets and shake, rattle and roll with change on every front, does he get dragged back to his siblings’ inertia? And the business will probably die faster than any expect.

So plenty of opportunities for long-running family businesses, but plenty of hurdles and traps.

We will continue with the developments over the next few months.