There is no Either/Or in Family Businesses with Jamie Shah
Jamie Shah is Adjunct Assistant Professor of Entrepreneurship at the University of Chicago Booth School of Business, Entrepreneur-in-Residence at the Polsky Center for Entrepreneurship & Innovation, and Managing Director of Chem-Impex International, her family’s business. Jamie studies the operational dynamics and succession plans of multigenerational family businesses, and offers a rare combination of academic and operational perspective on successful structures in enduring companies.
This post features a written interview with Jamie, who provided her answers in response to questions from Emily Holdman.
You teach a course called, “Outperform and Outlast: Operating and Investing in Closely Held Businesses,” and point to family businesses as being an “overlooked” part of the broader business landscape. What is most under-appreciated about family businesses in our economy/society?
I feel that our society has come to celebrate big fundraises and quick sales, while values-based small and medium sized cash flow positive businesses that create community and personal wealth remain largely unrecognized. What this underscores to me is that our economy most under-appreciates the freedom you are afforded by creating or stewarding a family business. This can seem antithetical, because many people often think of family business as a burden. But, when you are aligned on your shared values, and particularly when you are family owned and operated, you have the freedom to build a business in a way that aligns with your own personal values. There is no one else who gets to define for you where and how to spend your time or money. To me, this is really powerful and liberating, because it allows you to build a business and a life supporting the things that you feel most passionate about.
You describe the Family Business Triangle as being made up of capital, control, and liquidity. As with most things, it’s hard to achieve all three in equal measure. What have you found to be the prioritization and tradeoff decisions of successful family businesses?
It was eye opening to me to see the balancing act when I first learned about the Family Business Triangle, which comes from Financing Transitions: Managing Capital and Liquidity in the Family Business by Aronoff, Ward, and Visscher. There is really no one-size-fits-all-solution or even best practice for managing the trade-offs because it really depends on what the family is attempting to optimize for and how financing fits into their goals. I think it's most important to just recognize that there are trade-offs that need to be made. Often people will think that they can maintain control while raising capital, but, you can’t have it all!
In your research, what are largely universal challenges families face in operating closely held businesses? How does that compare to your experience in your family’s business?
There are lots of topics that are universal amongst family businesses, regardless of size: Letting Go, Managing Succession/Transition, Establishing Credibility, Sibling Rivalry, Perceived Nepotism, Building and Honing a Shared Purpose, Equality and Fairness, Balancing the Needs of the Family vs. the Needs of the Business, etc. While each and every one of these challenges makes for great drama (ahem… HBO’s Succession!), there are lots of governance tools and frameworks to help tend to these challenges.
Comparing this to my family’s business, there is a saying in family business that goes, “Every family business is the same and every family business is different.” That being said, I’ve learned that there is no one-size-fits-all solution to managing these challenges. And while it can seem overwhelming as a small business owner to tackle a problem that on the surface appears to have no solution, it also means that you as the family member and operator have the ability to create and craft a solution that best meets your needs. I’ve found the work by Amy Schuman on Paradox in Family Business to be really powerful when faced with these seemingly unsolvable problems. We often believe that we need to choose Family or Business, Investing or Harvesting, Retiring or Letting Go, but for most families the solution is not either/or, but rather is a solution that attempts to simultaneously manage both needs. For example, in our family, we have stated that my father will not retire. He will have a place and will continue to contribute to the business in a meaningful way for as long as he wants. At the same time, that doesn’t mean that he can retain all of the decision-making power. It also means that there is a clear transition plan for handing over the day-to-day operations of the business. (The EOS Framework of Visionary-Integrator has been one that helped us create this clarity for our organization.)
There are several sayings about the third generation of a family business having a lower likelihood of success. What have you found to be the most common traits of 3+-generation success stories?
Long-term success comes from families that are committed to the well-being of both the family and the business. This can seem paradoxical, but learning to attend to both of these needs simultaneously is necessary. The families that take pride in their business and are committed to being stewards of the business, while also building a business that is supporting the family to do and be their best, enjoy the most success and each other. I really love how the Lee Kum Kee Family thinks about their 1,000 year plan. They’ve invested so much in the education of their family members, both personally and professionally, it’s no wonder they are in their 5th generation!
What are the tenets of a well-run family business in terms of roles and governance?
In my opinion, it is all about intention. When it comes to roles and governance, there is no one size fits all solution (There’s that pesky saying again: Every family business is the same and every family business is different!). Some will say that it is best practice to have a board, but if the board is composed of “yes-men,” it is essentially a crony-board that is ineffective at holding the family or the business accountable. You can have the perfect family constitution, but if it was drafted by lawyers and no one has read it, it will be ineffective. A well-run family business has a clear shared purpose and intention. If there is commitment there, the rest of the pieces will fall into place.
Similar to our philosophy on how patience pays off, you’ve endorsed the concept of going slow to go fast. Based on both your academic and entrepreneurial experiences, why do you consider this approach to be a potential source of advantage for family-run firms?
Family-run businesses tend to be very resource constrained – either by talent or capital, and usually, both! Because of that, it’s important to focus. And focus takes a lot of discipline, because it’s actually very hard to say no. It requires an incredible amount of discipline to stop amidst the chaos and just think. But, when we fail to do so, we continue to operate on the surface, making the same mistakes, never really solving the root cause of the problem. We’re too busy mopping the floor to turn off the faucet. Being deliberate and patient can yield amazing results, because it forces you to focus on the root cause of an issue. But, it is much easier said than done!
When should a family business no longer be family-held?
I have not seen any specific research on this, but based on my personal opinions and anecdotal conversations with family businesses that have sold, I believe a family business should no longer be family-held when the business is no longer serving the needs of the family. As alluded to earlier, family businesses can create a lot of drama. To me, the purpose of the business, the reason to spend so much time building and sacrificing so much, is because the business should be overall and on average enjoyable. If the business is feeling like a burden, if it is feeling like a source of perpetual pain, it is no longer serving its purpose for the family.
Our family reminds ourselves at our weekly family meetings that, “We are the luckiest people in the world.” These words serve as a reminder for us to take stock and be grateful for the opportunity we have. When you are working in the business day to day, it’s very easy to get mired by daily challenges. But, at the end of the day, we should feel lucky to be able to work together every day building something that we love that supports our customers and employees. If we no longer feel that way, then we should consider doing something else. These words also remind us that working in the family business is a personal choice. As a family, we are not doing each other any favors by being miserable in our jobs and, as a business we deserve better than to have an unmotivated or disengaged employee. Our goal, as a family, above all, is to support each other in our pursuit of happiness, and if that pursuit aligns with the family business there is a reason to continue.
A word of caution to those who feel that selling their family business is an easy way to wash your hands of family drama: If you think that selling the operating business and becoming a family office will make things easier, think again. Often managing the finances of the family can be just as complicated, if not more complicated, than running the operations of a business. And, lastly, I have heard so much sadness in those who have sold their businesses. The business is an incredible force for unity in the family and it is really a special thing that not many other families have. If you have gotten this far by building a great business that is worth arguing over, work hard to fight for it! You may miss it if it's gone. I love Sierra Nevada Brewing Company’s motto, “We are 100% family owned, operated, and argued over.” Arguments will happen, and that’s a good thing because conflict, if done well, can be very productive to the business and the family.
I’ve had the pleasure to meet both you and your father, the founder of Chem-Impex International. Your dad made an interesting comment about the fact that it wasn’t assumed that you or your siblings would be involved in the business. What was your early exposure to the business? And how did you and your siblings end up becoming involved?
That’s right, my dad did not build his business with the expectation that he would pass it on for future generations. His philosophy was, “If I build a great business, they will come.” So, he spent his years building something so amazing that my sisters and I just couldn’t refuse! Actually, he never asked us to join the business, we asked him if we could!
My dad also gave us lots of freedom to explore all of our own passions and interests and really valued education. That allowed my sisters and I to work in other organizations, pursue advanced degrees and do it all because it was what we intrinsically wanted, regardless of what was considered best for the business. It actually worked out because we ended up pursuing very different passions: My older sister has her degrees in engineering, my twin sister has her degrees in Social Work and is a JD, and I pursued my MBA. This allowed us to come to the business with diverse expertise. No matter the passion, it would have been accepted – my mom is an artist and the most renegade of us all!
The other way that my father exposed us to the business was by attempting to balance his own work and life. We were very fortunate that my parents loved traveling and really valued the importance of travel starting at a young age. Every Winter and Summer break we would travel to a different country and also visit family in India, which just so happened to work out with the timing of vendor conferences, industry symposiums, and customer meetings! We were invited out to dinner with key business stakeholders and were around when customers were hosted at our house. I remember the time we visited a customer who lived on a farm in Switzerland, and we still laugh about the time when my dad invited one of our vendors to attend my older sister’s wedding (the vendor was in India and we didn’t expect him to be able to make it, but he loved working with my dad so much he showed up!).
Of course we spent some days off of school stuffing envelopes or shipping orders, but we did not have a formalized apprenticeship that is often characteristic of other family businesses. Our exposure was much more subtle: we learned about the business by watching my dad lead a life that we would want to lead ourselves.
What have been the pivotal decisions and/or processes that have contributed to maintaining strong personal and professional relationships among your involved family members? Any advice on how to mix (or not mix) the two?
For my family, the best decision we made was to have a weekly family meeting. Family meetings are incredibly powerful tools to come together, connect, and engage in productive conflict. In their book Family Meetings: How to Build a Stronger Family and Stronger Business, Craig Aronoff and John Ward state, “Family meetings help plan for the future of the business in an orderly and constructive way. They can smooth such difficult transitions as the succession of new leadership and can avert painful and costly conflict by helping the family address early and openly the issues that inevitably arise in family business ownership.” The Final Assignment for my class is actually to have a family meeting. Students, and their families, comment about how much they enjoy the assignment because it gives them a moment to be intentional together. It can be a low stress environment to cover big topics, I highly recommend implementing them!
Many people will be familiar with the dramatic television series “Succession,” and you have an assignment specifically focused on “Avoiding the Family Business Soap Opera.” What are the most common sources of familial infighting?
Linda Balkin, a leadership coach I met through Northwestern University’s course on Leading Family Enterprises, once told me that “emotions are weighted most at beginnings and endings.” In its most fundamental sense this is true of life and death: the intense joy of bringing new life into the world and sadness when one passes. I think the same is true in family business: whenever there is a beginning or an end, it will be the most emotionally turbulent and lead to the most conflict. Most commonly, this will tend to be succession or topics tangential to succession.
When you meet others involved in multigenerational family businesses, what are your first three questions? What are the most common questions asked of you? And what have been the most critical lessons you’ve taken from others’ experiences?
I usually ask:
Who in the family is involved in the business?
What do you love about your business and working with your family?
What are you struggling with?
I usually get asked:
Who in the family is involved in the business?
What do you guys do? / How long have you been around for?
Are (or When are) you guys planning on selling your business?
Given how fragmented the small to medium size business landscape is, I have found it difficult to connect with others in a similar position as my own. Outside of my own family and those I have met through Executive Education courses, the network for best-in-class generational focused businesses is both difficult to identify and difficult to contribute to. I would say I most often hear about people who used to have some sort of family business. I usually hear that their parents had one and sold it. That’s usually when I hear that they wish they still had the business. Even if the business itself wasn’t the greatest, it was a way for the family to hold onto their legacy and to continue connecting. That is probably the most critical lesson that I’ve learned, which I alluded to earlier: It seems like there is a lot of regret in selling, particularly if it’s done for the wrong reasons or if it occurs very unexpectedly. I hear a lot of stories of patriarchs dying unexpectedly with no plans, leaving children and spouses ill-equipped to pick up the pieces and steward the business. It’s been a lesson for me that succession plans don’t have to be perfect or done to start executing on them. Sharing intentions early on and including the next generation on the process, however half-baked plans may be, is better than the perfect plan that never gets actualized.
When it comes to thinking like a multigenerational owner, what have been your greatest sources of learning?
Northwestern University has a really great Executive Education program that I highly recommend. My sister and I attended a course together 5 years ago, which was my first foray into learning about family business as a subject matter. We both walked away from our class forever changed. I also really like all of the work by Ivan Lansberg at Lansberg, Gersick and Associates. Ivan does a great job blending theory and storytelling, which is very effective and thought-provoking. Lastly, The Family Business Consulting Group and all of the amazing thought pieces and publications from this group (Amy Schuman and Stephanie Brun de Pontent) have been transformational for me.
Other resources that have been helpful to me that are not directly Family Business related, but relate to managing/creating organizational change, which is essentially what a transition is, include:
The importance of conflict in an organization: Patrick Lencioni
Creating difficult changes: Chip Heath & Dan Heath
Understanding and correcting for human biases: Dick Thaler, Robert Cialdini, Daniel Kahneman and Amos Tversky
Scaling People: Tactics for Management and Company Building: Claire Hughes Johnson
Lastly, of course, Warren Buffett and Charlie Munger’s speeches and annual letters have been really meaningful and useful tools. The work that Kanbrick and Permanent Equity have done to expand and apply these principles has really helped build on these principles!
How do you think about and manage growth for your family business?
The topic of growth has recently taken on new meaning for me. We can all agree that growth is important and necessary, but we don’t often think of the trade-offs of what that growth means at scale. I once worked for a company that prided themselves on creating an artisan small-batch product, and at the same time was trying to grow as quickly and as fast as possible to achieve specific revenue targets. This strategy inevitably meant that the company would need to create larger batches, putting their growth strategy at odds with their artisanal approach, which was their differentiator. When it comes to my family business, we are focused on growth, of course, but we are trying to be mindful to stay small, on purpose. I think there is a lot of beauty in being small: It allows us to be nimble and iterate quickly. It allows us to have a personal relationship with our vendors and customers.
When thinking about building and risking, I’ve wondered, “When does our need for growth extend too far and turn into greed? When is more actually less and how do we know where to draw the line?” I was reminded of a quote from Warren Buffett that stuck with me: “Greed is when you risk what you have for what you don’t need.” It’s easy to constantly compare our situations with others and to feel like we always need more and to move faster.
It was a simple thought that reminded me of a quote I had recently read in Chicago Booth Magazine, “Wealth is the satisfaction of having enough.” A helpful reminder that you can be wealthy with any amount of money. But, that’s easier said than done. The human brain is obsessed with the pursuit of happiness. And if happiness is equivalent to some new shiny thing or a goalpost that is always moving further away, that pursuit is endless. It’s a tough balance – growth, but restrained growth.