Ownership Structure in Family Businesses: When and How to Pivot for Generational Success

August 24, 2023

Family businesses are unique entities, balancing the intricacies of family relationships with the demands of the business world. They carry legacies, embody values, and represent generations of hard work. The transition from one generation to the next often presents challenges, and it’s crucial for families to navigate these transitions effectively to ensure the longevity of their enterprise—especially if they wish for the family to remain close when changes arise.

Oftentimes, with family businesses, the original business no longer fits the family system. Either the family agrees to sell the business and open another one together or sell the business and go their separate ways. Or, sometimes, both.

That was exactly what happened with this WillKate family. Having successfully transitioned from the founding generation to the second, this family hit an unexpected roadblock as they moved from the second to the third. A decade ago, the patriarch relinquished the presidency of the business, and the decision was made to sell. With the proceeds of this sale, the family embraced a comfortable lifestyle, creating a plan based on this newfound wealth.

When the Original Plan is No Longer Sustainable, Pivot. 

However, life and its unpredictability soon made it evident that their initial plan was unsustainable. Flexibility became the need of the hour. Drawing from their entrepreneurial spirit, they established a new business structure. Success followed, yet, as time went on, the family unity—once their strength—began to wane. The business had branched into three distinct entities, operating in isolation rather than synergy. One branch, realizing the detrimental trajectory they were on and not wanting to see the family legacy dissipate, reached out to us.

What followed was a reimagining of their ownership structure to establish a family office. For those unfamiliar, a family office is a private wealth management advisory firm that serves ultra-high-net-worth investors. It is about more than just managing wealth; it’s about stewarding it, ensuring it benefits current and future generations. Many longstanding family businesses understand the importance of evolving with time, recognizing that there are moments in the life cycle of a business when change is not only beneficial but essential. Of course, this can be tough. We all hold onto the past or reach to the future for different reasons.

In this family’s case, they pivoted from their traditional business model to steward their wealth, ensuring that it served them and their descendants. By re-centering around the concept of a family office, they began the journey of unifying their branches, working cohesively once again, and securing their legacy.

So Much Success Depends on Adaptability

The success of family businesses across generations doesn’t solely depend on the industry they’re in or the assets they hold but on their ability to adapt, evolve, and stay unified. Families must be open to restructuring, realigning, and even reinventing their business models to ensure long-term success. And sometimes, it’s about understanding when it’s time to change the asset and create new pathways to sustain and steward family wealth.

Recognizing the Signs: When Your Family Business Structure Isn’t Working

One of the foundational truths of business is that no model, however successful it once was, remains immune to change. For family businesses, the added dynamics of personal relationships can sometimes mask or complicate these signs, making it harder to decide on when or how to change.

Here’s how to recognize when the family business structure might be failing:

  1. Communication Breakdown: This is often the first red flag. When family members no longer communicate effectively about the business, when silos form, or when decision-making becomes a battlefield, it’s a clear indication that the current structure is no longer fostering a collaborative environment.
  2. Financial Strain: If profitability is declining, cash flow is inconsistent, or there’s an over-reliance on past sales without strategies for future growth, the business model might be outdated.
  3. Stagnant Growth: When the business stops innovating, diversifying, or expanding, and competitors begin to outpace it, the structure may be inhibiting rather than facilitating growth.
  4. Generational Disinterest: If the younger generation shows little interest in joining or contributing to the family business, it might be a sign that the business model doesn’t resonate with them or offer them the opportunities they seek.

Pivoting Proactively: Steps to Revamp Your Family Business Structure

In the ever-evolving landscape of business, adaptation isn’t just a luxury—it’s a necessity. Particularly for family businesses, where legacy and lineage intertwine, the courage to pivot proactively can make the difference between fading into history and forging a vibrant future.

The following steps delineate how families can reorient their businesses, ensuring they remain relevant, resilient, and ready for whatever challenges come their way.

  1. Seek External Insight: Bringing in an outside consultant or expert can provide an unbiased view of the challenges and solutions. This objective perspective can help identify both structural issues and interpersonal dynamics at play.
  2. Open Dialogue: Encourage open discussions where all family members can express their concerns, visions, and aspirations for the business. Sometimes, an honest conversation can unearth issues that might have been overlooked.
  3. Embrace Flexibility: Be willing to modify or even overhaul the business model. This might mean diversifying into new areas, adopting new technologies, or restructuring roles and responsibilities within the company.
  4. Education & Training: Investing in the education and training of family members ensures that they’re equipped with the latest industry knowledge and business strategies. This is particularly important for engaging the younger generation and preparing them for leadership roles.
  5. Draft a Clear Succession Plan: Ensure that there’s a clear and agreed-upon succession plan in place. This provides a roadmap for transitions and can prevent conflicts and uncertainties in the future.

In essence, acknowledging that the current structure of a family business might not be serving its intended purpose is the first step towards rejuvenation. Adapting to the changing dynamics of both the market and the family itself ensures that the business not only survives but thrives across generations.

At WillKate, we know a thing or two about family businesses. Not only do I—Agatha Johnson, the founder of WillKate—come from one, but have been working as a consultant, coach, and facilitator for family businesses for decades. In that time, I’ve helped countless families pivot their family business to a structure that benefits all the members equally and also helps them maintain their sense of union and closeness.

If you are a family business owner or member of a family business who feels stuck, is experiencing financial strain, or simply doesn’t if your family business is structured to stand the test of time, we encourage you to reach out. We offer free introductory calls with our team to learn about your story and decide together if WillKate would be a good fit for you. Schedule your intro call today to position your family for generational success.