The family hvac business: 'Heir-raising' tales of nepotism

April 26, 2000
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This article in a local business journal caught my eye:

Lines Music Company No More After 123 Years, 5 Generations

Lines Music Company, a Springfield entity for more than a century, no longer exists as a company. The company’s property is set to be sold in a foreclosure sale, the result of a shift in the company’s bankruptcy status to from Chapter 11 (reorganization) to Chapter 7 (liquidation).

What went wrong? Imagine the changes in environment, market, and government that this company had survived. What force was so great that it destroyed a company with this kind of longevity? The same force that had held it together for so long — family.

Further in the article Bud Lines, fifth-generation stockholder, says, “The transfer of stock wound through the family. We realized there wasn’t a lot of future left with that many stockholders.

“Through the years, I can remember my father and uncle wanted to try to come up with a buy-out with other family members, but it just didn’t work. It would’ve made things a lot easier if people who were in the company had held a majority of the stock.”

I’m just speculating, but can you imagine a few members of the family working their fannies off in the business while dozens of cousins eagerly await their dividend checks?

Nepotism is defined as “favoritism; especially governmental patronage to relatives.” In other words, you get the post because you’re a member of the lucky gene pool. That can create problems.

But there are lots of advantages with family-run companies. Let’s look at the pros and cons of keeping it all in the family.

Bew'heir these family pitfalls

Pitfall 1. Family relationships in business become dysfunctional when family members play the game with a different set of rules from the rest of the company.

Most folks mean well when they bring other family members into the company. If you give Johnny a “leg up” in the business, why, he won’t have to waste time making all the mistakes you made. He will rule the world in six months! But what if Johnny doesn’t live up to your expectations?

Conversely, what if Johnny is allowed to slide? You don’t hold him accountable because, heck, he’s just a kid (35 years old?) and once he grows up he’ll take on more responsibility. Sure. You’re not doing Johnny a favor. You’re stripping him of his own power — and the other employees will resent both of you.

What if a family member really needs “the boot”? It’s a tough call. But if Johnny is not producing, wouldn’t it make sense to free him up to find a job for which he is better suited?

If you fire Johnny you may be in for some cold shoulders at Thanksgiving dinner. But hang tough. By next year, cousin Rosemary’s affair with the teenager will take center stage, and you and Johnny will be forgotten.

It is important that every employee’s performance is measured against objective, measurable standards. Ask yourself, “Would I treat a non-family member in his position the same way?”

Expect no more and no less from a family member than you would from any other employee.

Pitfall 2. Then there are cases where family members join the business out of a sense of duty, not because it’s a career choice they would make on their own.

I asked a young fellow recently, “Do you like being the service manager at your company?” He responded, “Well, my dad wants me to be the service manager, so I guess I like it.”

I laughed. He didn’t.

Don’t sacrifice your life for the family business. If you’d prefer to go to New York and try to be a chorus member in Cats, do it. The family will get over it. Dan and Uncle Louie will find someone else to be the weekend dispatcher.

Do what you want to do, regardless of what the rest of the family wants you to do.

Pitfall 3. If you pay more to relatives who don’t work at the company than to the employees who do, you may be heading for trouble.

The article about the Lines Music Company indicated that too many relatives were drawing money out of the company. As each generation increases geometrically it can get crowded on the salary line of the income statement.

I’m all for putting mother on the payroll. After all, she’s been a saint. Reward her for years of selfless dedication while y’all worked yourselves crazy and left Christmas dinner to catch no-heat calls. But don’t overdo this.

Match compensation to performance, not DNA.

Pitfall 4. Frankly, in the hvac industry, paying family members too much is the exception. More often, hiring family is a way to get free or cheap labor.

Lots of contractors claim, “I can’t afford to pay someone so my wife does the bookkeeping.” Yikes!

There are plenty of worthwhile, non-profit organizations looking for volunteers. Your company should not be one of these. As industry consultant Frank Blau points out, “Slavery is illegal.”

Price your services to cover generous compensation for all performers, related or not.

Pitfall 5. Have you tried to run your company by committee? For fear of stepping on anyone’s ego, family business members can coast along aimlessly.

One person must accept ultimate responsibility for the leadership of the company.

You can still work as a team and support each other, but choose a “buck stops here” person. Somebody must make the final call when it comes to a split vote.

Decide who will be the boss.

A f'heirly run business

A family-run business also can be a wonderful environment for profits and personal development.

Benefit 1. You can teach your kids how to run a business, make money, and accept responsibility. This is empowering!

Even little buckaroos can help out at the shop stuffing envelopes, sweeping up, washing trucks, and even entering data.

Hold them accountable. Every-one fills out a timecard. Performance appraisals are based on production, not the employee’s last name.

It’s important that you spend time training them on the whole operation. If Bobby is dumping trashcans all day, he might not see the big picture. Commit to their business literacy. Show them numbers. If your insurance covers it, have them ride along in the trucks. Have fun! School breaks are good opportunities to “test drive” a family member. Make sure that the working arrangement is satisfactory to all involved. Say, for instance, that your daughter Sally wants to earn some money this spring break. You’ve been busy, so it is agreed that Sally will work part-time filing invoices and bills until school resumes.

If Sally doesn’t deliver, you have an imposed time limit on the relationship. You can discuss why the job didn’t work out and develop a game plan for using the experience to her advantage. If Sally shines, great! See what other types of fill-in-the-gap work she can do over summer vacation.

Also, you can pay each child up to $4,100 tax free (not tax-deferred) every year. Cool, huh? Check with a tax accountant for details.

Help your kids learn business skills.

Benefit 2. Your family business can appeal to a market tired of big stores and poor service.

Today, big companies are setting up camp in the hvac marketplace — utilities, consolidators, and home centers. You must differentiate yourself from them in order to survive. Why would folks choose your company over the others? Because you are a family-owned company that cares for its customers.

There are customers who would love to fall in love with your family business. Can’t you hear them? “Oh, I always call Arnold Heating and Cooling. They are so reliable! My mother used to call Arnold Sr. Now, his son is the only person I let touch our furnace.”

Big companies will never match your ability to develop a personal relationship.

Benefit 3. If Johnny knows that “Someday this will all be mine,” he may be motivated to make the company successful.

Do you find that owners and employees usually have different motivations for their behaviors? When your name is on the sign on the side of the building, you might go the extra mile to make sure you get the job done and satisfy the customer.

Reap the benefits of a company full of owners.

Last words

If you are operating a sound business with solid earnings, you could pass your successful business on to your kids. This is an admirable goal. What nicer inheritance than a cash cow?

If you are intent on creating a legacy with your company, you better make sure the thing works. Put systems in, pull the bugs out, and create the perfect company.

If little Johnny grows up working in a sane and profitable company — well, who knows, maybe he could rule the world.

You can create a legacy, or expand one into another generation. Wouldn’t that be nice?

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