FREE TRAINING: 3 Keys to Sell Your Business with Confidence

When Family Legacy is a Boat Anchor to Business Decision Making

She could barely hold back the tears. Wanda (not her real name) was telling me how her grandfather started the business after World War II. Her dad took it over in 1974 when her grandfather was diagnosed with Parkinson’s disease. Wanda started in 2002, and her dad poured his heart and soul into training her to take over the company. Unfortunately, he had a rare heart disease and died in 2007. “I wasn’t ready to take over,” she told me, “but I didn’t have much of a choice.” Wanda’s two sisters and one brother are not involved in the business, other than serving on the board of directors. Wanda told me her siblings never miss board meetings when dividend checks are being distributed.

The successful business started to decline just before Wanda’s dad passed away, the effect of digitization in the industry. Wanda made some capital investments to keep the company somewhat relevant, but it was a losing cause. The pace of change was faster than Wanda could keep up with. Projected revenue for 2018 was 50% of what it was the year her dad passed away. She said there were several times the past couple of years she could not pay herself a salary. Her siblings showed no sympathy, often complaining about not getting their dividend checks. Wanda once heard one of her sisters say, “this would never have happened if Daddy was still alive.”

Wanda is in a very difficult position that is wearing her down, physically and emotionally. She can’t fund the pace of change required to stay relevant. But even if she could keep the business viable, it is unlikely the business will ever achieve the levels of profitability it had when her Dad was alive. On the other hand, she is extremely sensitive to honoring the legacy of her grandfather and father. She told me she has a quote on her wall that says “failure is not an option,” but in recent years, that has seemed more and more to not be the case. The sad fact is, failure does indeed seem to be an option.

Wanda called me when a competitor suggested they meet to discuss a consolidation. She didn’t know how to value her company or how to negotiate terms for a merger. When we talked she acknowledged there wasn’t much value left in the company, and her best case would be a deal that would get her out of debt. But coming to grips with that reality has been hard for her. She told me, “I thought about selling the business in 2007 when Dad died. I saw some changes coming that were definitely going to affect our future. But I didn’t think selling the business would honor my dad and grandfather. As I look back on that, I see it might have been a big mistake not to sell.”

Wanda has a heart of gold, and she’s a champion for having kept the business viable this long. Though she now understands that selling the business is probably the right decision, her heart tells her something else. “I am so ashamed, my grandfather’s portrait has hung in the lobby for 35 years. His legacy will not live on the way Dad and I wanted.”

Yes, granddad’s picture is likely going to come down. But when a business owner puts the business legacy ahead of what’s good for the current owners, it seldom ends well. Family legacy in a business is a very cool thing, but it’s not the endgame. Legacy is not how or why a business should stay in business. Be vigilant to not let your family legacy cloud your business judgment, otherwise, it goes from being a good thing to being a boat anchor.

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. .  He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The names and fact patterns above have been changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."