Editor's Note: This is the sixth in our 2007 series of The Business Owner Toolbox written by our regular columnist, George Hedley. Each article is written to provide you with practical, immediately applicable business management tools to assist you on your path to building a successful, growing business. To read the previous article, click here. To read the next article in the series, click here.
I grew up in a home where my dad was an entrepreneur. He owned, managed, built and developed mobile home parks. He worked hard, lots of hours and often from his home office. After graduating from high school, I attended the University of Southern California (Go Trojans!) so I could play on the water polo team and get a civil-structural engineering degree.
As an engineering student, I figured I would learn how to design building projects and then go work for my dad as a project manager after graduation. But after the graduation ceremony, my dad didn't offer me a job! Now what? With no money and no means of support, I had to get a real job, work for a real company and live on the money I earned!
In retrospect, this was the best career builder I could have experienced. I had to find a company to hire me, work within their system, do what they wanted me to do and get promoted based on my merits and contributions as an employee. Many of my college friends took the easy route and went to work at their dad's companies. Thirty-five years later, they're still working for the family business. They complain as they continue to wait for their dad to retire so they can finally take over, make some real money, enjoy their lives, not live under the shadow of their dad's success and have some freedom. Most of them are unhappy and unfulfilled as their dream to become a partner with their dad hasn't materialized yet. They have postponed their lives and personal achievements waiting for unspoken promises their dad never communicated nor offered.
Sixty and Still Waiting!
A case in point: A sixty-year-old ran his dad's excavation contracting company for over twenty years. His dad is eighty-five years old, has medical problems and hasn't been able to come into the office for the last five years. Twenty years ago the company was small and doing $250,000 in sales. Today, under the son's leadership, it averages $4 million in volume per year and makes a net profit of around $400,000 annually. But the son is fed up and tired of the situation. His dad still owns 100 percent of the company and only pays his son $4,000 per month, plus the use of a company pickup truck. The son works eighty hours per week, is not trusted to sign checks and can't make any decisions or major purchases without his dad's blessing. The son wants to quit, start his own company and fire his dad. What you would advise him to do?
I get lots of e-mails from young sons and daughters who work for their dads in the family construction business. They write because they are disappointed with their situation and unhappy with how they're treated and not respected by other employees since they're the owners' sons or daughters. Some comments and complaints I get include:
- My dad promised me ownership, but I can't pin him down on a timeframe.
- My dad is stuck in the past and won't try any new ideas.
- Our company isn't on the cutting edge of technology.
- My dad won't let me make any decisions without his input.
- My dad makes all the money, and I do all the work.
- My dad barely pays me enough to live on.
- I want this company to grow, and my dad won't hire any new people.
- How can I get my dad to listen to me and change his ways?
The consensus for these sons and daughters caught in a bad situation is a common desire to do more, want more and get more. They see their dad stuck in the past, not letting go, not trusting them to make major decisions or take over anytime soon. They are tired of working lots of hours, getting jobs nobody else wants, not participating in profit sharing and not seeing immediate or long-term rewards for their efforts and contributions. They want more and don't know what to do. But they also don't want to upset or confront their dad, so they write and hope for a magic solution to the problem.
Children Must Earn Ownership!
Before sons or daughters are given ownership, they must answer these questions:
- How do you contribute to the bottom line?
- Do you bring in new customers and business opportunities?
- Are you an expert in managing and leading a company?
- Do you understand financials and accounting procedures?
- Do you understand risk, banking, bonding and insurance?
- Do you understand legal contracts and commitments?
- What financial strength do you bring to the table?
- How much are you willing to pay for stock or ownership?
- Are you willing to lose everything if the company goes broke?
- Why do you have the right to tell your dad what to do?
- Why should he have to listen to your ideas?
- Why do you deserve to be an owner in your dad's business?
- Why should dad give you more than his key employees?
Commit or Say Good-bye!
Before sons or daughters should be considered for ownership of any company, they must earn their position of leadership and contribute to both the bottom and top line. If earned, the dad must be willing to sit down with his sons or daughters and tell them the truth about his ownership transition plan. Often, the dad strings his children along by never making a decision about when or if the transition will take place, how the ownership will be earned or distributed and when the dad will step back and retire. These unclear plans and unstated promises cause the son or daughter to get frustrated and unhappy. The dad must take responsibility and write out his plans and review them with his child early in his/her career. If this doesn't happen, he/she will finally confront dad and can cause the family to split.
My recommendation for sons or daughters who don't clearly understand their dad's transition plan is to ask for one. If they don't get satisfactory answers, amounts and dates, start looking for a new job. I have heard too many stories of sons waiting for their dads to give them the company only to find out it won't happen for twenty or thirty more years.
My Three Sons!
Another example: Three brothers in their forties ran and managed their dad's plumbing company. The three sons did everything including sales, customer service, operations and management. Dad reached his seventies, but still didn't offer profit sharing or ownership to the boys and paid them less than they could get with other companies. Dad used the old line "hang in there and eventually you'll get it all." Dad came in one or two times a week to approve major decisions the boys needed to make. Mom continued to come in on Thursdays to pay the bills and sign the checks. Dad paid himself a six figure salary, had three company-owned vehicles and took lots of company-expensed trips. This caused the company to struggle and be tight on cash-flow which didn't leave much for business growth.
The three sons knew they were in a bad deal, but didn't want to upset the family. Eventually, the youngest son quit and started a competing plumbing company. He became very successful on his own and made four times the money the remaining boys made working for their dad. Now the problem worsened as the dad promised the remaining two sons he will think about some new financial arrangement if they continue to run his company. So they keep working without additional compensation, stock or ownership. What should the boys do? Is it time to fire the dad and quit working under a promise they might get more money some day?
People Don't Change!
People don't change unless they want to change. The dads in these stories don't have any reason to change, let go or give their boys profit sharing or ownership. Sons or daughters who want more won't get it until they confront their dad, communicate exactly what they want and tell him the consequences if they don't get it. They must lay out a positive plan for their increased role in the company to get dad to change and offer ownership, more accountability and additional responsibility. Then, they can hope their dad agrees. If he won't agree or doesn't want to change, they must be willing and ready to quit working for the family business and get on with their lives.
Should I work for My Dad?
A high school senior wants to work for his dad's construction company some day. He can't decide if he should go to college or start working right out of high school. He is leaning toward starting work without college. His dad says he could use him out on the jobsite now. Plus, he argues, a college degree is expensive and won't really matter if he works in the family business.
Why would a young high school son or daughter want to start working immediately for their dad after graduation? By going to work for his dad, the son won't have to take any employment risks, won't have to experience the challenges of college or worry about finding a job in the future. And the son thinks he might get to run his dad's company some day. But does the son have any assurance the company will fulfill his dreams and promises? Will the company still be around when his dad finally turns it over to him fifty years later? Will the lack of a college degree hurt him in the future? What if the son doesn't like construction and wants to change his career path?
Why do dads hire their children too early?
- They are easy to hire.
- It eliminates interviews and looking for qualified employees.
- Untrained sons will do things dad's way without questions.
- Employees make demands, must be respected and treated fairly.
- Sons can be asked to work lots of hours without compensation.
- Sons don't have the right to complain or make demands on parents.
- Sons can be asked to do anything for the good of the business.
- Sons can be trusted even if they're not qualified.
- Sons can be paid less than they're worth.
- Sons will keep working without ownership or profit sharing forever.
- Sons won't ask for too much money as long as dad acts poor.
What Should My Boy Do?
My advice to sons and daughters of construction company owners is to go to college and get a degree in what they feel is best for their future. If construction is their career path, get a degree in construction management or civil engineering. After graduation, go to work for a major construction company that has an intern training program for college engineering graduates. Learn as much as you can from the professional company, their managers and systems. Work hard and get promoted to project manager, superintendent or estimator. Practice and perfect your newly acquired skills and grow into a valuable management team player and contribute to the bottom line in a major way.
When you become a success on your own, you're ready to apply for a leadership position at your dad's company. But only accept an offer under your terms with a written agreement about how your responsibility, stock ownership and profit sharing will occur in the future. Be ready to work harder than anyone else in the company. Expect no special favors and earn your pay like a professional. Get promoted to stockholder, and help the company grow to the next level as your dad backs off and lets go.
When sons or daughters work for their dad's company, they should always ask themselves if they could do better, make more money, have more fun or get ahead faster at another company. They should never postpone their future waiting for dads to potentially give them a piece of the company someday. Fathers and sons should discuss, agree on and put the following into writing:
- Stock ownership transition plan
- Buyout options
- Compensation packages
- Management accountability transition
- Chain of command and authority
- Joint review of financials monthly
- Participation in major decisions
Sons and daughters: If your dad isn't willing to be open and honest with you about the future of his company, ownership, transition and compensation, you have no choice but to fire him by quitting. Aren't family businesses fun?
Construction Business Owner, June 2007
