EntreLeadership - 4 Keys to Building a Family Business That Lasts

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Starting point is 00:00:35 Listen, this is a big deal. We want this show to be what you want it to be. So let us know. Running a family business can go one of two ways. It's either a disaster. You damage the relationships in your family. Everybody ends up mad at each other and you destroy the business in the process.

Starting point is 00:00:59 Or it outlives you and becomes a blessing to your family. for generations. And the difference isn't luck. It comes down to a handful of key decisions. I've had to make those decisions myself running a business with my kids, and for almost 30 years, we've helped thousands of family businesses do the same. So today, Entree Leadership's head coach, John Falcons, is sharing the family business playbook we've developed along the way. Because the truth is, if your family's dysfunctional, your business will be too. But when you get this right, It's one of the most rewarding things you will experience as a parent and a business owner. Let's get to it.

Starting point is 00:01:40 Thanks, Dave. Today, we're going to walk through the four keys to building a healthy family business. And those are the roles, the communication, the transition, and what we call higher calling. But before we get started, I want to address something that actually really ticks me off, because for years, I've heard people repeat the idea that all family businesses are doomed to fail by the third generation. Like it's some kind of law of nature. Like grandpa builds it, dad grows it, and the grandkids are just going to screw it up. But I don't buy it.

Starting point is 00:02:21 After decades of coaching business owners and living this ourselves here at Ramsey, we've seen plenty of family businesses that have survived and thrived for several generations. And the businesses that fail usually don't fail just because they're a family business. They fail because nobody was intentional. Nobody took the time to create clear expectations. Nobody took the time to have the hard conversations. Nobody built a plan for the future, and nobody bothered themselves to have a healthy family. They just assumed everything would work itself out until it didn't.

Starting point is 00:02:59 That's why the four areas that I'm going to cover today matter. so much. You ignore even one of these and you're inviting chaos to have a seat at your dinner table. But if you're intentional about all four of these, you'll drastically increase the odds that your family business does well for generations instead of becoming a cautionary tale. So let's start with the first and most commonplace that family businesses go sideways. That's, like I said earlier, roles. When you're working with your family, it's really easy for the lines to get blurred. You leave work together, you have dinner together, you go on vacation together.

Starting point is 00:03:41 Nobody really knows where the family ends and where the business begins. That's why one of the most important things you can do in a family business is to get crystal clear on what your roles are. There are three main roles in a family business. You're either an owner, a family member, or a team member. Some people will have those roles, and some will be a combination of the three. For example, Sharon Ramsey, Dave's wife, is a family member and an owner. His daughter, Denise, is also a family member and an owner. She runs the family foundation, but doesn't work at Ramsey Solutions proper.

Starting point is 00:04:19 While Daniel and Rachel are family members, owners, and team members of Ramsey Solutions. But their spouses, the sons and daughters-in-law, are family members only. And I, along with about 1,000 other people, are team members only. Everybody knows the role, and just as importantly, everybody knows the role they don't have. A lot of the problems in a family business happen when people forget which hat they're supposed to be wearing. And we're going to get to hats more later. Maybe you've seen this before. A family member who doesn't work in the company shows up at the office and starts telling everybody what they should be doing.

Starting point is 00:04:53 or somebody brings a family disagreement into the business. Or maybe a parent starts treating their son or daughter like a child instead of like a team member. The moment you bring your family role into a business decision or your business role into a family conflict, you create confusion for everybody. So even if you think all of this is already clear, take some time to put it on paper. Make a list of every family member connected to the business. So it might be mom, son, and let's just say me. Well, mom's the owner, son is family, and maybe he's an owner also, and then there's me, just a team member.

Starting point is 00:05:35 For each person, get really clear on their decision-making rights. Then sit down and talk through it together with your family. This may feel obvious, but trust me, it usually isn't. If you don't define the roles, people will define them for themselves. That's where the conflict starts in a family business. You might have to tell some family members, that's not your decision to make, and that might ruffle some feathers. It's okay.

Starting point is 00:05:59 A little discomfort today is a whole lot better than years of frustration and resentment down the road, because what doesn't get talked out gets acted out. And once everybody understands their role, they have to stay in their role. They have to stay in their lane, and that includes you. If you need to literally picture yourself changing hats, do it. Dave talks about having a boss hat and a dad hat because there are moments when those two roles require completely different responses. Our friend Henry Cloud tells a story that illustrates this beautifully. He talks about a dad and a mom that are discussing their son.

Starting point is 00:06:38 And a son is actually pretty much a twerk. He's yelling at people on a job. He shows up late. He leaves early. He's just not doing a good job. and they've talked to him a bunch of times. So finally, dad sits down with him and says, son, we've tried everything.

Starting point is 00:06:53 And you're just not getting it. You're not leadership material here at this company. And I absolutely hate to tell you this, but I've got to let you go. I'm sorry, but you're fired. And then he takes his boss hat off. He puts his dad hat on, and he looks at his son and he says, son, I heard you just lost your job. How can mom and I help?

Starting point is 00:07:14 Sometimes it's going to be that way. you're going to have to go back and forth between those two roles. There are going to be moments where the different situations require two different responses. At work, you're functioning as the owner, the leader, or the team member. And at home, you're the husband, the wife, the parent, the child, the brother, or the sister. But if you've worked with the family, you know those roles don't automatically separate themselves. You have to intentionally create some boundaries between these different things. This might mean not discussing business at family dinners, not bringing family disagreements to the office, or creating job descriptions for family members, just like

Starting point is 00:07:56 every other team member. Clear boundaries also communicate professionalism to the whole team. For example, Daniel and Rachel called Dave Dave at the office, and not dad. Another practical thing you can do is create some structural distance where you can. If your company is large enough, try to put at least one layer of leadership between yourself and your family member. That buffer can be incredibly healthy. It can help keep every professional issue from becoming a personal issue. So maybe instead of mom or dad evaluating performance, another leader can do it, because at the end of the day, family members should be evaluated the same way everyone else is. Which brings us to another important principle. Family members need to earn their seat at the table. This son, he shouldn't be

Starting point is 00:08:45 calling the shots just because he's the son. He needs to earn that influence. In fact, family members often have to work harder than everyone else because they're constantly fighting the perception of nepotism. The other team members are naturally wondering, did they earn their role or was it just handed to them? Was it just given to them? Did they just get it on a silver spoon? The only way to answer that question is through performance. That doesn't mean every family member has to start at the very bottom of the organization. If they have the education or the experience that qualifies them for a given role, you don't have to keep them sweeping the shop floor just to prove a point to everybody. But wherever they start, they still need to earn their role. At Ramsey, Dave's son,

Starting point is 00:09:33 Daniel didn't start in a corner office. As a teenager, he painted stairwells. He stuffed envelopes. He did the same kind of work a lot of other teenagers would have done. Then he started to working in sales and he started crushing his role. So eventually he went on to lead our financial peace team. And he even eventually became the VP of Entree leadership for a time. And now he's the president of the company. But none of that was just handed to him. The expectation was clear. Family members earned their role just like everybody else does. That helps them earn trust and respect from the rest of the team. Another thing is, just because somebody's last name is on the sign, it doesn't mean that they're entitled to a paycheck.

Starting point is 00:10:18 They need to earn the money for their role. And the thing is, that money, it's not based on their DNA. It's based on their KRA. Their responsibilities, the role that they actually have in the company. And when everybody understands their role, stays in their lane, and earns their keep, you're going to eliminate a lot of unnecessary drama. And speaking of roles,

Starting point is 00:10:43 if you've got a family member that's got way more their plate than they should have, it might be time to ask for some help. See, it's easy for business owners to get buried in the day-to-day junk. Stuff like answering emails, scheduling meetings, taking every single customer call, even ordering office supplies. You spend so much time working in your business, you never have time to work on your business. If that's where you're at, you need to talk to my friends at Belay. Belay helps overloaded leaders carve out time by providing highly vetted executive assistance to handle those time-sucking tasks. That means you can spend more time focusing on the

Starting point is 00:11:21 things only you can do, leading your team, developing strategy, growing your business, and even being able to turn the business off and have a family life again. I've gotten to know the folks that belay over the years. They understand leadership growth and what it takes to help business owners achieve more. I trust them and you can too. So don't keep wasting your valuable time on stuff that doesn't deserve it. Text Entree to 551-2-3 to schedule a free consultation with Belay. That's E-N-T-R-E to the number 55-1-2-3. And that leads us to the second area.

Starting point is 00:12:00 Communication. Most family businesses communicate constantly. They're texting, calling, and seeing each other all the time. The problem usually isn't a lack of communication. It's that they aren't communicating about the things that matter most. So everybody starts making assumptions, but healthy family businesses communicate intentionally. They don't leave important conversations to chance or assume everybody knows something. They create intentional systems.

Starting point is 00:12:29 They overcommunicate. Here at Ramsey, we say all the time that the right hand should know what the left hand is doing. We spend a lot of time making sure everybody knows what's going on. Because when people don't have information, they make up stories. usually the worst-case scenario stories. This is especially true when it comes to succession planning. Now, we're going to get into the details of the actual transition plan in the next section, but communication deserves its own conversation,

Starting point is 00:12:59 because how you communicate the future of the business is just as important as the plan itself. If nobody is talking openly about it, everybody starts filling in the blanks themselves. Somebody thinks the kids are taking over. Somebody else thinks that the business is going to be sold. Somebody thinks that they're going to get some ownership in the business. We all love movies where the family gathers around at the funeral and the attorney opens the will and everybody's shocked at what's written. Well, that might make a great movie. It's a terrible business plan.

Starting point is 00:13:31 The future of the business should not be a mystery. You need a plan and you need to communicate the plan and then keep communicating the plan. Not everybody's going to love it, but that's not the goal. The goal is clarity. If somebody is going to be upset, it's much better to work through those emotions while you're alive, then leave everyone sorting them out after you're gone. So the earlier you start these conversations, the better. Here at Ramsey, Dave holds an annual meeting about what will happen when he's gone.

Starting point is 00:14:05 He jokingly calls it the Monty Python meeting because after so much talk about him dying, he usually ends up telling everybody, I'm feeling much better. But he has the meeting to make sure that everyone is on the same page and that nobody is left guessing what's going to happen next. And remember, communication isn't just for the family. It's also for the team and even for your customers. Your team needs to know that the company has a future. And your customers and vendors need to know that the business isn't going to disappear when you leave. The healthiest family business communicates so clearly and so consistently that nobody is ever left wondering what's happening or what comes next. I'm curious if that's happening in your business, let us know in the comments

Starting point is 00:14:51 one way or the other. So now let's talk about what it actually looks like to plan for the future of the business, aka the transition. This is where family businesses either create a legacy or become a sad statistic. Nearly nine out of 10 business owners admit succession planning is important, but only about half of them actually have a documented plan and less than a quarter of them are actually putting that plan in the place.

Starting point is 00:15:20 For a lot of people, their only plan is hope. And you know what? Hope isn't a strategy. They hope everything works out. They hope somebody steps up. They hope the business goes on without them. It just doesn't work that way. And if we're honest, many owners avoid talking about transition because it's actually emotional.

Starting point is 00:15:42 It can be hard to let go of something you built. You probably had the idea. You worked the late nights. You carried the stress. The business isn't just what you do. It's a part of who you are. The idea of stepping back and giving it to someone else can feel like a punch to the gut. So when someone starts talking about succession planning, it can feel less like a business

Starting point is 00:16:03 conversation and more like a reminder that you'll have to let go. These conversations are hard, but they are necessary. And you'll have to let go long before it feels comfortable to do so. Eventually, the founder is going to retire, get sick and take a step back or pass away. And if you don't get this right, everybody will be left scrambling. You can't let your succession plan be tossing the keys to the business as you fall into the grave. If you want your business to continue and succeed long after you're gone, you need to have an intentional plan. And the earlier you start planning, the healthier the leadership transition will be. And that might sound morbid, but succession isn't an event. It's a gradual process. When Rachel and Daniel began stepping into leadership

Starting point is 00:16:50 and joining board meetings, they weren't allowed to speak for a while. Dave wanted them to just listen and understand the culture and how decisions were made before they can contribute. As time went on, he gave them more and more responsibility. And when they showed they can handle it, he gave them even more. They started carrying the weight of leadership way before they officially stepped into it. That's how leaders are developed.

Starting point is 00:17:13 A successful transition should feel so natural that the team barely notices it's happening. The next leader is functioning in the role before they officially receive the title. They're leading meetings, they're influencing decisions. So when the official announcement is finally made, people are thinking, wait, Haven't they already been doing that job?

Starting point is 00:17:33 That gradual transition shouldn't happen just inside the company. Your customers, vendors, and key partners shouldn't be surprised by who ends up leading the business. They should already know them and trust them. The next generation of leadership should be building those relationships long before they officially take over. That way, when the transition happens, people aren't wondering whether the business is going to change or go under. They're confident the business is in good hands. But before you can raise up the next generation to take over, you need to make sure they actually want to. They have to want it.

Starting point is 00:18:08 A family business is not a participation trophy. You don't need someone occupying a seat just because it's available. You need somebody who wants the responsibility, somebody who feels called to it, because leadership is heavy. Not everybody wants to carry that weight. And honestly, not everybody should. Inheriting and leading a company is not for the faint of heart. So like we said earlier, don't assume. Have that conversation with your family now.

Starting point is 00:18:36 And be willing to accept whatever the answer is. Because maybe they respect what you've built. Maybe they don't want to disappoint mom and dad. But that's not the same thing as wanting to lead the business. And if they step into leadership out of obligation instead of conviction, there's a good chance that they're going to eventually burn out or resent it or actually just walk away altogether. It's much better to find that out now.

Starting point is 00:19:00 then after you've built your entire succession plan around somebody that doesn't want to lead the business. And if nobody in the family wants to lead the company, it's not a failure. It just means you need a different plan. Family succession isn't the only option. Other transition plans include a buyout, a straight-up sale of the business, or something called ESOP. ESOP stands for Employee Stock Ownership Plan, or there might be some other ownership structure. The right answer depends on your goals and your situation. Just make sure to communicate the decision.

Starting point is 00:19:37 But there is one thing that I want to call out about all of this. Do not depend on the sale of your business to your kids to fund your retirement. We see this all the time. I remember a company that I worked with that was in construction. And it was one of the most painful examples of this that I've ever seen. There was a mom and a dad running a business and a son and a daughter. The parents hadn't put anything into their retirement. and they were 100% counting on selling the business to their children so that they could retire.

Starting point is 00:20:08 It created all kinds of tension. Things were getting weird fast. The son honestly was a drama queen. He was in sales, no surprise there, and the daughter was the project manager, and she wanted to buy the business. But the son didn't, and they were going back and forth between the two of them, while the parents were just trying to sell the thing so that they could retire. It just causes a ton of tension. You shouldn't put that kind of stress on this whole interaction. You shouldn't put that kind of pressure on your kids. Save for your own retirement. Make that something separate than your succession plan. These two things don't need to work together. And in fact, they shouldn't. They should be separate. So if you find yourself on that situation today,

Starting point is 00:20:53 I want you to stop right now because the best time to have started this was 20 years ago and fund your retirement. The second best time to start this is now. Start setting aside for your own retirement separate from the sale of the company. Think about it. Expecting the sale of your company to fund your retirement is like investing in one business on the stock market and just watching that go up and down, hoping that you can time it perfectly so you can have the retirement that you've always wanted. It's a terrible idea for a lot of different reasons.

Starting point is 00:21:27 Don't do it. But even the best transition plans fail, when people make the transition all about themselves, which leads to the most important and the most overlooked part of running a family business, and that is having a higher calling. At the end of the day, the difference between the family businesses that last

Starting point is 00:21:47 and family businesses that don't often comes down to whether or not they have what we call a higher calling. That means putting the mission and generational survival of the company above your own personal needs. The healthiest family businesses don't think of themselves as owners. They see themselves as stewards.

Starting point is 00:22:08 They recognize that their job isn't simply to own the business. Their job is to protect it and eventually pass it on in better shape than they found it. Now, for those of us who are Christians, this perspective goes even deeper. We believe we're managing something

Starting point is 00:22:23 that ultimately belongs to God. We're stewarding his resources and his blessings. And if God owns it, then our responsibility is to manage it faithfully. That kind of mindset changes how you lead and how you think about legacy. Here at Ramsey, our mission is to provide biblically based common sense education and empowerment that gives hope to everyone in every walk of life. And every decision that we make flows from that.

Starting point is 00:22:50 The business exists to serve the mission, not the other way around. And it's bigger than any one person or family. But even if you don't share a faith perspective, the same principle applies. When you look at a family business that survives for generations, you usually find that they operate from some kind of higher calling. It motivates them and leads them to greater leadership in the company. Having a higher calling means you're willing to put the long-term health of the business ahead of personal preferences and ego.

Starting point is 00:23:21 Every family business eventually has moments where somebody has to sacrifice what they want for what's best for the organization. Somebody has to stay in their lane. Somebody has to give up control. Somebody has to step aside and trust the next generation. The more people make the business about themselves, the more fragile the business becomes and the harder the leadership transition will be. To the extent you view yourself as a steward instead of an owner, the leadership handoff becomes much smoother. Every family business owner eventually has to wrestle with the same questions. What do I want to pass on? What kind of legacy do I want to leave? The best family businesses understand that they aren't building something for themselves.

Starting point is 00:24:05 They're building something that leaves a legacy. Family businesses don't fail because they involve family. They fail because people confuse roles, avoid communication, ignore succession, and make it all about themselves. But if you get those things right, clear roles, intentional communication, a healthy transition plan, and a calling that's bigger than just you, you give your family and your business the best possible chance to thrive for generations. We've been working on getting family business right for a long time. There's been a lot of emotional hand-wringing, mostly for me. But after all these years, I couldn't be more proud of this business and my family.

Starting point is 00:24:49 I've watched my children step up and become strong leaders, great adults. and knowing that this business will carry on without me someday, that gives me a lot of peace. That's what I want for every family business. And if you want to hear more about how we've navigated this as a family, go watch a conversation from our Entree Leadership Summit where my kids, Daniel Ramsey and Rachel Cruz and I share what it's really like to work together, lead together, and still like each other at the end of the day. Just click the link in the description to watch for free or go to Entreleadership.com slash family. If you enjoyed this episode, be sure to like, share, and subscribe for more real world leadership content.

Starting point is 00:25:28 I'm your host Dave Ramsey and this is Entree Leadership.

EntreLeadership - 4 Keys to Building a Family Business That Lasts

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