Family-owned businesses, when they work, draw tremendous strength from their emotional firepower. Learn more about seven challenges of a family business, and how one family has persevered through them.
Running a family business is no cakewalk. It’s not enough that you have to be a smart businessperson. You also have to navigate the emotional minefields that challenge many family businesses.
One company that has excelled as a family business is Channeled Resources. Let’s meet the owners of Channeled Resources, and see how they’ve persevered through the unique challenges faced by family-owned businesses.
One of the Earliest “Green” Family-Owned Businesses
Both an innovator and a survivor, Channeled Resources has navigated through transitions and evolutions for nearly three decades. They’ve been pursuing “green” technologies long before sustainability was even in the business vernacular.
Calvin Frost founded the company in 1978. He’s been described by his daughter and current CEO Cindy White as “the ultimate entrepreneur who has always been driven to find markets for things that are undesirable.”
Cindy White (center) and Calvin Frost (second to right)
winning the Global Green Award in 2010.
Calvin’s initial focus was to ship waste paper from printers to paper mills for repulping.
The goal was to help printers keep waste out of the landfill. Then in 1985, the company shifted to processing non-recyclables, including coated, treated and/or laminated paper and films.
Eventually, Frost ventured into seconds with both release liners and then pressure sensitive label stock.
Nice thought, but where’s the profits?
Channeled Resources was soon recognized as the world leader in developing alternative for landfills and incineration. There was just one problem: Channeled Resources wasn’t profitable.
Calvin Frost’s heart was in the right place, but unfortunately, the company’s bottom line was suffering. It was an ongoing struggle to drive profits from the seconds business.
Cindy had joined the company in 1987 after beginning her career at Procter and Gamble. Her task was to figure out how the company could continue her father’s altruistic mission, yet remain relevant in the industry.
No easy task, especially with seven challenges standing in her way.
Seven Challenges of Family-Owned Businesses
Now let me be clear about this: I have no idea if Channeled Resources actually encountered any of these challenges. That’s truly none of my business -- it’s a family matter.
But what I want you to understand is that when Cindy joined the company, it was a tenuous juncture. The potential was there for each one of these obstacles to derail the business, and perhaps even the family.1. Failing to sustain through generations
According to the Harvard Business Review (HBR) article Avoid the Traps That Can Destroy Family Business, “Some 70% of family-owned businesses fail or are sold before the second generation gets a chance to take over.”
Often this is the case where the owner fails to provide the necessary succession plan to keep the business alone. The average tenure for the CEO of a publicly-traded company is 6 years, but “family businesses have the same leaders for 20 or 25 years.”
This can lead to difficult coping with shifts in:
- Business models
- Consumer behavior
In the case of Channeled Resources, would Calvin be able to make the effective shift to his daughter?2. Treating the business like a fallback option
Another issue the aforementioned HBR article notes is that members of the company family may treat the business as a fallback option. They may have failed as artists, athletes or entrepreneurs, and they know that “there’s always a place for you here.”
Would Cindy treat Channeled Resources as a fallback after Procter and Gamble, or would she forge ahead?3. Casting family members in similar roles
Even though they may be playing to their strengths, the HBR article also notes that family members may follow the same role as their parent. Dad may have been good at finance, so junior follows in his footsteps.
As a result, “next-generation managers fail to gain the cross-functional expertise needed for executive leadership.”
Cindy described herself and her father as salespeople. Would their similar skillset hamper the business?4. Lacking an external view
In this post from Bond Beebe on “The Top 10 Challenges Family Businesses Must Overcome,” Jacqueline Thompson notes that a family business members may have differing opinions, but they share the same world view.
“Businesses need to have external views of their company and their competition in order to thrive.”
Was there enough outsider perspective to help Channeled Resources survive?5. Overlooking an exit plan or succession planning
It’s always amazing to me how a family business will spend countless hours planning strategy to grow a business, yet spend little or no time working on a succession plan or exit strategy for their business.
What if your CEO wants to retire? Who will take over? How does the succession from one leader to another work? In a family, where emotions can run high and family relationships can bleed over to businesses decisions, succession planning is often overlooked.
Did Calvin have the plans in place for Cindy to take the reins?6. Dealing with intergenerational rivalries
In a fascinating Harvard Business Review post by Harry Levinson on Conflicts that Plague Family Businesses, there can be rivalries between father and son, brothers and other family members. These are often complex and can create irrational approaches to business decisions.
Were there simmering rivalries between Calvin and his daughter that could have upset the applecart? Was his “green” focus at odds with her attention to the bottom line?7. Overcoming the psychological ties between the founder and the business
Also in the “Conflicts” post, Levinson notes that the founder of a business has a number of issues that affect typical business operations. They may view the business as their “baby” or even “mistress,” and have deep emotional ties.
They may also build a sense of identity from their business, all of which can make succession plans or even questioning strategic decisions difficult.
Calvin’s passion for sustainability and the industry seemed boundless. Would he be able to make the shift?
Reinvention of a Company Via the Family Bond
As I mentioned earlier, I have no idea if Channeled Resource encountered any of these issues. But even if they experienced one issue alone, you wonder how in the world the company has made it to the other side.
You’ve got an uber-passionate founder. A business model in need of revision. And a daughter/CEO charged with righting the ship.
All the rivalries and emotional entanglements that plague most family businesses could have easily sank this company. Instead, it was an ability to keep the emotions of the family separate from the realities of running the business that allowed them to succeed.
But before I delve into the two systems of a family business, let’s take a look at how Channeled Resources transitioned into a much better place.
Two New Products Help Reinvent Channeled Resources
Cindy knew the company needed to shift gears and push into some unchartered terrain, but she also wanted to keep her father’s passion for building a more sustainable industry.
She decided the company needed to leverage its strengths and expand into new areas. These included:
Thermal transfer and direct thermal shipping labels: The rise of Amazon and shipping products has led to a huge increase in thermal shipping labels. It’s a low-margin product, but Channeled Resources has a huge contact base due to its recycling efforts.
They reached out to their customers with a product that wouldn’t compete against their label converter customers, but would instead complement their efforts. Their understanding of how to buy paper also allowed them to make advantageous purchases of materials.
Release liners: Again, Channeled Resources chose a product that was both ubiquitous but also not a threat to their own clients’ line of business. Release liners, and the multitude of verticals that use them, proved to be an ideal product.
The expansion into other products proved to be a profitable success for Channeled Resources. It has allowed Cindy and Calvin to realize bottom line benefits while still pursuing the goal of sustainability. So why did it work? How did they overcome the seven challenges?
BONUS CONTENT: Listen to Rock's podcast on Channeled Resources, and the challenges faced by a family business.
Understanding the Two Systems -- and Making Them Work
It’s simple: Cindy successfully navigated the “two systems” that make up a family business. We’ve blogged on this topic numerous times in the past, but essentially there are two systems to a family-owned business:
The business system: The business system is tasked-based. It’s oriented toward the product of goods and services, and it’s always exploiting change in the interest of growth and survival.
The family system: The family system is emotion-based. It’s bound together by emotional ties, and the goal is to maintain security and nurturance of family members. It operates to maintain the status quo and the integrity of the system.
The key for a successful family business is to avoid too much overlap of these systems. Family ties cannot be allowed to cloud business decisions. In that respect, a focus only on the bottom line can erode the powerful family bond.
Respect for the Two Systems and Growth for the Future
Channeled Resources had managed to toe the fine line between these systems by taking one for the team -- both the family and the business.
Calvin understood the need for profits beyond their sustainability focus, and so he approved the strategic shifts towards thermal transfer labels and release liners.
Cindy knew the shift had to occur, but she also realized that her father’s passion and love of the industry is what grew the company and gave the organization its heart. She realized that this emotional bond would help drive the new product line rather than sabotage it.
The ability to embrace change that the business world demands while respecting the emotional stability of the family unit is what makes or breaks a family-owned business. Kudos to Channeled Resources for showing us that a family who manages these two systems will not only win at business, they’ll win as a family.