In the US, there are 32 million family owned businesses. Popular media often depicts family businesses in a less than favorable light…think Arrested Development, Dallas, Succession, and of course, House of Gucci.
As the Executive Director of the Smith Family Business Initiative at Cornell University, Daniel Van Der Vliet is dedicated to supporting and strengthening the network of owners, leaders, and alumni that work with family businesses. Listen in as they discuss important trends like disruption, innovation, and how the next generation can help drive entrepreneurship and sustainability.
Listen in to learn more about:
- The economic impact of family businesses in the US
- Myths about family businesses
- Ensuring the continuation of family businesses in the era of disruption
- Best practices for multi generational companies to adopt an innovation culture
- The need for families to educate the next generation on succession plans and future of their businesses
- Practical ways to navigate key issues faced by family businesses
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Succession Stories is hosted by Laurie Barkman, the Business Transition Sherpa– guiding business owners through the process from “transition to transaction.”
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Welcome to Succession Stories! I’m Laurie Barkman. As an exit value planning and M&A advisor, I call myself The Business Transition Sherpa. This podcast guides entrepreneurs from transition to transaction- from building value in your business to letting go.
What do I do when I’m not hosting a podcast? I work with owners to maximize business value with my firm, SmallDotBig. And as a Certified Mergers and Acquisitions Advisor with Stony Hill, I guide you through the complex process of selling your company.
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In the US, there are 32M family owned businesses, representing 59% of employment. Family business is a broad term that generally includes family enterprise, wealth and entrepreneurship, also recognizing the human dynamics in this system. Popular media often depicts family businesses in a less than favorable light…think Arrested Development, Dallas, Succession, and of course, Gucci.
My guest today, Daniel Van Der Vliet is the Executive Director of the Smith Family Business Initiative at Cornell University. Dann is dedicated to supporting and strengthening the network of owners, leaders, and alumni that work in, with, or for a family business.
I invited Dann to the show to talk about some of the important trends facing family businesses like disruption, innovation, and how the next generation can help drive entrepreneurship and sustainability.
I believe that entrepreneurs can learn from family-owned businesses and families should stay close to their entrepreneurial roots. The topic of innovation is so important, and is part of my book that will be launched later this year. For more information on the book, please join my mailing list at SuccessionStories.com.
Enjoy this conversation about changing the narrative on family business with Daniel Van Der Vliet.
Dann Van Der Vliet, welcome to Succession Stories. Tell me a bit about you, and your career journey with family businesses.
Daniel Van Der Vliet:
Sure, thank you for having me, Laurie. My pathway to family business was certainly not linear. In the year 2000, I joined the University of Vermont, and their Continuing Ed department at the time, we call these non-traditional learners, and these are typically adults who worked in business. I would work interface, often with business leadership to try to bring university resources to these businesses.
At the time, we had a partnership Continuing Ed did with the business school at the University of Vermont. We had a very forward thinking Dean at the business school there, Rocki-Lee DeWitt who became quite a mentor for me in the family business space. As that evolved, Vermont had a small family business program at the time and the director left and Rocki literally looked at me and said, “Hey, you know, a lot of business owners, this could be something that’s good for you.”
At the time, this was around the year 2003, I knew nothing about family business, but I was instantly drawn to it, because of the personal nature of the work that we get to do. It’s not about the numbers, as much as it is about the people and the relationships. I really threw myself into family business at that point, helped to grow that program over the next 15 years, we saw great success in offering a class and family business and suddenly, students started coming forward saying how this was important to them.
We ran a number of what we called forums, these were programs specifically for business owners and their successors. We also developed a number of peer groups, these were Vistage and YPO style peer groups for both CEOs and successors. Really enjoyed that work, and helped to build the EVM program up to a pretty respectable level. In the year 2014, Cornell received a gift to establish the Smith Family Business Initiative and that was a good time, I felt, to really take what I had learned at the University of Vermont and bring it to Cornell and I’ve been here since as the founding director of the Family Business Initiative.
It’s been really a remarkable journey and again, I think what to this day I still enjoy most about it is the interpersonal nature, the time that we get to spend with students who are exploring all the options, that family business presents to them, to talk with successors who might be struggling with certain aspects of coming into the family business, or to talk with senior generation leaders who are trying to figure out strategy or communication or eventually how they want to leave the business and their legacy and it’s greatly rewarding work.
To be able to work with businesses across all industries, all parts of the world really, is really fascinating to me, because I contend that no matter how many zeros are on the bottom line, a lot of the family issues are fairly universal. We can kind of add or subtract based on certain aspects or variables, but family is family and I think we always – whether we’re in business with them or not – there are great rewards to it, but also ongoing challenges.
Absolutely. It is fascinating, and I’m so glad that we’ve gotten connected. I probably should mention so that our listeners understand the context here, we were introduced by mutual friends, Shelley Taylor, Jim Taylor. They are part of the family business and Cornell alums, and I am a Cornell alum. They as well as I graduated at different times, but we’ve gotten connected because of family businesses here where I live in Pittsburgh.
Being a Cornell alum, I was class of 93 and very much tried to stay actively involved with Cornell but as you mentioned, 2014 is quite a number of years after I graduated, so when I learned about the Smith Family Business Initiative at Cornell, and Shelley and Jim, of course, were gracious to give me an introduction to you. I was really excited to talk to you, Dan, because of all the reasons you just said, all the varied background that you have, and then the extensive relationships that you have with family businesses, so why don’t we talk a little bit about Cornell and the Smith Family Business Initiative, what’s the mission of the organization?
Daniel Van Der Vliet:
We exist to help all of those that work in, for, or with a family business and we classify that as our traditional people like Jim and Shelley, they work very much in the family business. Shelley also works with family businesses as a consultant as do you. As somebody who is working with a family business, there’s a certain set of skills needed to understand what might be going on beyond what is often being shared with you from a business perspective. How do you build relationships across generations? How do you get families unstuck from things that might be very deeply hidden in the family, and then those that work in family business, you could be an HR person, you could be a senior manager, and that presents another set of challenges and opportunities as well. We see these people as students and these are students that end up in the class that I teach, we see these people, as many of our alumni, like yourself, and Jim and Shelly and many others, as well as really anyone in the family business ecosystem, we are not exclusive to Cornell so our conferences and events are generally open to all who are interested in getting connected into that network and learning more their position in the family business.
Excellent. Let’s talk about some of the myths and realities of family businesses. There’s such a popular culture with fun shows that everyone probably is familiar with from whether it’s Dallas and Dynasty to you know, Arrested Development, and of course, Succession. What are some of the favorite myths that you come across that you love to debunk?
Daniel Van Der Vliet:
Whenever I give a talk, and if I could talk to your audience members, right now, I would ask them, what’s the first word that comes to your mind when you hear the term family business, and I often track these results over time. Without fail, small, instantly pops up, words like fighting, or conflict, or it’s complicated are top of the list, and then also sort of this slow, insular, you know that they’re not competitive, or, they just can’t compete with the big ones.
The small one really gets me because often, I will get introduced if say, I’m giving a talk or whatnot and invariably, they will switch out family and small and so they’ll call it the Small Business Initiative at Cornell, even when I warn them not to do that so this mindset that small and family business go hand in hand, I think, is very interesting. I think it’s natural, because these are probably the businesses we relate to, the corner store, the restaurant, the gas station, the hardware store, these are the ones we see in our communities all the time and certainly many of those are small but as we work across a spectrum of family business to medium sized enterprises, as well as large, by definition, Walmart, and Ford are still family owned businesses so it’s a very broad spectrum and, of course, there are a lot of different ways that those businesses remain family owned but I think to see them as only small, or, kind of old and dated, is not true.
The myth around conflict, I think, is natural and I think that’s what plays in the media. Succession is a great example of this. It’s a very entertaining story and many of those issues are real. This is obviously given a little bit of a Hollywood touch, and there’s a lot of money involved, and the relationships are certainly amplified but I think that the challenge is, when that’s what people see, on TV, or we hear the stories in the news, it certainly does taint the image of what family businesses can be like. I have sat with many family businesses that are just inspiring to me in the way that they approach not only their family relationships, but their business relationships. It’s never easy. There are at least challenges to it but I think you have to sort of get beyond some of the Hollywood stereotypes or what we read in the headlines, because that’s entertainment, whether it’s real or not, but there are many family businesses that do amazing work.
Fair enough. Excellent points. What do you see is the economic impact of family businesses in the United States, whether it’s from an employment standpoint, or just from total contribution to the economy?
Daniel Van Der Vliet:
This is one I think that catches people off guard and even when I started here at Cornell, and we didn’t have a family business program, I had to sort of sell some of the other faculty members on why we needed a family business program. There was a study that was just done in 2021 and this actually updated the study done by Astrachan and Shanker (2003). The original article in 2003 looked at the economic impact of family businesses on specifically the US economy and it has remained one of the most widely cited articles in family business literature. It had not been looked at since that time and if we think about what has happened since the year 2003 the dot com boom has come and gone the real estate boom, of course, the internet has grown the way we do business has changed dramatically, we do scale now, of course, the Great Recession, numerous presidents, world conflicts, so it was time to update this study.
What we found is that, if anything, the economic impact has possibly grown some so 59% of employment in the private sector workforce is generated by family owned businesses. They account for about 83.3 million jobs. One interesting note is that we identified 32.4 million family owned businesses just as an actual number. That number actually came up almost 10 million from the year 2003. So I get the question a lot like what’s the future of family owned businesses.
I get the question a lot like what’s the future of family owned businesses. I think it’s very solid. I mean, we live in a time of great change and that has only accelerated over the last two years with the worldwide pandemic. I contend that innovation, and entrepreneurship still begins at home and so for anyone who’s thinking of how to build a better mousetrap, they get started in the home and it is undeniable that the first people that they will turn to whether it’s for investment capital, whether it’s for physical capital, whether it’s for access to business networks, or, sometimes just growing up inside an entrepreneurial family, there are certain traits that are learned, you’re going to turn to your family in those situations because you trust those people and there is a cost that is beneficial to doing business with family.
This report that was done in 2021, authored by Torsten Pieper out of South Carolina, I think really underscored that family businesses still have great impact on the US economy, whether they’re classified as small, medium, or large enterprises, and they are still a force to be reckoned with when it comes to economic impacts. I’d go one step further and just say that’s specifically the US. At Cornell, of course, we deal with a very global population of students. We have students that come from Latin America, where as many as 95% of businesses are family owned or family controlled. In India, that number, I’ve seen a report that it approaches almost 98% family owned so while they are greatly important here in the US, as you go further afoot, that number just continues to increase greatly.
That is a really big number. One of the things you mentioned, I want to just come back to, which is about innovation, and if there’s so many businesses that are growing and thriving, how do we ensure their continuation in this age of disruption? I think one of the myths which some of us probably have encountered if we’ve worked in family led businesses is that there’s a resistance to change. Now, certainly that could be generational. Some folks have come on my show where they’ve talked about the stereotypes, the sayings, like the spouting whale gets harpooned, and some people have come on the show and talked about when they were given the keys, given the baton and then told, “Don’t screw it up,” and so that really sets the tone and the culture for their leadership when they become in charge of the company so there’s a challenge there.
Mature family led companies that are not innovating are going to die, right? It’s just a reality. Any company that doesn’t innovate is going to die, just in our dynamic environment. What are some of the best practices that you’ve seen when it comes to these multi generational companies in adopting an innovation culture and Innovation practices? One of the phrases that I’ve heard from my good friend Sean Ammirati, we teach a class together at Carnegie Mellon in the Entrepreneurship Center, and he calls it innovation theater. That means we give it lip service and we say we’re doing innovation, but we’re really not right, so innovation theater, what is the reality when it comes to being effective or just having Innovation theater?
Daniel Van Der Vliet:
Yeah, this is an important component for family business and this is what I sometimes use the analogy of the double sided sword is that, yes, family businesses can certainly be stagnant, they can have leadership in place that is resistant to change. That is very much reality and we see those businesses often struggle and either sell or fail. I think the other side of that is that the family is a great place for innovation. That should be the place where we can take these risks, where there should be room for growth, and where they should be accepting of this next generation coming in who has grown up in a very different world, even than you and I. You mentioned you graduated in 93, that was the same year I graduated and email was barely even a thing when I graduated, and the internet, you still had to pick up a phone and connect it to the modem and when I think about this generation of students that are coming into play, they just do business, and they see the world in a completely different way than we do.
Now, in regards to best practices, I think it would be really hard to pinpoint one, but I think a few things, first, it starts with governance, and I say governance, sort of small g and by that I mean the ability of a family to talk and be open and have a forum for these ideas and that can be more formal, if there are things like board of advisors, board of directors, family council, because this is, you know, where some of those voices begin to be heard and incorporated and if you are the next generation in that family, you begin to understand what the business is all about.
I think families need to educate the next generation in what the business is about, what the values are, and what the future is. When do mom and or dad plan on stepping aside and what’s the process for picking that successor? I think that’s a starting point that should not be overlooked.
One of the practices that I’ve seen, and again, this comes in various forms and it’s an extension of what I just described, but some families actually create almost like a, what would we call it, like a, like a Shark Tank type ability for the next generation to almost pitch ideas and this can start at a very young age, some families have set up funds where I can pitch my idea, and I need $500 to make this happen and I can begin to build business now that’s low end, but in the business itself, if the business has some, say scale at this point and ability, one great place for the next generation is to get involved in helping to grow the overall reach of the business or expand the portfolio.
The Smith family is a great example of this, where they’re still in the trucking business, which is what their original business was, but now through their family office, the next generation has been much more involved in things like mergers and acquisitions, real estate development so the family does not actively operate the trucking business anymore, but they’re very active in helping to grow what we call sort of the family enterprise, which has moved beyond the singular family business. A lot of ways that this does happen but again, I think it’s creating that place or that forum, whether these are kids that are still in middle school or high school to understand how to pitch an idea and then build it and grow it and succeed as well as fail all the way up through actual entities, such as investment offices, or family offices that actively look to grow and innovate.
You’re talking about the next generation, which leads to this next question and you answered part of it, so I’ll ask this other part, because I think the part you just talked about really effectively is what are some of the dynamics the next generation might be facing when they’re coming into the company. Let’s specifically focus it on succession, specific to that, because there are still these expectations around perhaps, “You have to go to another company and get experience before you come here,” or “You have to be in the company maybe being a certain function before you can move up. We don’t want you to have a diminished role in the company at the same time. We don’t want to over promote you because the rest of the organization might reject that,” nepotism and all those types of negative things that could come along with someone who might unjustifiably get that top spot. in someone else’s eyes, it’s all about subjectivity here. How do we make it more objective and how can the next generation be coming in and in a position of strength for themselves as an individual?
Daniel Van Der Vliet:
Yeah, I think this is a very important aspect for family businesses, because there are a lot of unwritten rules in family business. A lot of implicit actions we take that are based on many things are sometimes based on gender, sometimes they’re based on birth order, sometimes they’re based on the family itself. When those get sort of rolled into the family business, they can be very dangerous if the oldest always becomes the CEO, you might, in the other generations, that the business might need.
I love to use this one example of a business here in Vermont, how they tackled this, and it was a business that was four brothers and they actively had discussions around essentially creating a series of rules, almost like a constitution. This was done on a piece of notebook paper, just written down, just by which they got there, that was important. They all agreed that for the next generation, they needed to go get an education, did not stipulate what that education was, just that the education itself was valuable for the individual and that ultimately, the business was not here to serve the individual, the individual was there to serve the business. Two, was to go get outside experience. Again, this was not stipulated, it could be in a similar type industry but that was not stipulated. The underscore here was experience matters and again, if you don’t end up back at the family business, you need to succeed on your own. The third was returning to the business if they so chose. They would have to work for one of the other brothers and you would not come into a position immediately and work for your dad, and then succeed him that easily. You had to see how other parts of the business work and then eventually, opportunities of leadership will be opened up to you if you proved successful.
I love that example again, because it was fairly simple. It was probably done around a kitchen table in one night, but it was the fact that they codified these rules, they shared them and they all agreed to them. I think that’s what’s ultimately important. It’s not just the mom or dad making these decisions and not sharing them openly. It’s that there was buy in across all of those families and then it made sense. Those rules can be more formal. Some families have family constitutions, and they go much more in detail, but the process by which I think the family arrives at those rules for at least stipulations for employment are very important rather than when Jr knocks on the door we’re just going to give them a job because their last name is the same.
Right? This concept of a disruptive successor in this discussion we’re having about the next generation, I want to talk about that. What’s a disruptive successor? Well, it’s someone who is charged with changing the status quo, so that the business can stay relevant and current for the future. It’s really an investment in the future but it might feel a little disruptive, right? Because that’s the nature of being a disruptive successor and so how do we balance that, and what would be some of the keys for a family firm to put someone in place very purposefully, as a disruptive successor? Have you seen that happen? Or do you have some perspective on that to share?
Daniel Van Der Vliet:
Yeah, this is, I think this is something that Jonathan Goldhill talks a lot about, and why it’s important for the next generation to come in and really make their mark. This is a challenge. Most successors, their biggest fear is that the business will fail on their watch so to come in and make these disruptive changes can be daunting, because if those changes don’t pan out, then the burden of the family ends up on that person’s shoulders.
I love to tell this one story and again, I think it exemplifies what the answer is. This was a business that was founded by two brothers, and it was in the skincare space, and they did mostly contract or I’m sorry, they had a private label that they sold and the business was not doing good and the son came in, son of one of the fathers came in and took over.
This is a very dramatic example so I am not saying this should be the way everyone approaches it, but I do think it sort of exemplifies a way for a successor to come in and sort of say, “This is my business now,” and essentially, in this case, the successor came in and told everybody, they effectively needed to reapply for their jobs, that this was a different company, “We need to take it in a very different direction,” and he had numbers to sort of justify that and some people thought, “Yeah, that’s great, we can finally get rid of some of the dead wood around here,” but the successor was very clear that it meant everybody. I can’t tell you how many people were hired back, but I do know many of them were but the message here was, “This is not my father’s company anymore. This is my company, and this is the direction I’m seeking to take this in.”
It paid off greatly and the company today is still growing under that individual’s leadership. It takes bold moves like that and I think the confidence to do so. In this case, what was important, was that individual had been out of the family business for 10-15 years and had a very successful career so if we go back to that previous example, again, it underscores the value of outside experience, and not coming back to the business just because your family owns it, and you’re instantly seated as the Vice President, waiting to be the CEO. That outside experience is really key, and also just to be bold in those situations.
Absolutely. As we wind down our conversation, Dan, and people want to get in touch with you, what’s a great way to find you online?
Daniel Van Der Vliet:
I think the easiest is just to search for Cornell Family Business. The Smith Family Business Initiative at Cornell does have programs, not only for students, but for alumni and anyone in the family business community. We run a number of what we call peer leadership forums, which are YPO in Vistage-style peer groups. We do a conference each fall in Ithaca. Hope to return in person next year.
Daniel Van Der Vliet:
It is. I think the easiest is just to search for Cornell Family Business. The Smith Family Business Initiative at Cornell does have programs, not only for students, but for alumni and anyone in the family business community. We run a number of what we call peer leadership forums, which are YPO in Vistage-style peer groups. We do a conference each fall in Ithaca. Hope to return in person next year. The last few years have been virtual and what’s been amazing about the virtual conference is that we’ve had nearly 400 attendees. I think the last time I looked, we had almost 25 different countries represented in that mix so there is a little bit of an upside, component that we have been living in the last few years and then in the spring of each year, we do a one day — what we call a Family Innovation Summit in New York City. Again, this is open to all that are in a family business, but the easiest way to find us is just search Cornell Family Business, you will find the Smith Family Business Initiative.
Perfect. I know you have a lot of favorite quotes, but is there one in particular that you’d like to share?
Daniel Van Der Vliet:
The quote that goes through my mind all the time is “What if I succeed?”
I think we are often filled with doubt in our own lives, in our professional lives and it’s very easy to see what failure looks like to us and for some reason, sometimes we’re just programmed to think that way, “What if I fail at this?”
But if we turn that around a little bit, and we think about, “What does success look like?”
Ask yourself, “What if I succeed at this? What comes next?”
Awesome. Dan, thank you so much for being on the show with me today, sharing your insights and maybe we’ll have you come back in the future. We can talk a little bit more about all the things that you just hit the surface on today, so again, thank you so much for your time.
Daniel Van Der Vliet:
Sounds great. Thank you, Laurie.