The Heart of Family Business (A presentation to the Washington Family Business Awards)

Many of you who were here last year heard me talk about my roots in family business. I am a 4^th generation deal maker, and have invested my lifes work in guiding family business through major strategic decisions. Tonight, I want to focus my thoughts on all of you, the best of family business in Washington State.

Culture. Competitive Advantage. Profitability. Quality. Margin. Brand. Productivity. Intellectual Property. These are some of many words we often use to describe business. However, one that we almost never hear associated with business, and one that I profess is the absolute essence of what makes family business great business… is HEART.

Let me explain what I mean. As part of the nomination process, I reached out to a very large local family business who I know would be among the winners this evening had they been willing to participate. However, the CEO rejected my nomination. He said we want to be known as a great business, not a family business. He went on to say all of our competitors are large multi-national companies, and we need to compete on a world-class basis and be perceived on par with our much larger public competition. I was shocked, surprised, confused.

My first reaction was to think maybe he was right, maybe family business is not as competitive as big business. Many like that CEO would say that family business succeeds in spite of their HEART. They do not focus on maximizing profit, but nevertheless do well, just maybe not as well as their public peers who focus on the right things… profit, ROI, quarterly performance, shareholder returns.

I am here this evening to suggest that family business succeeds BECAUSE of this HEART, not in spite of it. Furthermore, I believe that family business is focused on the right things treating customers and employees like family, ethical business practice, long-term thinking, doing the right thing, legacy. It is because of this focusnot in spite of itthat great family businesses will outperform other businesses in key financial metrics such as profit margins and employee productivity, especially in the long run.

My good friend and partner David Howitt of Meriwether Group in Portland taught me an amazing lesson in life. He said we live in a world where people believe you cant have everything. You can work hard to achieve business success or you can be a family man with balance in your home life. You can drive profit or you can take care of your employees. David taught me the power of AND. Family businesses regularly show us that you can operate with HEART by focusing on the right thing AND run a highly successful business with strong financial returns.

I want to share what I have seen in family business that supports the power of AND and demonstrates the win/win that is achieved due to the HEART of family business.

• Many family businesses, for example, made the hard call of retaining all of their employees through the recession with no layoffs, even in the midst of major financial and business challenges to their family. They considered their employees part of their family. Now that things are roaring back in their business, they are benefiting from not having the high cost of finding and hiring new employees. They also have much higher productivity and performance, and almost no turnover due to the passionate commitment their employees have for the family and the company. This is the financial payback for the familys loyalty to their employees during tough times. Now they are getting back much more in financial return, easily making up for the higher cost of sticking with their people in the hard times. They made the tough but right decision for their employees, AND they benefited financially from it in the long run.

• Another story is a family business owner we are working with now to sell his company, generously chose to give his employees $5.5 million out of his proceeds as a thank you for their many years of service, and the value they helped him create for his family.

I know all of you in this room are here because you too have made certain challenging decisions in your business, decisions which may have seemed a hard sacrifice for your family and probably caused a lot of stress and angst because you felt it was the right thing. You acted with your HEART, not just for profit. Yet, you have probably seen the financial rewards from those investments in terms of higher employee productivity and loyalty, stronger customer relationships and higher profit margins. A true win-win situation.

Meanwhile, many corporations have been in the news for implementing massive layoffs, cutting compensation and benefits and closing operations to maximize quarterly profits in the near-term. Weve seen more cases of insider trading, massive accounting errors, CEOs making $50 million severance pay in spite of failed performance and outright fraud. When was the last time anyone has heard of fraud inside some family business in Wenatchee, or Spokane, or Kent?

We are at a critical time in this country, in our politics, in our economy. I firmly believe that family business is the HEART of this country and the major driver of that will help our economy succeed in these challenging times.