Family Ties No Match for Lure of Web’s Riches

How ya gonna keep ‘em down on the farm once they’ve seen cyberspace?

That’s the question being asked by a growing number of family-owned businesses. Nationwide, experts say, more and more members of generation next are opting not to join Mom and Dad at the family tool and die, but are instead seeking their fortune at Something.com, where images of instant wealth dance in their heads.

“Of the family-business clients that we have, a good third have been confronted with that issue, where a member of the next generation was looking at E-commerce or Internet opportunities,” said Francois deVisscher, president of the Boston-based Family Firm Institute, a resource for family businesses.

Today, the increasing opportunity for young, educated upstarts to join Internet start-ups, “puts a lot of pressure on the family business,” he said.

So as family businesses large and small continue to wrestle with the age-old vexations of squabbling siblings and unclear lines of succession, the Internet has introduced a whole new set of techno-challenges.

To help the estimated 21 million family businesses nationwide cope with ‘90s issues like the brain drain and increasing globalization, more colleges and universities are setting up special programs designed to serve as part resource, part group therapy.

In two months, Cal State Northridge will join the list of 90 such programs nationwide.

“Our mission is to provide programs and be a clearinghouse for experts for family-business matters,” said Dan McConaughy, director of CSUN’s Family Business Center, which makes its official debut Nov. 18.

“There are issues that family businesses have that other businesses don’t have.”

One of the issues, experts say, is retaining talent once Junior is too big to be sent to his room.

Ethan Winner, manager of advertising and public relations for Sherman Oaks-based Futurestep, an online executive recruiting firm, had a choice of two family businesses: his father’s Encino-based communications company, where Winner’s sister and brother have worked, and his mother’s public relations firm.

But even though both ran high-quality operations, he said, the lure of cyber-expansion proved too strong.

“One of the reasons family businesses are losing their sons and daughters [to Internet-based companies] is because of the incredible growth potential,” said Winner, noting that his privately held company has offices in Toronto and Sydney and before the end of the year plans to expand into Germany, Austria and Japan. Eventually, the firm hopes to go public.

“The mom-and-pop companies don’t have the kind of structure or venture capitalism to do that.”

While some cyber-recruits talk about the thrill of working with new technology and the Internet’s cutting-edge allure, sooner or later most of them admit that the draw is, at least in part, the money. They look at the bumper crop of cyber millionaires, courtesy of the booming Internet economy, and think, “Why not me?”

Winner said he knows of executives who have been placed in Internet start-ups “and two months later, they’re millionaires.”

“Unless the family business is very large, they can’t compete,” said Marta Vago, founder and director of Family Business Advisory International, a Santa Monica-based consulting firm. “Most of them can’t compete financially with these start-ups that in a few years go IPO.”

To be sure, many family businesses have seen a dramatic increase in sales, thanks to the Internet’s power to market everything from their luggage to their lingerie worldwide.

But for some, the Internet has created not only compensation competition, but cash flow issues as well.

Often, DeVisscher said, younger family members will “put a capital drain” on the business to get money to fund an Internet start-up.

He said that another late-’90s challenge to family businesses is the growing globalization of the economy, a phenomenon helped along by the Internet.

“A company that used to manufacture in the U.S., now in a global economy, not only do they have to ship their product outside the U.S., they also have to look at other manufacturing sites,” outside of the country, DeVisscher said.

“That makes it very difficult for [small] family companies to compete,” he said. “And that’s something we didn’t have five to seven years ago.”

Vago, who also is an advisor to the CSUN program, noted that merger mania, which is creating ever more global behemoths, also presents challenges to even good-sized family firms.

DeVisscher said that even though family business accounts for an estimated 40% of the nation’s gross domestic product, “family business” doesn’t have much in the way of lobbying power. There are lobbyists for small business and different industry groups, but nothing really that represents the gamut of family business from the Fords to the just plain folks, he said. That’s in part because family firms tend to be individualistic, playing their cards close to the vest and not necessarily seeing themselves as part of the larger market segment.

Now, he said, more family businesses are “getting out of the closet,” and seeking resources not only from professional family-business counselors, but also through the scores of peer group programs being set up around the nation.

To assess the nature of family business locally, CSUN’s program is sending surveys to 7,500 firms in the San Fernando, Santa Clarita and Antelope valleys, as well as Ventura County and Pasadena. It will ask about things like management structure, composition of the board of directors and turnover.

The plan is to compare the Valley area with the 1997 Arthur Andersen/MassMutual American Family Business Survey, which polled 3,000 firms nationwide.

Each of the experts noted that across the nation, family businesses are experiencing a tidal wave of turnover, as top management at firms founded in the ‘40s and ‘50s nears retirement age.

Here again, Vago noted, technology can present a challenge for some older business owners.

“They’re either technologically phobic or they simply don’t understand the strategic implications of technology,” said Vago, who has been helping family businesses for 20 years. “When you have the younger generation coming up through the ranks and they’re aware of the implications of not keeping pace, there can be enormous frustration in trying to do what’s right for the business.

Joseph Astrachan, editor of the quarterly magazine Family Business Review, doesn’t see today’s technology as having an overly dramatic impact on family business. While acknowledging that it may lure away some of the best and brightest, he said there’s a good chance that they will someday return to the family-business nest “because you’re going to inherit something from that business.”

“The age-old stuff--parents fighting with their kids, siblings fighting--is so strong, the new stuff pales in comparison,” he said.

None of the cyber voyagers we talked with expressed any interest in returning to the family welding supply shops, car dealerships, or real estate firms.

They’re holding firm to their start-up stocks, and bracing for a breakneck ride.

“The Internet has changed everything,” said Vago. “And we ain’t going back.”