How to Keep a Business in the Family: “No One Owns the Tree”

Last week’s post described how a family business like Blum’s Café can become like another member of the family. When a family is attached to their business, it’s a strong psychological and emotional pull. The founder’s dream is usually to pass the business down from generation to generation. But to keep a business within the family, you have to cultivate the family to run it. It doesn’t happen automatically.

Consider the example of Hobby Lobby founder David Green. Here’s what I learned in a conversation with Mr. Green in 2019.

  • To pursue his idea of making picture frames in his garage in 1970, Green borrowed $600 from an Oklahoma bank. After one year, he repaid the loan and tried to borrow $1,000, but the bank refused.
  • In 1972, he opened his first Hobby Lobby, a 300 square feet store. Green opened his second store in 1975. He continued to grow, one store at a time.
  • By 2019, there were 900 stores carrying 100,000 items with 40,000 employees and sales of $5.5 billion.
  • Green began involving his children and grandchildren in the business early on, along with their spouses. “We treat in-laws the same as family.” The family gathers in person for team building exercises each month to build trusting relationships and open communication.
  • Green funded 100% of the voting stock into the Green Stewardship Trust, a dynasty trust Green compares to a “ministry.” Heirs are taught that they are stewards of the business, not owners.
  • He describes the Hobby Lobby business as a tree. “No one owns the tree.” Each family member has the opportunity to work in the business and enjoy the fruits of their labors. Per Green, this arrangement “avoids the friction that ownership causes.”

If the goal is to pass the business to further generations, it’s critical to prepare them for it. In “Plan a Smooth Succession for Your Family Business,” (Harvard Business Review, Sept. 13, 2022), Amy Castoro and Fred Krawchuk emphasize that G-1 needs to engage G-2 in the business at a young age. Teach heirs the history of the company, both the ups and the downs. Younger heirs need to shadow family business leaders. The goal is to develop trust, so each believes the other is “sincere, reliable, caring, and competent.” G-1 and G-2 need to agree on written criteria to show when G-2 is ready to take over. As G-1 ages, he must resist the temptation to tighten his controls over the business and instead honor the standards for readiness that were co-established.

I often describe the mentoring process as having G-2 “ride around in the truck” with G-1. One of my clients did precisely that with his son-in-law for several years, so G-2 was ready when G-1 died unexpectedly. Because the son-in-law was trained, the business continued without interruption, avoiding potential disaster. As Mike Benedict of BOK Financial says, “Few things are more frightening than losing the captain of the ship without guidance on what to do in such an event.”

For additional guidance on “Keeping It in the Family,” click on this link for my tips on timing, training a successor, management transition, a cash flow for all owners, and an exit strategy for all owners.

Remember, engaging in planning to pass a business to heirs isn’t only for mega-sized businesses like Hobby Lobby. In “Saving the Family Business in a Beach Town Where Money Talks” (New York Times, Aug. 12, 2022), Alyson Krueger highlights three mom-and-pop shops. In each, the children speak with pride of carrying on a family business. The stories of Daunt’s Albatross Motel, Montauk T-shirts, and Gig Shack on New York’s Long Island are heartwarming.

In each case, the kids grew up embracing the business as if it were another family member. Even though they could close the business and sell the real estate for a fortune, “it was more important to all of us to continue the family tradition” and keep the business alive. That’s how it feels when you love your business like it’s family.

Marvin E. Blum

Marvin Blum learned from Hobby Lobby founder David Green that a family business is a tree that no one owns. Heirs are stewards of the business, living off the fruit but protecting the tree for future generations.