Working with Advisors Part One: Outgrowing the Family Intellectual Capital

As a family business grows, it may go beyond the initial vision of its founder and find itself competing in a bigger league than anyone had imagined when the company began. Perhaps no one in the family can develop far enough, fast enough without an infusion of fresh blood from outside the family. Current family owners may make mistakes because of their lack of experience and know-how. 

A business-owning family is not likely to notice that it has outgrown its abilities (or intellectual capital) unless it is in the habit of comparing itself to its most successful competitors, or unless the leaders belong to trade associations or peer groups (such as the Young Presidents Organization).  Or, perhaps, its board members will tell the family owners that the company needs to train employees or hire new ones with skills the company currently lacks. Sometimes the company would benefit from an objective, outside perspective that an advisor can offer, concerning internal or external challenges that the family may not know how to resolve.

Advisors with insufficient experience

Good business advisors will let a family know when it has outgrown its intellectual capital—assuming the family hasn’t outgrown its advisors as well. We often hear business families speak of their advisors: “He’s always been our money guy,” “George has been our lawyer since day one,” or “Leon does my taxes and keeps me out of jail.” But the $100 million company may now need advisors who can keep pace with the growing complexity of the business’s needs. Some long-term family advisors probably won’t tell you they’re not smart enough to play in today’s and tomorrow’s market. Sophisticated advisors will.

As a business grows, its advisors need to grow with it. If your advisors have grown up with your family business and you are facing succession for the first time, are your advisors up to the task of facing it with you? Does it make sense for you all to learn it together? Or should you bring in someone, even temporarily, with the background and experience to advise you; someone who has gone through the learning process with other clients and has wisdom to share.  It is unrealistic to expect a banker who has never helped a company through succession to do good job for your company. Do you want to be the first?

One of our clients started with a kitchen cabinet of advisors: a family lawyer, a family banker, and a CPA became the business lawyer, banker, and financial advisors. As the business got bigger and competitors cropped up from China, the company had to function on a bigger scale. After the founder became ill and died, the family needed to shift the business drastically. The family lawyer was the first to say that he was out of his depth but had a colleague who could do the job the company now required. That served as a role model for the business’s other advisors to opt out and to help the family find people who could fill the now bigger shoes. This was unusual, because most advisors don’t opt out. When advisors can’t handle all of a growing company’s needs, it doesn’t mean they are bad people or that the business can’t use them as advisors for some things. We liken such an advisor to a family doctor who is fine—until you need a heart surgeon.

There is a great benefit in founders and business leaders being involved in peer-to-peer leader groups such as Young Presidents’ Organization (YPO). In this venue, participants get to sit around the table with leaders in other industries and share their concerns: “My tax advisor missed the ball last year and I had to write a big check. Have you done this? Have you been through it?” This is an excellent, non-defensive way business leaders can learn from their peers.